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msi - crowdfundingBy Michael Woodward, Mackay Bailey, Accountants, Christchurch.

In late February 2014, Commerce Minister Craig Foss announced that cabinet has approved amendments to the Financial Markets Conduct Act to allow crowdfunding and peer-to-peer lending. “New Zealand will lead the Asia Pacific region in the development of crowd-funding regulation” – Craig Foss.

As further evidence of the growth in crowdfunding as a valid project funding tool, Kickstarter (one of the biggest crowdfunding platforms) recently celebrated passing $USD 1,000,000,000 in pledges. These pledges have helped fund creative projects around the globe. Even more exciting is the fact more than half of the pledges have been received in the last 12 months.

The advantage of crowdfunding is funds can be raised without the need to prepare a costly prospectus or investment statement.

What is Crowdfunding?

Crowdfunding is a valid tool to raise funds to help turn a business idea or project into reality. As an example, last year I helped fund a Kickstarter project. The author of a blog I often read wanted to turn the blog into a published book but was unsure of what demand there would be and was unable to personally fund the writing and publishing process. Via Kickstarter, I invested in the project essentially purchasing an advanced copy of the book. Through these advanced sales I and 279 similar minded people helped fund the writing and publishing process.

Famously over $4.7M was raised within a month by the makers of Pebble Watch. Pebble Technology has the idea to design a watch that displayed messages from a smart phone. They managed to sell more than 35,000 watches without even finalising the prototype.

Is Crowdfunding for Me?

Crowdfunding is best suited to the development of new products and ideas. Crowdfunding is a great way to test your market and interact with potential customers prior to risking time and capital. Crowdfunding is similar to social media in that it helps create a bond with customers. Crowdfunding won’t help with your funding needs to expand your factory or open an additional sales branch. A key advantage of crowdfunding is that the funding does not come with a dilution of your ownership in the business.

Are you sitting on a great business idea that needs additional funding to help turn it into reality? Talk to your local MSI advisor today for help with your funding options.

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