Renaissance Brewing launches equity crowdfunding in NZ
In 2013, New Zealand established a legal framework which would make equity crowdfunding possible. This month, the country’s first equity crowdfunding campaign launched on Snowball Effect, and it exceeded the $600,000 goal to hit the $700,000 funding cap.
The campaign was created by Renaissance Brewing, a small craft brewer with aspirations to take a top-quality New Zealand product to the world. The response they’ve received proves two things: a) every Kiwi loves beer, and b) equity crowdfunding is here to stay.
[Tweet “.@RenaissanceBeer campaign proves that Kiwis love beer and equity crowdfunding is here to stay.”]
Snowball Effect is a platform that has been created to specifically target this new market, but it’s not the only company offering equity crowdfunding as a service. New Zealand-based crowdfunding platform PledgeMe has also been licensed to accept similar projects, but unlike PledgeMe, Snowball Effect focusses exclusively on equity projects.
“We help Kiwi companies to raise funds from the public, and then help those companies to harness the power of their crowds,” said Josh Daniell, Head of Platform and Investor Growth at Snowball Effect.
“Our vision is ‘a New Zealand economy, fuelled by emerging businesses, backed by everyday Kiwi investors.'”
Roger Kerrison, Development Manager of Renaissance Brewing, said that he chose to use Snowball Effect because he recognised the drive they had to make his project a reality as a necessary part of his campaign.
“They had a similar ethos to us in terms of the potential benefit to NZ businesses if the model could be made to work correctly,” Roger said.
Crowdfunding works by allowing many people (the crowd) to contribute relatively small amounts of money to support a business or project. Many people think it’s a new method of raising funds, but it was actually used many moons ago by Mozart and Beethoven to fund their concerts. The two composers would reward their supporters with exclusive access to their work and signed copies of their music.
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Back then, it would take years to effectively crowdfund a project, but now online campaigns have emerged and revolutionised the industry. In recent years, the practice of crowdfunding has grown rapidly around the world. Globally, crowdfunding platforms raised an estimated US$5 billion in 2013 and are expected to raise over US$9 billion in 2014.
[Tweet “#Crowdfunding platforms are expected to raise over US$9 billion in 2014”]
“Equity crowdfunding is one of the 3 main types of crowdfunding,” says Josh Daniell. “It is designed for growth businesses, and provides a web platform for them to raise funds by offering shares (equity) in the business.”
“The NZ government has recently enacted regulation to promote equity crowdfunding in NZ, as it’s recognised as a great way of helping to fund suitable small and medium sized businesses (SMEs). The new regulation lets Kiwi companies raise funds by offering shares to the New Zealand public in a cost-effective manner. These offers will be made via a licensed provider like Snowball Effect. Essentially, this is the only financially viable way for SMEs to raise funds by offering shares to the public.
[Tweet “A new regulation lets Kiwi companies raise funds by offering shares to the New Zealand public.”]
“Equity crowdfunding is also exciting for investors,” Josh added. “It enables everyday people to buy shares in companies that were previously inaccessible to the public.”
The way crowdfunded companies incentivise their backers is also changing as the industry evolves.
“Reward crowdfunding is generally used for very early stage businesses who are looking to figure out their product / market fit, fund production of their first product, or develop an audience for their business,” Josh said. “It has been used very successfully for some businesses, and we think that it will continue to hold a valuable place in assisting concept stage businesses to get off the ground.”
“Financial products (like shares) cannot be used as a reward because they trigger extensive obligations on behalf of the company, which is why the equity crowdfunding regulation was necessary to kickstart the equity crowdfunding market in NZ.”
“Many equity crowdfunding offers around the world include rewards, like products, alongside the shares that are offered to investors,” Josh noted.
Despite the novelty of this concept, Roger Kerrison said that he was fairly confident that the campaign would do well. He says that the quality of the offer was very high, and besides, who doesn’t want to own a piece of a brewery.
“The valuation was good, the rewards were good, the story is good, the beer is good, the strategy is good, the opportunity is good, the governance is good,” he told us. “A lot of work went on in the background to make sure we communicated this well.”
Doing your homework is the key to a successful campaign, says Josh.
“First of all, you’ll need to meet with Snowball Effect to discuss suitability for equity crowdfunding and our platform,” he explained. “We want to work with businesses that are drawn to this funding option for more than the cash – they are interested in harnessing the power of the crowd to accelerate their growth.”
Not all companies are suitable for an equity crowdfunding campaign, and this initial conversation with Snowball Effect will help to determine if your business will fit well with the platform.
“We’ve had close to 300 companies express interest in raising funds through Snowball Effect, and are actively working with 15 of them,” Josh said.
“Before a company is approved to offer shares to the public through Snowball Effect, we require offer materials, including a shareholder agreement, a video, and a marketing plan. We provide the templates and support in the preparation phase.”
Speaking from the point of view of a company that has gone through the process, Roger says that the most important thing for businesses to do is to manage their books accurately and honestly.
“I would say this to any small business anyway,” he said. “Start running your accounts and finances in a way that will make it easy for someone to buy a share of your company. I have seen this lots over the years where the founders have huge shareholder loans, or full current accounts. This does not make it easy to get new investment – whether crowdfunding, or traditional equity investment.
“If I was an investor I would also want to make sure that the cost of goods and expenses are actually being reported properly, this is so important when investing in a growth business, the gross margin is where the value tends to be.”
Although Renaissance Brewing’s campaign has finished with $700,000 raised and 287 new investors on board, you can continue to support them by looking out for their products in most chain and independent supermarkets and liquor stores.
“The other thing people could do is to share our beers with anyone who comes to NZ from overseas, you never know who knows who, and the right introduction can be worth its weight in gold,” Roger says.
“It surprises me how regularly this happens.”