First business to use equity crowdfunding in New Zealand enters voluntary administration

The first company to use New Zealand’s equity crowdfunding framework to raise capital in 2014 is looking for a buyer, with administrators reporting cash flow difficulties led to challenges at Renaissance Brewing.

The New Zealand Herald reports the brewery, which appointed administrators ShephardDunphy on October 9, is looking for new owners for what administrator Iain Shephard said is “a hell of an asset”.

The brewer raised $NZ700,000 in 2014 on the crowdfunding platform Snowball Effect, offering shareholders access to special beer pricing and limited edition ranges with the promise to execute a growth strategy through three-year strategic plan.

The business had aimed to raise $NZ600,000 but managed to raise $700,000 in a week-and-a-half through 300 investments.

Since 2014, New Zealand companies have been allowed to raise funds of up to $2 million in any 12-month period from the public via a licensed equity crowdfunding platform without having to issue a formal prospectus.

There are currently eight licensed crowdfunding platforms in New Zealand, including Snowball Effect and Equitise.

Speaking to the New Zealand Herald, administrator Iain Shephard said Renaissance us continuing to trade as normal while a buyer is sought, saying “the tide is still coming in” for the craft beer market.

However, he indicated cash flow concerns and the operation of too many product lines at once had caused concerns for the business.

SmartCompany has contacted the administrators for an update on the sale process this morning, but did not receive a response prior to publication.

A different kind of investing

Equity crowdfunding for public unlisted companies came into effect in Australia in September, while legislation has also entered Parliament to extend eligibility for the fundraising category to all proprietary companies in Australia.

The small business and startup communities have long been keen on this type of fundraising, and experts say it’s hard to say whether this type of capital raising is naturally more inherently risky than traditional fundraising. However,  companies and investors should understand it is a different format.

Senior lecturer at University of New South Wales Law School Marina Nehme says equity crowdfunding to date have tended to focus on the story and community built around a product, rather than just the financial statements of a business.

“People who are investing in equity crowdfunding are not your typical investors,” she says.

“It’s people talking about things and getting excited because there is a good business model or because of excitement about an idea.” 

The model provides a strong opportunity for early stage businesses to draw on enthusiasm from their communities, but entrepreneurs and investors alike should take note that crowdfunding investments are difficult to get out of once entered into.

An investor that contributes to an equity crowdfunding campaign most likely won’t be able to sell their stake in the company “except if the company finds a buyer”, Nehme says.

If a business faces challenging times, it is not easy for an investor to sell off their shareholding, she says.

“It is not something that is going to make them wealthy in one day, and they are stuck in the business from day one,” Nehme says.

Nehme says communication with investors is not as heavily mandated through crowdfunding as it is with companies listing on a stock exchange, meaning information “about what has or will happen in a company and communication with investors is limited”, she says.

Overall, however, the most important thing for investors and businesses to keep in mind when equity crowdfunding amps up is whether the business model is sound and whether the time is right to raise capital, she suggests.

“It depends on the business itself and what it’s business plan is,” Nehme says.

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