What is Copyright?

Copyright is the set of legal rights given to the creator/owner of an original work. It prevents other people from doing certain restricted acts in relation to a copyright work without the permission of the copyright owner. These restricted acts include (among others) the right to:

Copy the work;
Issue copies of the work to the public by sale or otherwise;
Perform, play or show the work in public;
Communicate the work to the public;
Adapt the work; and
Do any of the above in relation to any adaptation of the work.

There is no requirement to assert or register copyright in New Zealand. Copyright recognition in New Zealand arises automatically in various kinds of works if:

The work is original; and
The author is domiciled in New Zealand or in a prescribed foreign country or is a citizen or resident of New Zealand or of a prescribed foreign country

Who Owns Copyright?

The Crown is the first owner of any copyright in work made by a person employed or engaged by the Crown under a contract of service, a contract of apprenticeship, or a contract for services.
Subject to Crown ownership, and unless otherwise agreed, in most cases the author is the first owner of the copyright in a literary work.

However, unless otherwise agreed:

if an employee makes a literary or artistic work in the course of employment, the employer owns the copyright; and
if a person commissions and pays or agrees to pay for the taking of a photograph or the making of a computer program, painting, drawing, diagram, map, chart, plan, engraving, model, sculpture, film, or sound recording, and the work is made in pursuance of that commission, the commissioning person owns the copyright.

Attribution

The author of a literary, dramatic, musical, or artistic work that is a copyright work has the right to be identified as the author of the work whenever the work is published or communicated to the public (section 94). The right to be identified as the author is not infringed unless the author has asserted the right be identified as author (section 96).

Use of Third Party Content

Where a third party owns copyright in content, you will not be entitled to copy or adapt that content or a substantial part of it without the permission of the copyright owner or unless the copying or adaptation can be justified under an exception.

What is a Substantial Part?

What constitutes a substantial part of a copyright work is a question of ‘fact and degree’. The quality or importance of what has been taken is much more significant than the quantity. Copying a part of a copyright work that by itself has no originality will not normally be copying a substantial part of the copyright work.
Copyright protection is not focused on originality of ideas but on originality of expression. The importance of the copied part to the original copyright work as a whole is assessed to determine whether it forms a substantial part of the original copyright work.
Originality tends to lie in the detail with which the basic idea is presented. The greater the originality, the greater the protection that copyright law will afford it.

Objective Similarity

Even if another copyright work has been copied, the copyright won’t necessarily have been infringed unless the copy is objectively similar to the original. It is possible to take underlying ideas and concepts that are expressed in a copyright work and express those ideas in a significantly different way which therefore does not infringe copyright.

There is limited clear case law, though, on what counts as objective similarity. In one case, the Judge said ‘a copy is a copy if it looks like a copy’.

Causal Connection

It is also necessary to show that the infringing work was actually copied directly or indirectly from the original copyright work.

Altered Copying

Taking the ideas expressed in a copyright work and expressing those ideas in a different words and in a different format may produce new content that is not causally connected with or objectively similar to the original work.
However, copyright will still be infringed if the altered copy has ‘incorporated a substantial part of the independent skill, labour etc. contributed by the original author in creating the copyright work’.

Fair Use Exceptions

There are a number of fair dealing and other exceptions under New Zealand’s Copyright Act 1994.

Every situation is unique so please discuss your situation with a professional advisor who can provide tailored solutions to you.

Kris Morrison – krismorrison@parryfield.com

“The Lean Startup” by Eric Ries: Review and discussion of key points

Being involved as the founder of an IT start-up (Active Associate – a chat bot for law firms) this book was recommended to me as essential reading. The subtitle is: “How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses”.

It definitely provides a lot of good ideas as the main point is that you should constantly be evolving – don’t try and build the perfect product. Particularly with software that is important to remember because demands shift and change so quickly among consumers.

