Why I invest

We’re a curious bunch here at PledgeMe. Although less flickering-bulb-in-your-face-as-we-interrogate curious, and more so-what’s-your-story curious. We get to hear the reasons behind the ideas when we chat with campaigners and it’s so good seeing someone light up with passion when they lay their story out for us.

But it’s only recently that I’ve begun stopping and asking the other people that matter – the crowd – about their stories, about their motivation to support kiwi ingenuity. And the responses are so wide-ranging.

There’s a whole spectrum of reasons – profit-seeking, prestige, emotional fulfilment, social belonging – some quite visible and logical, some less so but just as powerful.

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Many ways to shear a sheep

Fair to say, there’s many ways to shear a sheep. And there’s many reasons for doing so. For wool. For competition. For the moment. For the story. For kicks. For the sheep’s productivity and wellbeing. For the farm. For the shear enjoyment! Every shearer has their own why. Likewise for every investor.

Crowdsourcing the Why

I want to get your insight. I want to hear from our crowd. What thoughts and feelings swim through you before you invest? Regardless of whether you’ve just tried it once or you’re a serial campaign backer, I’d love to hear your one-line reason: Why I invest.

Why I invest?

Sure why don’t I set the wheels in motion. For me, money is only as valuable as the things it enables me and others to do.

I invest to empower companies who are making a real & positive impact on people’s lives and are doing it their own way.

Take a minute and tell us your “why” here.

Being a Crowdfunding Investor

Simon Papa, down-to-earth lawyer with a penchant for crowdfunding, shares his thoughts on what you should expect and do as a crowdfunding investor in a NZ company.

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Crowdfunding is an exciting development but what does it mean to be an investor? When it comes to equity crowdfunding it means that you own a part of the company – you own shares.  You ultimately benefit if the company is successful, but you also risk losing your whole investment if it isn’t.  I’ve briefly considered below some of the things you can expect and can do once you’re an investor.

Communication

You can hopefully expect good communication from the company.  While at law the company has limited obligations to proactively communicate with you (and very few if you hold non-voting shares), there’s an expectation that crowdfunded companies will regularly update you on their progress.  If you have voting shares then you can expect an annual report before the annual general meeting (AGM).  Also, as a shareholder and regardless of the rights attached to your shares, you have the right to request information from the company, but they aren’t obliged to provide that information (and might impose an administration fee), particularly where it is commercially sensitive.  You do have a separate right to inspect and ask for copies of certain company records, including shareholder resolutions and financial statements.

The AGM

The company must hold an AGM (and invite you!).  It’s an opportunity to find out more about the company’s progress and future plans and to ask questions of the directors (the company might make it possible to attend using technology). Tea and biscuits (or something better) might be laid out for you.  Or they might not, so check beforehand if refreshments are your main reason for turning up! An AGM must be held within six months of the company’s financial year balance date so, if that’s 31 March (which it usually is), then you can expect an AGM to be held no later than the end of September.

Rewards

The company might have offered shareholder discounts as an incentive to invest.  So use them if they’re of value to you.  But if you’re getting more than minor discounts check to make sure that the company has made arrangements to deal with tax arising – some companies pay your share of tax for you.

Selling your shares

You can sell your shares, though the law places restrictions on sales in some situations.  There is currently no stock exchange for trading crowdfunded shares so finding a buyer might be difficult.  If you do want to sell you could contact the company to see if they know of potential buyers (though because of restrictions at law the company may have limited ability to assist).  However you may not be looking to sell.  Many investors invest with other goals in mind.  You might have invested because you believe in what the company is doing (and are less concerned about an economic return).  You may have invested to enjoy shareholder discounts, to earn dividends, or to benefit from a future sale of the company or its business (though this is by no means guaranteed).  Or you may have a  mixture of those goals.  Dividends are probably unlikely for long periods where the company is growing fast, since the focus is on reinvesting profits to support sustained growth and hopefully significant value add.

Enjoy the ride!

