Venture fund targets the kickstarter generation

Venture Investment Fund chief Sarah Pierce says working with angel investors and the public would be an exciting option.

A government-backed venture investment fund is looking to partner with angel investment groups and the public in crowd funding deals for local start-ups.

While websites such as Kickstarter and PledgeMe - which allow companies to raise money online from a large group of people - have been operating in this country for some time, offering shares in a firm through these platforms is prohibited.

But rules that come into force on April 1 as part of the Financial Markets Conduct Act mean companies will be able to raise up to $2 million a year through equity crowd funding deals. There will be no investor caps, meaning individuals will be able to invest right up to the $2 million company limit, and crowd funding offers will not require an investment statement or prospectus.

Sarah Pierce, chief executive of the New Zealand Venture Investment Fund, said the change in legislation was an exciting development.

The fund could partner with angel groups, such as Auckland's Ice Angels, to identify and assess promising start-ups, make a decision to invest and then open the deal up to the public on an equity crowd-funding platform, Banga said.

Angel investors are high net worth individuals, usually with personal business and entrepreneurial experience, who often band together in groups to invest in early-stage businesses.

"When you've got existing angels, like Ice Angels or Sparkbox, vetting the deals with us working alongside, as we do now, and then opening up a platform where we raise additional capital [from the public] - that's really exciting," Banga said. "You might get $250,000 raised from the angels, $250,000 matching investment from us and another $250,000 from private investors, who would all come through a single investment vehicle."

Equity crowd funding websites are running overseas. London-based Seedrs raised 2 million ($4 million) to fund its growth using its own website last year.

A New Zealand-based equity crowd funding platform, Snowball Effect, is gearing up to launch after the April 1 law change.

Simeon Burnett, a director of Snowball Effect, said there had already been significant interest from companies wanting to raise capital, as well as potential investors.

"The level of support and interest that's out there has been really encouraging," Burnett said.

Investor Ray Thomson, the former chairman of the Angel Association of New Zealand, said crowd funding platforms had the potential to become an important part of angel investing. "Some models like Franceska's talking about, I think it's highly likely the angel groups will head down that track," Thomson said.

The Ice Angels' Ken Erskine said equity crowd funding could provide angel investors with a tool to help complete funding rounds that couldn't be fully subscribed from within their own network.

"It could be a valuable top-up mechanism," Erskine said.

Meanwhile, Banga said she hoped financial institutions - such as ACC, the Superannuation Fund, KiwiSaver and Maori settlement funds - would begin increasing the number of investments they make outside of listed equities and bonds.

"We've got to get those institutions fronting up," she said. "Moving from half a per cent to 2 to 5 per cent of their investment portfolios [invested in early stage companies] would be a game changer for New Zealand's capital markets."

Banga said growth companies still found it very difficult to raise investment rounds of more than $5 million - the kind of capital often required to launch into big markets such as the United States.

"We're still probably going only at about half steam in terms of the amount of capital that's available," she said.

The Venture Investment Fund, founded in 2002, has $200 million under management through its seed fund and venture capital fund.

It has invested in more than 146 companies including Moa beer, cloud accounting provider Xero, natural sweetener company BioVittoria and SLI Systems, which develops software for online retailers.

Crowd funding: how it works

• A large group of people invest money through an online platform to fund a company, organisation or creative project.
• Selling shares in a company through such platforms is prohibited at the moment but a law change on April 1 will make equity crowd funding possible.
• Companies will be able to raise up to $2 million a year through equity crowd funding.