Investors flocked to help a Dunedin craft chocolate company which wants to establish a local industry in lieu of Cadbury Confectionery, which soon departs the city.
Cadbury World will remain, but the hundreds of people who worked in the Dunedin factory making chocolate are losing their jobs.
More than 3500 people pledged to buy shares in the Otago Chocolate Company (Ocho), collectively investing the $2 million needed within 48 hours — the maximum that can be raised via crowdfunding in a year.
Funds raised will go towards setting up a new chocolate factory on Dunedin’s waterfront, buying equipment from Italy, and expanding production.
The business will manufacture premium craft chocolate for the local market, along with exporting product into Asia with an initial focus on China and Japan.
Some of the money would be used to buy the company, but the majority would be spent on the expansion and upgrading of the manufacturing equipment.
The new factory would be located in the Steamer Basin.
Once it was up and running, Ocho would be about 10 times the size it was now.
Marks&Worth partner Sally Peart said crowdfunding organisations, known officially as Peer-to-Peer Lending Providers, were regulated by the Financial Markets Authority.
Equity crowdfunding was where companies raised money from the public by issuing shares — such as the recent Ocho issue.
There were currently eight licensed Peer-to-Peer Lending Providers, the best known of which were ChangeFund, Harmoney, PledgeMe, Squirrel Money and LendMe.
"If you want to set up a Peer-to-Peer Lending Service so you can act as an intermediary between borrowers and lenders, you must apply for a Peer-to-Peer Lending Service licence."
However, there were certain minimum standards providers had to meet, she said.
The key standards in the Financial Markets Act (s396) included directors and senior managers must be fit and proper for their positions, the business must be capable of performing the service effectively and in keeping with the licence conditions, the FMA must have no reason to think the provider was likely to contravene its licensee obligations.
Ms Peart said it was not a crowdfunding service under the Act if the service was only used for charitable or philanthropic fundraising, and donors did not receive shares.
Companies could only raise up to $2 million in any 12-month period without having to issue a Product Disclosure Statement and must undertake the issue through a licensed crowdfunding service, such as one of the ones named earlier. By using a licensed service, companies could rely on an exemption to the Financial Markets Act, meaning they did not need a Product Disclosure Statement.
FMA data showed nearly $260 million was loaned to individuals and $29.5 million loaned to businesses through P2P lending in the year to June 30.
A total of $74.2 million was raised from investors through crowdfunding, including wholesale investors in the same period. FMA director of market capitals Garth Stanish said the flexible regime created by Parliament through the Financial Markets Conduct Act meant P2P and crowdfunding could be licensed and introduced in New Zealand quickly.
"The FMA is committed to facilitating and encouraging innovation, provided the risks to investors are mitigated. We are also keen to publish data to enable companies and investors to understand the trends in different markets," he said.
Ms Peart said P2P investors had no expectation of getting their money back. Often, as was the case in the Ocho money raising, it was a chance to do something for the public good and P2P lending was an efficient way of raising the money.
The FMA was dealing with less sophisticated investors while allowing start-up companies to raise capital. Otherwise, those companies would be subject to the usual disclosure rules.
"If you lose a bit of money in the process, then it’s not a fortune."
Asked about the growing trend of people raising money through P2P lending and crowdfunding for personal and business, Ms Peart said it was a step on from people raising money in the community.
If someone saw a good cause, they previously gave their name to the fundraiser who then had to go and collect the money.
It was far easier to donate the money online. People provided their credit card and entered into an agreement to pay.
In the case of Ocho, it took two days for the money to be taken but it was still a legal commitment for people to pay, she said.
"This is a good way to get money in but having 2000 shareholders is not ideal for a business. They have to be careful about governance. It is recognition you can make a small donation to a company like Ocho knowing you are doing something for the global good."
Another scheme would eventually replace P2P because that was the nature of technology, Ms Peart said.
FMA data showed nearly 8000 investors had open investments at the end of the June year and 20,744 investors were registered with P2P lending intermediaries.
The average value of a new loan issued in the reporting period was $8771.
Of 16,977 outstanding loans across all risk categories, 1469 were in arrears and 833 loans, with a total value of $8.5 million, were written off in the period.
Mr Stanish said many companies wanting to raise funds would be start-up or early-stage businesses.
Of the eight licensed crowdfunding providers, five facilitated offers during the reporting period. There were a total of 50 offers and 34 of those successfully met their target. More than 260 potential issuers were declined.
Nearly 1600 investors invested in crowdfunding for the first time and overall, 2331 invested through the crowdfunding system in the year, he said.
