*Background* - crowd investing (Fundable, Rock the Post, Early Shares, Seedrs, CrowdCube) has been popular in the US and Europe as alternative source of capital for early stage firms. NZ legislation enabled platforms to offer their services to bridge the gap between investors and firms as from 1st April (apparently dozen firms expressed interest to the Financial Market Authority). This post will look at the potential for Australian startup technopreneurs to take advantage of Snowball Effect<http://www.snowballeffect.co.nz/> .
<https://lh5.googleusercontent.com/-0gz02EF6YJI/U1tJdn6rDBI/AAAAAAAABng/7tGMnd7ckxw/s1600/snowballEffect-flowchart.png> <https://lh5.googleusercontent.com/-0gz02EF6YJI/U1tJdn6rDBI/AAAAAAAABng/7tGMnd7ckxw/s1600/snowballEffect-flowchart.png> *StageGate Process* - 1) 2 page outline of the business submitted online - the ideal profile is high growth and broad audience appeal (eg consumer-oriented goods/services) with a bias towards revenue positive operating companies though promising startups are not excluded (though obviously risker proposition) 2) If accepted, an offer document is prepared, typically financials + 10-15 pages covering background, firm product, market, use of funds etc. This is expected to take around 8 weeks but should be sufficient information for an investor to make an informed independent decision. Each applicant will need to estimate %equity and low-high range for funds sought (less commission). A dozen pages is actually compact when you consider the SEC can ask for a dozen documents alone for a private placement memo (PPM). A strong track record (even if brief) gives a chance for teams to demonstrate their execution ability. Legislation caps funds raised to no more than $2M (NZD) in any 12 month period though possible to go back for topups. 3) If due diligence is passed, then the prospect is paraded (optional multi-media video a nice extra) and there is a window of up to 60 days to reach the funding target. No marketing is done by platform (conflict of interest) so having a strong customer/supplier network or a fan base is a crucial determinant for success. 4) Post-deal (if successful) there are investor relations processes which are supplied as part of the process and it is possible to tap into the personal/professional networks of Kiwi investors, some of which may have strong overseas connections. 5) Whilst the platform has yet to launch (within weeks), already there are 120+ NZ companies (predominantly SMEs) expressing interest and likely that the deal pipeline will be full whilst the best prospects are groomed and initial haircuts covered over. Despite the Cross-Taman Mutual Recognition Agreement, *Australian firms at the moment cannot directly apply *until legal position is clarified (and perhaps rulings sought). However, there are expansion potential which I will now list *Progression for Australia* 1) If the AU govt alters their legislation (currently the nearest equivalent is the basis behind ASSOB<https://assob.com.au/about.asp?page=1>) then the qualifying threshold could drop for professional investors (currently averaging mid-low 5 figures each) whereas Snowball Effect expects mid 4 figures or higher for individuals. Opening up the capital base by order of magnitude would allow crowd-investing platforms to either sublicense or partner with Australia capital raisers. However, the onus is still on the investor and the presumption is that this is a step towards public listing on ASX and not global ambitions. 2) Alternative, Australian startups can relocate to NZ (at least on paper) and undertake a reverse take-over of the Australian assets via a Kiwi nominee holding entity (as in case of Australian angel diversifying portfolio) ... however, this is problematic from point of view that it could trigger a capital event (with dire consequences and ensuing wrath from ATO) and may violate the spirit of the NZ legislation which as policy is intended to favor directing capital to domestic firms. 3) Failing these two test of time and talent, a third intermediate option is to set up a NZ autonomous/sister firm. I've previously pointed out the case of OpenCloud <http://www.opencloud.com/about/> which is an example of mini-MNC with R&D in Wellington, HQ in Cambridge, and sales offices around the Pacific. If a company fits certain criteria. - existing SME or even large firm license out non-core technology (but allowing a NZ spinout to take it and run) or enabling cloud services (eg they do the IaaS and enable the PaaS in NZ) - unlisted entity transferring specific assets as step towards global expansion raising funds from NZ first (and potentiially Australia later) bypassing the ASX expectations of ASSOB. Some Silicon Beach startups may fit this if too small for US (not everyone is Atlassian) but too big for Australia so seeking regional expansion. - run an R&D or business development unit, perhaps targetting a pilot/demo plant targetting specific resources such as geothermal, taking advantage of software patent-free legitimate reverse engineering or the fact that NZ is qualified under EU Data Protection Directive and is eligible to store personal data. - intention of an intermediate vehicle with trade sale/acquisition by a major overseas entity taking into account favorable position of NZ as currently zero capital gains tax (caveat ... seek your own international tax advice) *Summary*Crowd-investing is two steps up from crowd-funding platforms like Kickstarter which are oriented towards one-off projects. Apart from more sophisticated investors, the clear intention is that this is a financial transaction with all the implications and obligations to minority shareholders. NZ may gain perhaps several years headstart over Australia, more if the ESOP regime in Australia is less favorable to medium risk, high return companies. However, in terms of sheer size (20+M cf 4M) Australia is a better target with 4 startup eco-systems compared with Auckland (home of IceHouse <http://www.theicehouse.co.nz>) and noted individuals elsewhere (hi Dave!). So if it is urgent to raise small bits of capital, and no friendly angel in locale, then a short stint in NZ may not be a hardship tour (especially if cloud service with severable IaaS/PaaS/SaaS). Otherwise, you can hold breath until the Australian govt get around to updating their opinion as was sought in the review last year. -- -- You received this message because you are subscribed to the Silicon Beach Australia mailing list. Vist http://siliconbeachaustralia.org for more Forum rules 1) No lurkers! It is expected that you introduce yourself. 2) No jobs postings. 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