Crowdfunding 101

Crowdfunding is a new method of raising funds for a project, and it’s gaining huge momentum worldwide.  Crowdfunding operates by many people (the crowd) tipping in small amounts of money to support a project.

Equity crowdfunding is a branch of crowdfunding which is set to kick off in New Zealand next year. Equity crowdfunding promises to improve access to finance for growing businesses, and to provide everyday investors with the chance to back some of New Zealand’s most exciting businesses.

Crowdfunding can be split into 3 types - social crowdfunding, debt crowdfunding, and equity crowdfunding.

1.  Social crowdfunding, such as platforms like Kickstarter and Pledge Me, raises funds for a wide range of projects, where financial supporters receive rewards or simply make donations.
2.  Debt crowdfunding (also known as “peer to peer lending”) raises funds for a business or individual, where investors (who loan their money) receive interest on their loans.
3.  Equity crowdfunding raises funds for a business, where investors receive shares in that business.

Equity crowdfunding and debt crowdfunding have been restricted in many countries due to heavy regulation of the financial sector. But a law change in April 2014 is designed to promote these forms of crowdfunding in New Zealand.

Snowball Effect aims to be New Zealand's leading equity crowdfunding platform, and we’ve been working closely with the Icehouse and a number of other partners over the last 12 months to validate the market and refine our launch model. Snowball Effect's vision is "a New Zealand economy fuelled by emerging businesses, backed by everyday Kiwi investors".

Licensed equity crowdfunding platforms will enable everyday investors to buy shares (i.e. equity) in early stage businesses through a web portal. Investments in early stage and growth companies such as these have generally been restricted to "high net worth" and "institutional" investors. But the new legislation will allow everyday investors to back a Kiwi business.

Companies, both established and start-ups, have told us they have a clear pain point in the funding process today – across the board, companies are saying it takes too long, is too complicated and is too resource-intensive.

Investors, both Angel and non-Angel, have told us they LOVE investing in NZ companies. For most kiwi investors, the opportunities to do so are few and far between. Equity crowdfunding will change the game. Not only will it be easy to access investment opportunities, but the investment information will be presented in a structured and standardised format, making it simple to read and understand.

Snowball Effect is all about improving the funding process in New Zealand for companies, and opening up exciting investment opportunities for investors. We invite you to join our mailing list through our website (snowballeffect.co.nz). We’ll keep you up to date with the latest news in the crowdfunding space.