The author outlines more about that basic point as follows:

After more than ten years as an entrepreneur … I have learned from both my own successes and failures and those of many others that it’s the boring stuff that matters the most. Startup success is not a consequence of good genes or being in the right place at the right time. Startup success can be engineered by following the right process, which means it can be learned, which means it can be taught.

He summarises the five key principles regarding the Lean Startup idea as follows:

Entrepreneurs are everywhere. So the Lean Startup approach can work with any size of company or sector.
Entrepreneurship is management. Startups require new types of management given their context of uncertainty.
Validated learning. Startups exist to learn how to build a sustainable business. This learning can be tested and validated.
Build-Measure-Learn. Startups turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere.
Innovation accounting. Need to measure progress, set up milestones, and how to prioritize work.

There is quite a lot on this also at the website The Lean Startup

The main takeaway from the book is the need to continually innovate and evolve and not settle or try to have a “perfect” solution before you actually start rolling it out to your customers. In order to give a taste of the concepts that the author then goes on to outline here are some key quotes that I found were the most interesting and potentially the most applicable to many others:

The Lean Startup asks people to start measuring their productivity differently. Because startups often accidentally build something nobody wants, it doesn’t matter much if they do it on time and on budget. The goal of a startup is to figure out the right thing to build – the thing customers want and will pay for – as quickly as possible.
In the Lean Startup model, every product, every feature, every marketing campaign – everything a startup does – is understood to be an experiment designed to achieve validated learning.
This is one of the most important lessons of the scientific method: if you cannot fail, you cannot learn.
What differentiates the success stories from the failures is that the successful entrepreneurs had the foresight, the ability, and the tools to discover which parts of their plans were working brilliantly and which were misguided, and adapt their strategies accordingly.
A minimum viable product (MVP) helps entrepreneurs start the process of learning as quickly as possible. It is not necessarily the smallest product imaginable, though; it is simply the fastest ways to get through the Build-Measure-Learn feedback loop with the minimum amount of effort.
Contrary to traditional product development, which usually involves a long, thorough incubation period and strives for product perfection, the goal of the MPV is to begin the process of learning, not end it.
It’s often about gaining a competitive advantage by taking a risk with something new that competitors don’t have yet.
Only 5 percent of entrepreneurship is the big idea, the business model, the whiteboard strategizing and the splitting up of the spoils. The other 95 percent is the gritty work that is measured by innovation accounting: product prioritisation decisions, deciding which customers to target or listen to, and having the courage to subject a grand vision to constant testing and feedback.

As a lawyer I found the following quote quite interesting because it is definitely something we see among our clients with early stage ideas. They often are worried about someone stealing the idea and so ask about patents, copyright, trademarks etc. But often it is the best advice just to start doing something and learn as you go and be the front runner in the industry rather than trying to have everything sorted and perfect in advance.

Legal risks may be daunting, but you may be surprised to learn that the most common objection I have heard over the years to building an MVP is fear of competitors – especially large established companies- stealing a startups ideas. If only it were so easy to have a good idea stolen! Part of the special challenge of being a startup is the near impossibility of having your idea, company, or product be noticed by anyone, let alone a competitor.

I found the sections where he described the businesses that he had been involved with were the best parts (rather than describing what other people had done). For example, these were the four questions that he asked his team:

“Do consumers recognise that they have the problem you are trying to solve?
If there was a solution, would they buy it?
Would they buy it from us?
Can we build a solution for that problem?

The common tendency of product development is to skip straight to the fourth question and build a solution before confirming that customers have the problem.”

Overall this book was helpful for me to read through although the key concepts are outlined above and so it felt like it was a longer book than it needed to be. But that is just my own impression and others might enjoy the variety of stories that are told. On other parts of this site we are putting up reviews of books which entrepreneurs will want to have to hand when they go through the journey of starting up something new.

If there is a book you think we should review, or you would like to do a guest review, then just let me know at stevenmoe@parryfield.com!

Guest article by Tim Jones, founder of Grow Good

To B or not to B? Why wouldn’t you B a B Corp?

