Andrew Schwartz is a law professor from Colorado who’s travelled across the Pacific to research the evolution of equity crowdfunding in New Zealand, and take home some learnings to help progress equity crowdfunding back in the US. We’ve had some great conversations over the last six months.
Equity crowdfunding originated in my homeland, the United States, with the introduction of the JOBS Act in 2013. But, New Zealand quickly jumped out in front, launching its market two years ahead of the US (not to mention three years ahead of Australia). For this reason, I took a leave from my ‘day job’ as a law professor at the University of Colorado and spent six months at the University of Auckland as a Fulbright Scholar so that I could study your mature equity crowdfunding market. One issue I have analysed is the extent to which equity crowdfunding is used by social enterprises – meaning those who seek to achieve non-financial goals as well as an economic return.
A few years ago, I published an article in which I claimed that crowdfunding investors are at least partially motivated by non-financial factors, including political expression, environmental protection and community-building. For instance, supporters of organic farming could invest in an organic farm, or local residents could invest in a café whose presence would enhance their community. Whether these investments pay off financially is not necessarily essential; the point of the investment, at least in part, is to support a cause or a company that one believes in.
At that time, equity crowdfunding in the United States had not yet begun, so my article was purely theoretical. Once I came to New Zealand, however, I was able to test my hypothesis and examine whether this actually happens in practice. If pledgers really care about things other than financial returns, I would expect that a large percentage of successful crowdfunding campaigns are for social enterprises. And this is exactly what I have found.
Based on the data I collected, it appears that social enterprises have taken advantage of the new opportunity presented by equity crowdfunding, and that crowdfunding investors have an affinity for these sorts of businesses. According to my data, approximately one-third of New Zealand equity crowdfunding campaigns, and one-third of successful campaigns, pertain to social enterprises. One example is Ooooby, a technology company whose mission is to put small-scale sustainable farming at the heart of our food system, which raised nearly $300,000 from over 150 investors through their equity campaign. And this one-third does not even include ‘local’ companies without a specific social mission, including ParrotDog Brewery, a craft brewer that can fairly be described as a ‘hometown hero’ in Wellington, which raised $2 million from more than 800 investors in their equity campaign.
These are extraordinary findings, and they were confirmed by interviews I conducted with entrepreneurs, platform operators, lawyers, academics, government officials and others involved in equity crowdfunding. Numerous interviewees agreed that crowdfunding investors have multiple motivations when they invest in a company—and the desire to generate a financial return is just one of them. They agreed that equity crowdfunding investors select whom to support based on social views, emotional motivations, altruism, and to support their community, as well as to hopefully make some money.
In short, the facts on the ground here in New Zealand are consistent with my hypothesis that crowdfunding investors really do have a variety of reasons for participating in this new form of equity market. An important takeaway from these findings is that those who seek to support social and local enterprises should encourage participation in equity crowdfunding.
Have you thought about what motivates you?