Fears for equity crowdfunding

John Hawkins says some companies will fail. Photo / Dean Purcell

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, run by Hong Kong-based Propellar, 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 whomever meets the criteria.

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 shakeout.

"It's inevitable some of these companies will fail and inevitable 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 some platforms won't conduct due diligence on companies wanting to raise funds in order to get the number of offers they need to stay viable.

Josh Daniell, co-founder of early entrant Snowball Effect, said 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," Daniell said.

Propellar New Zealand said there is no rush to bring its first offer to market and that's unlikely to happen until the end of this year or early next year.

"The market has already shown it is being discerning and not accepting everything being put in front of it," said Paul Hocking, one of its two directors.