It is so hard to know where to start writing a post about why you should be a B Corp as there are SO many great reasons.

Before we get into that it might be best to let you know what B Corps are.

What is a B Corp?

B Corps or Benefit Corporations are globally leading businesses that are operating as a force for good in the world. Rather than fighting to be the best in the world, they collaborate to be the best FOR the world.

To become one your business must pass a rigorous certification process where you need to score more than 80 out of 200 points on the B Impact Assessment. Businesses are assessed and benchmarked on how transparent and accountable they are across the five key areas of Governance, Workers, Customers, Community and Environment.

Fundamentally it is all about measuring the positive impact your business has and ensuring all stakeholders get to benefit from the activity of the business.

Why would you want to consider being a B Corp?

In my opinion I struggle to see why you wouldn’t be a B Corp. I envision a world where being a B Corp is just how you run a business. To make it slightly easier to navigate here are the top three reasons why you should seek to certify.

1. It’s the right thing to do

Right now, in New Zealand alone we are facing numerous challenges. Climate change, inequality, high rates of youth suicide, people sleeping in cars, increasingly unaffordable housing.

These are traditionally areas that we have looked to Government to fix, but it’s more likely that real solutions will come from enterprise.

Every business can easily evaluate its impact on its workers, community, society and the environment and choose to have a positive impact. Choose to pay a living wage. Choose to use environmentally friendly products. Employ staff from disadvantaged backgrounds. Offer staff ownership in the business.

Ideally go even further and consider how your business could work to solve one or more of the 17 UN Sustainable Development Goals. Have a watch of this compelling video and a read of this presentation by Prof David Griggs on how that could look for you.

Doing good to others is great for you also. Living a life of purpose and contribution is way more fulfilling than just being in business for the money. You only get one shot and a limited number of spins around the sun on this green and blue dot in the middle of the universe. You might as well aim to leave a decent dent in it, right?

2. Lead a movement, don’t get left behind.

As a Brand Manager for a large multinational based in NZ I recently spoke to said:

“The purpose driven economy is not a trend. This is now table stakes”.

In New Zealand, there is an opportunity for you and your business to help lead the movement.

Unilever has identified a global market opportunity of $1 Trillion dollars for businesses that choose to care.

This is reflected in NZ where in the Colmar Brunton Better Futures report it is clearly identified that Kiwi’s want to support brands that care. They just can’t name any!

We need business leaders to step up and B the Change. Those that take that leadership will win out in the long run, whist other business will fall into irrelevance.

If you are a Kiwi business looking to export in the US, UK or Australia then there is a significant opportunity for you.

Just look at how Ethique has taken off in the US. Similarly, Eagle Protect (the first B Corp in NZ) has recently set up shop in the US also.

3. Build a Better Business

Just by taking the B Impact Assessment you will most likely identify areas for growth and development in your business. Businesses that pass the Impact Assessment can proudly state that their businesses are held to world leading standards of transparency and accountability.

Customers are caring more about the transparency and accountability of business. They want to know what good you are doing and that it has been verified and accredited by a third party.

The B Corp certification is not pay for play and it totally avoids any risk of greenwash.

Internally, 50% of your leadership team will likely be completely lacking meaning in their working life. 70% of your staff probably don’t want to be there. Having a sense of purpose and real mission is more likely to ignite your staff to greatness.

Millennials are driving this and they are making up an ever larger proportion of your workforce and consumer base.

Lastly there is a ton of evidence that shows that businesses that care and are truly purpose driven outperform their peers (see further reading below the article). This has been identified by such socialist, tree hugging groups as EY, Deloitte and PwC. This is also being reflected by the growing demand for more ethical investments.

There are plenty of reasons why you should look at certifying as B Corp, however the reason will be very individual for each business or business owner.

If you would like to discuss your specific business and how being a B Corp could help then please do contact with me at Grow Good. To learn more about B Corporations have a look at the B Lab site.

