New Zealand’s latest crowdfunding venture should benefit from the wide definition of ‘wholesale investor’ under the Financial Markets Conduct Act (FMC), according to founder, Bill Murphy.
Murphy said the FMC expanded the number of potential NZ wholesale investors – who are not subject to the stricter, and more expensive, retail disclosure regime – opening up a broader target audience for the AngelEquity investment platform that launched last week.
In a statement he said: “We’re not just talking about banks or institutions. Many high net-worth individuals, or people with sophisticated knowledge and experience of financial markets are now considered wholesale investors.”
Due to its wholesale-only approach, AngelEquity, which offers members access to early-stage business investments, does not require a Financial Markets Authority (FMA) crowdfunding licence, Murphy said.
“The FMA has confirmed that the way we’re going about it we don’t have to be licensed as we’re not dealing with members of the public,” he said.
However, AngelEquity members must provide certification (signed off by a chartered accountant or financial adviser) that they meet the FMC wholesale investor criteria.
“We also vet members to make sure they meet the definition,” Murphy said.
The FMC provides several avenues for individuals to fall under the wholesale investor rules, mostly based on dollar amounts such as per-investment size (minimum $750,000), funds under management (at least $1 million in aggregate across a portfolio of “specified” financial assets for the last two years), or going ‘large’ – having at least $5 million in assets over the previous two-year period).
Furthermore, the law allows individuals to self-certify as ‘eligible’ wholesale investors based on “previous experience”, the FMC Act says, provided “an authorised financial adviser, a qualified statutory accountant, or a lawyer signs a written confirmation of the certification”.
Murphy said the AngelEquity platform would only suit those who have a clear understanding of, and a stomach for, the potential for loss involved in start-up investments, which are by definition high-risk ventures.
He said the experience of angel investing both in NZ and overseas shows that a high proportion of projects were likely to fail. Murphy heads the Enterprise Angels network in NZ, which formed the basis of AngelEquity.
“The reality is that – even with careful selection by expert investors and thorough due diligence – will probably lose all or most of the money in half the businesses we invest in,” he said.
Murphy said the 700 or so Enterprise Angels membership would provide the first filter for AngelEquity projects with prospective investments requiring approval from at least 25 per cent of the ‘angels’. Following initial approval, a panel of appropriate experts would also carry out due diligence on potential AngelEquity investments before offering it to the wider platform.
“In any deal it’s important that valuations are well-tested before we invest,” he said. “Then we also appoint an angel to the board of companies we invest in to help manage them.”
AngelEquity levies a 6 per cent fee on total funds raised, which is split between those who originated the deal and the platform itself.
The business launched last week with three offers: “sub-zero” hair treatment firm, Roholm; Quantec, which has developed a range of milk protein products; and, EA Fund 2 – a diversified portfolio of “15 early stage companies”.
Murphy said AngelEquity hoped to quickly grow the number of investors in start-up NZ companies.
“Every angel could probably introduce at least 20 other wholesale investors,” he said. “And there are many others who would qualify and are interested in the angel-investing space.”