Snowball Effect may be first equity crowd-funder to turn a profit after snaring 40% of market

Tuesday 22nd March 2016

Snowball Effect may become New Zealand’s first equity crowd-funder to turn a profit, saying it has grabbed about 40 percent of the market by offer numbers and smaller rivals are likely to be squeezed out.

Snowball and PledgeMe were the first two companies to be granted equity crowd funding licences under the Financial Markets Conduct Act in July 2014. Snowball head of platform Josh Daniell says the company he co-founded four years ago is on track to post a “small profit”. It reported a loss of $214,720 on revenue of $291,974 last year. PledgeMe forecast a small loss when it raised capital last year although the company has since said that was “an early number”.

Eight platforms have been granted licences under the country’s new securities law which added crowdfunding as a new source of capital for early-stage companies. Of those, five have reported annual losses in statements lodged with the Companies Office and the remaining three were late additions who have yet to report.

My Angel Investments closed yesterday, having failed to complete any successful offers and reporting a loss of $36,487 in the year to March 2015.

Snowball has raised about $13.5 million over 15 successful offers since gaining its licence two years ago, excluding private offers such as its current raise for Squirrel, which is open to wholesale investors and investors who are part of its network.

"At the moment we are very focused on developing our product offering and building a deep, loyal audience of investors," Daniell said. "We now have over 9,000 investors receiving our emails, including over 650 registered wholesale investors. The average investment size has increased over time."

Daniell expects some of his competitors will fail, saying New Zealand was simply too small to generate “enough activity in the small New Zealand market to justify many marketplaces."

Will Mahon-Heap, co-founder and New Zealand manager of rival Equitise, agrees.

"The industry is growing and reflecting much of what happened in the UK, and in the UK we saw the bigger players begin to dominate and then others followed and tried to occupy different verticals," Mahon-Heap said. "We don't see that as being a necessary part of the market, or the market being big enough to just specialise in those verticals." A vertical market is one in which a vendor targets companies or individuals with specialised needs.

Among the other three dominant platforms, Trans-Tasman crowdfunder Equitise has raised $3.7 million over seven offers, with two more open.

Mahon-Heap wouldn't comment on the company's balance sheet going into its second year, but said Equitise was the third biggest player by offer numbers in New Zealand. The local arm of Equitise posted a $34,305 loss in 2015 on revenue of $35,417, having held its licence at the time for just over three months.

PledgeMe – which had focused on philanthropic and artistic fundraising efforts prior to getting its equity crowd-funding licence - has hosted eight failed equity offers and raised $3.2 million over 12 successful ones. It posted a loss of $57,332 on revenue of $69,237 in 2015.

Chief executive Anna Guenther said the crowded market made existing platforms work harder as new competitors arrived on the scene and PledgeMe had protected its market share.

"I think it's going to be really hard for the new competitors coming through, it's going to be hard work for them to get awareness and get companies using them, “Guenther said. “There are already a few players, so it's going to be up to them to have a marked point of difference."

The platform has crowdfunded itself twice, most recently raising $365,820 last July. At the time, it forecast a 2016 loss of $71,071 on a fourfold jump in revenue to $420,420.

Guenther declined to comment on how the company was tracking against that forecast. She was confident there was still a lot of room for growth in New Zealand.

BusinessDesk.co.nz

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