Advertising your fundraising effort
Your business is thriving and you need substantial additional capital to fund the next stage of your growth. You have read up on the Financial Markets Conduct Act 2013 (“FMCA”) (available here) and would prefer to raise funds through one of the Schedule 1 exemptions from product disclosure statement requirements (discussed here). Being proactive, you have already approached your close business associates, relatives, and employees while also taking full advantage of your statutory small offers limit, but it is still not enough.
You decide that it is time to widen the pool of potential investors – you need to reach the deeper financial resources of Wholesale Investors (discussed here) by advertising your offer to them. But how do you that and what are some of the risks in advertising to Wholesale Investors?
Inserting a Disclaimer
To begin with, it is important to be open and honest with the people who come across your offer that your investment is only open to Wholesale Investors. Doing so will avoid potential misunderstandings and hopefully prevent a flood of enquiries from people that will not qualify for the Wholesale Investor exemption. We have seen offers include a disclaimer similar to the one below to highlight that the offer is only available to Wholesale Investors:
“DISCLAIMER: [These] offers are only open to investors who fall within the exclusions applicable to offers made to “wholesale investors” as set out in Schedule 1, clauses 3 (2)(a)-(c) and 3 (3)(a)-(b)(ii) of the Financial Markets Conducts Act 2013 (FMCA). You can obtain further information on FMCA requirements, and whether you come within the exclusions and their requirements at [our website]”
Promotional Conduct
Making it clear that your offer is only open to Wholesale Investors is just the first step. You also need to ensure that your promotional efforts are not misleading or deceptive (see S19 of the FMCA). The recent case of Du Val Capital Partners Limited v Financial Markets Authority [2022] NZHC 1529 offers some key takeaways in respect of the S19 fair dealing requirements:
- In assessing whether your offer may be misleading or deceptive, your target audience matters. In this regard, your choice of marketing channels is relevant: advertising your Wholesale Investor-restricted offer in social media and other online channels may be a factor in the Financial Markets Authority (“FMA”) determining that your offers were targeted at inexperienced investors.
- You cannot assume that because your offer is restricted to Wholesale Investors, your advertising audience will be more experienced and knowledgeable. Wholesale Investors are not all inherently more sophisticated than non-Wholesale Investors.
- If your promotional material is misleading, it cannot be saved by subsequently making more detailed materials available to investors.
Final Caution
The FMCA requires that an offeror know its target audience and engages with them openly and honestly. This includes ensuring that promotional materials are not misleading or deceptive. If you have any questions on fundraising, please feel free to reach out to us if you would like specific input on your context. We have helped many companies with their fundraising efforts and each situation is unique. You can contact Steven Moe stevenmoe@parryfield.com, Michael Belay michaelbelay@parryfield.com or Yang Su yangsu@parryfield.com at Parry Field Lawyers.
