Exploiting the crowd: The New Zealand response to equity crowd funding

The crowd funding exclusion in the Financial Markets Conduct Act 2013 allows issuers, often innovative start-up businesses, to raise up to $2,000,000 in a 12 month period from retail investors through an internet platform provided by a licensed intermediary service, without the need for the product disclosure statement and on-line disclosures usually required under Part 3 of the Act. In order to protect the interests of investors in a market with a high risk of negligible return, other protections need to be provided. International jurisdictions have imposed investor caps, but New Zealand has failed to do so. This essay argues that, particularly in light of shortcomings with other aspects of crowd funding investor protections, a mandatory investor cap of five per cent of the amount being raised should be imposed, to protect investors both from the high risks of venture capital investing and from their own inexperience in this new and rapidly developing market.