Enjoy the ride and remember that this post is a very broad (and incomplete) summary only and is not legal or financial advice.  The Financial Markets Authority provides useful information for investors.  The law is complex and investing is risky so make sure you seek appropriate professional advice before acting.

 

(A beautiful lawyer’s flourish at the end there, Simon!)

Simon is the director of Cygnus Law Limited. He’s passionate about providing sound, understandable and relevant legal advice that helps to add value.

 

Ethical Lending

Our friend, Raf Manji, Christchurch City Councillor and progressive banker, shares his thoughts on how the financial system is broken and how crowdlending can help to create a more supportive and sustainable marketplace between borrowers and lenders.

Raf Manji, progressive banker

 

One of the great opportunities for crowdlending or peer to peer (P2P) lending is that it can create a form of agency that does not currently exist in the lending marketplace. P2P is generally an unsecured form of lending, between individuals, where the amounts lent are usually small scale and distributed over a number of borrowers, in order to spread risk. As it becomes more sophisticated, lenders are starting to focus more on credit ratings and scores and use data to discern whom best to lend to. This is starting to drive a shift in interest rates and how those are calculated, with lower rates for better risks.

But what if lower rates actually lessened the risk of non-payment and default? I have just finished reading a very familiar story, where a borrower took on a short-term loan for an unexpected family need, and ends up being bankrupted. What kind of financial system promotes that? Well, sadly ours does. The need for short-term loans, outside a traditional borrowing format, such as a mortgage, can often be the straw that breaks the back of highly indebted borrowers. However, this straw is not the loan itself but the outrageously high interest rate that is attached. I would argue it is the unreasonably high interest rates (by that I mean anything over 20%) that cause default, not the actual loan itself. In other words, the default outcome is baked into the deal from the beginning.

We hear stories all the time of how a small loan balloons into an unpayable debt, and bankruptcy arrives soon after. Why would any rational lender promote this approach? Well, the interest rates are so high that they actually do get the principal back and a reasonable rate of interest, prior to the loan going bad. One might ask, why don’t they just charge a manageable and reasonable rate of interest in the first place, and not cause such personal misery to those least able to afford the loan?For me this comes down to the ethics of finance. Those who have easy access to capital, benefit both from lower rates and higher returns. The current financial system is heavily weighted against those who are not engaged in the tax-free housing Ponzi scheme and who rely purely on basic wages to survive. The low-grade “instant finance” lending system that services this end of the market is parasitic and unconcerned as to the outcomes they create. They argue they are providing capital to those who are unable to access traditional bank lending. That’s true and raises issues about our mainstream banking system. They would also argue that they price interest rates according to the poor credit of the borrowers. Of course their credit is poor! They live on wages and are often already in debt. The strain of that debt simply compounds away, with stagnant wages no match for the power of compound interest.

So far so bad, but what does P2P have to offer in this space? I would venture that it can offer a new form of ethical lending. This ethical lending is about the broader concept of helping people out, as you might do for a friend, not simply profiting from someone’s short-term cash squeeze. I would argue a lower interest rate would not only probably increase the likelihood of the loan being repaid but would be a fairer cost for the money provided. How interest rates of 20% plus (standard even for credit cards) can be charged, in an environment where, to all extents and purposes, the cost of money is negligible, is simply wrong. I propose that we look at creating an interest rate system where the rate falls each time a repayment is made. So where the initial rate may start off at a high level (I think 20% should be an absolute maximum), it reduces by a certain amount, for example, a half to one percent, after each payment, until it comes towards a reasonable level. How these numbers are crunched remains open.

The beauty of open, peer-focused and distributed systems like PledgeMe, is that they can experiment and iterate new ideas and findings, in order to reach an optimal outcome. For me, that outcome is where lenders make reasonable returns and borrowers pay reasonable and manageable costs for borrowing money. The current lending system is completely inequitable and broken and one of the jobs of PledgeMe has is to fix that and redraw the relationship between lender and borrower. No pressure!

Like a little piece of coal, we shine under pressure!