Overcrowding in NZ's crowdfunding market

  • 09/09/2015

By Fiona Rotherham

New Zealand's nascent equity crowdfunding market may be heading for a shakeout as an eighth platform, Property Mogul, seeks regulatory clearance to start operations.

The Financial Markets Authority recently approved a seventh equity crowdfunding platform which is being run by Hong Kong-based Propellar Corp, while the backers of Property Mogul, based solely on property crowdfunding, say they are in the throes of gaining regulatory approval.

There is no limit under the Financial Markets Conduct Act on the number of licences the FMA grants for equity crowdfunding service providers and it's obliged to issue a licence to whoever meets the criteria.

Garth Stanish, director of markets oversight, said funds invested in these platforms are required to be held in trust, and managed in accordance with client funds regulations.

The other most recently approved platforms - Liftoff and My Angel Investments - have struggled to get funding for their first offers and the NZ Shareholders Association is worried too many players will lead to a shake out.

"It's inevitable some of these companies will fail and inevitably people that have invested there haven't realised the fact these are higher risk types of investments," said association chairman John Hawkins.

He's concerned that if the market gets too competitive it will mean some platforms don't conduct sufficient due diligence on the companies wanting to raise funds in order to get the number of offers they need to stay viable.

Josh Daniell, co-founder of Snowball Effect, an early entrant when equity crowdfunding launched last year, says there's a risk the whole industry will get tainted by newcomers that fail to provide companies seeking funds and investors with good experiences.

"There's a growing market overall and for what equity crowdfunders cater for but that's in danger of being drowned out in the New Zealand market by there being too many platforms," he said.