Could New Zealand’s Equity Crowdfunding Regulations Be the Model for the Developing World?

Without Equity Crowd-sourced Funding (ECF), investing in promising small companies is an option available only to a small group of professional investors such as venture capitalists. Providing small companies alternative ways to access capital has become especially important today, owing to the impact of the COVID-19 pandemic on small businesses. This article compares the ECF regulations of four common law countries, namely the United States, United Kingdom, Australia and New Zealand. It finds that New Zealand and the United Kingdom have had the highest ECF investment per capita, however the United Kingdom has had a significant number of failed crowdfunded companies. Neither the United States or Australia has had much success in attracting ECF investment per capita – although things may change in Australia. What is unique about the New Zealand system is that a strong and defined gatekeeping role is given to the crowdfunding platforms. This approach lowers compliance and supervisory costs for fundraising companies and regulators respectively. In turn, platforms who are successful in their gatekeeping role develop a reputation for bringing successful companies to the market, making their service more appealing to the ECF market. The approach in New Zealand exemplifies how countries with a modest venture capital market, a dearth even more significant in developing economies, can successfully develop ECF as an effective alternate source of capital for small companies.