What is an Offer?

An Offer is an invitation made to Investors through the AlphaCrowd website by a New Zealand company ("Issuer") to issue or sell shares in the Issuer in exchange for investment capital. The Offer must meet various legal requirements.

The Offer will specify what the shares cost, the minimum number of shares to be applied for and what percentage of the total share capital in the Issuer those shares represent. The minimum investment is $1,000 per Investor.

What Due Diligence do you do?

AlphaCrowd undertakes limited Preliminary Issuer Investigations in relation to each Offer composed of Compulsory Checks and a Subjective Assessment. Investors are not entitled to rely on our inquiries, other than the Compulsory Checks, in making an investment decision. While we cannot guarantee outcomes for our Investors we certainly will do our best to mitigate the risks as much as possible.

The Compulsory Checks are designed to reduce the risks of fraudulent activity by an Issuer by checking the background and prior history of the company officers and senior management of the Issuer. Ultimately however, responsibility for the Offer rests with the Issuer.

The Subjective Assessment is an opportunity for AlphaCrowd to form an opinion about the Offer and whether it should be presented to our Investors for their consideration. In making our decision, we may seek the input of one or more of our Industry Advisors if needed.

More information about the Preliminary Issuer Investigations is contained in the Disclosure Statement.

Who are your Industry Advisors and what is their role?

AlphaCrowd Industry Advisors are entrepreneurs, professionals and industry participants who are independent of AlphaCrowd and are willing to assist us in assessing a potential Offer as part of our internal process to ensure that the Offer is not frivolous. They do not act as experts, are not presenting an expert opinion and are not liable to AlphaCrowd, to Investors or to any other person or entity. We consider their input highly valuable.

Their biographical details may be found at Industry Advisors.

What risks are there?

The Financial Markets Conduct Act 2013 regulations require us to provide you with this Warning Statement. This may not be an extensive, complete or sufficient statement of the risks involved in investing in any particular Offer and you need to consider the specific risks associated with each Offer which are disclosed on that Offer’s home page.

What is diversification?

Diversification is a risk-management tool used by investors. It basically means not putting all your eggs in one basket. Diversification can reduce risk by spreading your total investment out across various asset classes, across various investments in those asset classes, across different industries or across geographical areas. Some investors believe that excessive diversification can lead to lower overall returns. We are not authorised to provide investors with investment advice however we do wish investors to consider what their overall investment strategy is.

A useful article for investors to read is Investment Strategy for Angels by Gust.

While a more detailed treatment is available in the book Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups by David S. Rose.

Who can invest?

Any person over the age of 18, company, partnership, trust or other entity can invest as long as it is legal for them to do so in their jurisdiction.

What are the fees?

Investors do not pay any fees to AlphaCrowd.

Investors are responsible for their own costs if they choose to make the investment through a bank transfer, credit card, payment processing provider, telegraphic transfer or similar.

AlphaCrowd is paid by the Issuer on the conclusion of a successful Offer based on a percentage of the total amount raised as detailed in the Disclosure Statement.

What identification do I need?

You will need to verify your identity for our Know Your Client purposes under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.

We can verify your New Zealand driver’s licence details or you can email us certified copies of your passport photo page plus an official document or letter showing your full name and address details.

How do I make my investment?

You make your investment application by electronically signing the Investor Agreement and any Shareholders Agreement (if applicable).

You will then need to deposit your investment amount into the AlphaCrowd Trust Account held by the independent trustee.

Once the Offer closes successfully, you will be notified by email and your shareholder details will be sent to you by the Issuer’s share registrar. Your investment details will appear in your Portfolio on our website.

How is my investment money handled?

Your investment money will be held a Cash Management Trust Account managed by Computershare pending the completion of the Offer. At closing, if the Offer is successful, settlement will take place and all the investors’ monies less fees and charges will be paid to the Issuer. If the Offer is not successful, your investment will be returned to you in full by direct deposit into your bank account.

Do I get a share certificate?

All Issuers making an Offer through the AlphaCrowd website are required by us to engage a professional share registrar. We have arranged for Computershare to act as the default share registrars for Issuers. The share registrar will keep the official record of your shareholding. A share certificate is not normally issued.

What rights do investors have?

Investors have rights as both as investors and as shareholders. The company directors and officers of the Issuer also have obligations under the laws of New Zealand. Shareholders may have additional rights and protections under the Company Constitution and Shareholders Agreement of the particular Issuer.

In almost all cases shareholders are entitled to:

  • The right to vote (unless they are non-voting shares);
  • The right to an equal share in dividends;
  • The right to an equal share in the distribution of the surplus assets of the company upon liquidation.

You should seek independent legal advice if you wish to learn more about shareholder rights, directors duties and company law.

What returns can I expect?

It is up to each individual Issuer to provide its financial guidance as part of the Offer process if they choose to do so. Some seed-stage companies may not to even be able to provide financial forecasts at all. More mature companies that already have revenues would be expected to provide their financial forecasts and an explanation of your potential returns as part of the Offer documentation.

To our knowledge there has not yet been any study done of the outcomes and financial returns associated with equity crowdfunding in New Zealand.

Perhaps the most relevant comparable study was Returns to Angel Investors in Groups conducted in 2007 by Wiltbank and Boeker. The angel investments reported in the study were in early-stage companies, generally in seed or start-up ventures and covered the activities of 539 angel groups over two decades.

The study found that:

  • 45% of the companies that received financing from angels had no revenues when they received the angel investment;
  • the average return on the angel investments in the study was 2.6 times the investment in 3.5 years or approximately 27% Internal Rate of Return (IRR);
  • the distribution of returns for this type of investment was quite varied and the "average return" did not describe the performance of most investments in the study.

The authors concluded:

As a group, the risk taken by these angels is rewarded with overall returns (2.6X in 3.5 years) that are fairly attractive. This research also indicates that angel investors may positively influence their rates of return by making wise decisions about due diligence, avoiding ventures in unfamiliar industries, follow-on investments, and productively participating in the ventures post-investment. [...] While angels's average multiples compare favorably with other equity investments, the range of outcomes demonstrates that angel investing is a risky undertaking. As with other forms of equity investment, relatively few ventures earn very large returns. In any particular venture, an angel investor is more likely to lose than to make money, and a significant portion of the angel investors in this sample experienced a return less than 1X. While clearly not for the faint of heart, this research suggests that angel investing can be done well in the pursuit of legitimate financial returns.

While this study is not directly applicable to equity crowdfunding in New Zealand today, there are some important points arising from it that New Zealand investors should consider.

What liquidity is there?

Investment in unlisted private companies should be considered to have no liquidity as there is no ready market for the shares and no convenient way to transact them. This means that you have to be prepared to hold your investment for the long term until a liquidity event occurs. Usually there is nothing to stop you from selling your shares on a willing seller-willing buyer basis however most angel investors or venture capital investors hope to make an exit within 5 to 7 years via an initial public offering (IPO) or a merger and acquisition transaction (M&A).

What if I have a complaint?

If you have a complaint or query about the services provided by AlphaCrowd, you should Contact Us first.

If you are not satisfied with our response, you may refer the complaint to Financial Services Complaints Limited, an approved dispute resolution scheme under the Financial Service Providers (Registration and Dispute Resolution) Act 2008. They can be contacted at: PO Box 5967, Wellington 6145 or complaints@fscl.org.nz or 0800 347 257.

If you have a complaint or query about a company that you have invested in, you should contact that company directly.