Tim Jones

Tim is the founder of Grow Good a Certified B Corp and is also a B Corp Ambassador for NZ

Further Reading

For more information on the many benefits of being purpose driven please see this list of links:

A model of the impact of mission statements on firm performance

5 Key Business Trends to Master in 2016 – Be like a “B Corp”

Prosocial Incentives Increase Employee Satisfaction and Team Performance

How Do Leaders Bring Purpose to Life in Organisations?

The pursuit of purpose: from aspiration to value creation Executive roundtables in Davos

THE BUSINESS CASE FOR PURPOSE EY and Harvard Business Review

Investor Tip: Look For Purpose-Driven Companies

Purpose-Driven Companies Are Driving The New Economy

Why Businesses That Are Purpose-Driven Come Out on Top

The Science Behind What Really Drives Performance (It’s Going to Surprise You)

Boycotts and the bottom line

Corporate Philanthropy and Productivity: Evidence from an Online Real Effort Experiment

How Great Companies Think Differently

Companies that Practice “Conscious Capitalism” Perform 10x Better

Why Companies Are Becoming B Corporations

Sustainability Pays Studies That Prove the Business Case for Sustainability

Vulnerability & Loyalty In The Purpose Driven Company: An Interview With Dov Baron

Why Purpose-Driven Companies Are Often More Successful

Every Purchase You Make Is A Chance To Vote With Your Wallet

Companies with a purpose beyond profit tend to make more money

Putting Purpose to Work: A study of purpose in the workplace

The Deloitte Millennial Survey 2016 – Millennials want business to shift its purpose

The Science Is In: Greater Equality Makes Societies Healthier

Business School’s Worst Idea: Why the “Maximize Shareholder Value” Theory Is Bogus

So, what makes a mission driven company?

Came across an interesting report from November 2016 published in the UK called: “In pursuit of impact: Mission-led businesses”. A copy can be accessed here.

One of the most interesting parts was how they actually decided what a mission led business was and their criteria for determining that. In the introduction they note: “This report sets out an approach for defining and identifying businesses that have no legal restrictions on their profit distribution but which have a genuine commitment to wider social and environmental impact. As an emerging business trend, it is too early to describe this as a clear ‘sector’ or ‘market’. It is better described as a movement or an approach to business where social impact is seen as a critical driver of value creation.”

Essentially they had a weighting system for different components of a business and it had the following parts. I think this is helpful to analyse in order to see how businesses we may be starting, or involved in, might weigh up.

Intent: 40%
Strength of strategic commitment to a social or environmental mission

Business Model: 25%
Centrality of mission in core business activity and profit distribution

Governance and operations: 20%
Integration of mission across governance, business operations and ways of working

External perception: 15%
Public recognition for business commitment to mission

A company can get a unique rating based on an assessment of objective criteria relating to each of these component parts. They actually provide an even more detailed background on each one of those four elements as well which shows the weighting for each:

Intent: Central Ambition is given 80% and long term commitment is given 20%.
Business Model: Core commercial activity is given 60% while Profit distribution is given 40%.
Governance and operations: Governance structure (20%), Mission integrated in operations and ways of working (40%), Impact related activities integrated with mission (30%) and Impact reporting (10%).
External perception: Press reports and awards is given 100%.

I found it interesting that in undertaking their research they specifically excluded charities and community interest companies and focussed solely on profit making company structures.

One of the interesting quotes I came across in the conclusion which I agree with was: “Businesses that did not have access to quality advice often chose their legal structure randomly.” In all the report concludes that 4.3% of turnover in the UK private sector related to mission driven businesses (that’s 165 billion pounds).

Not unlike B Corp status, this way of thinking is new and challenging when it comes to how we actually define what a company is. It is one thing to claim to be about a purpose or to be advancing social good but what are the metrics that are satisfied to objectively show that? What might the impact be of thinking in this way for social enterprises and people who want to do good with their new companies (or, for that matter, with existing ones). It is certainly worth thinking through when it comes to setting up a business and working out how it will operate.

Why is due diligence important?

Due diligence is an important aspect of buying or selling a property, both for the purchaser and the vendor. Decisions are made based on disclosures made in due diligence, therefore it’s important for both parties that the documents or information relied on are accurate and correct. Failing to undertake due diligence can have a potentially disastrous consequences, as a 2012 case shows.

In this particular case water rights were the issue. Altimarloch Joint Venture Limited contracted to buy 145.5 hectares of rural land, part of which they intended to plant in grapevines. Under the contract the water rights held by the vendors would be transferred to the purchaser. Those water rights were represented to allow 1,500m3 of water per day to be taken from a stream for irrigation purposes. The reality was that the property held resource consents to take only 750m3 a day from the stream.

The error came from a LIM Report issued by Marlborough District Council that was relied on by the vendor’s real estate agents when they were marketing the property for sale and also by vendor’s lawyers when preparing the agreement for sale and purchase. The vendors themselves were aware of the correct water-take figure but didn’t spot the error when signing the contract, relying as they were on their professional advisors.

If the vendor’s agent or lawyer had checked with the vendor themselves as to what consents they had or had obtained a copy of the resource consent from the District Council, which is easy enough to do, the error would have almost certainly been picked up.

Always check primary sources

The lesson learnt is not to rely on secondary sources, particularly when making specific contractual warranties about matters. Instead, do check the actual source documents that give the rights or govern the obligations.

In this instance the purchaser successfully claimed damages of $1,055,907.16 as a result of this misrepresentation, even though the difference in value of the land with the represented amount of water rights as opposed to the water rights it actually had was only $125,000.

The reason for this is that the court assessed the damages as the amount it would take the purchaser to put themselves in the position as if they did get what they contracted to purchase. The reason the damages were so high was because no further water rights were available from the stream; in order for the purchaser to obtain the increased water-take they had to construct a dam to store the sufficient water to take up the shortfall.

By using primary source documents mistakes like this can be avoided. Where agreements, easements or resource consents are referred to in other documents such as valuations, LIM Reports (as in this case) or property information packs compiled by real estate agents, it’s encumbent on both the purchaser and the vendor to check the source documents of the information.

In this case, because there was a specific contractual provision about the volume of water rights being transferred, the vendor (or in reality their professional advisors) were found liable to pay very significant damages when the correct information was readily available and could have been checked very easily.

Always thoroughly check documentation

The same applies to easements, leases, crops supply agreements or other sorts of resource consents. None of these documents should be viewed as ‘standard’ and the original documents should be read by a vendor to ensure that what they are representing is what is actually in the document. A purchaser must also check documentation to ensure that what they are contracting to buy is what can actually be acquired.

Used by permission, copyright of NZ Law Limited, 2017

Every situation is unique so please discuss your situation with a professional advisor who can provide tailored solutions to you. Please contact Paul Owens at Parry Field Lawyers paulowens@parryfield.com 03 348 8480

Recent trends relating to mission driven companies

Came across an interesting report about mission driven companies from November 2016 published in the UK called: “In pursuit of impact: Mission-led businesses”. A copy can be accessed here.

Some of the trends regarding mission driven companies that they identify include the following (from page 1):

“Increasing expectations for business to adopt a responsible role in wider society. For example, nine out of ten millennials believe that he success of a business should be measured by more than just its financial performance.
Employees becoming more optimistic about businesses that make a commitment external to themselves. One survey indicates that workers are twice as likely to be optimistic about businesses with a strong sense of purpose. These businesses are considered more likely to be resilient to future shocks and “able to stay ahead of industry disruptions; and
The digital economy creating greater transparency, ensuring trust in business becomes ever more important at a time when public trust in business is at an all-time low.”

There are some good points to keep in mind here when thinking about our current environment and what the future might hold for the social enterprise sector as it seems likely that these trends will grow.

I have been reading “The Mission Driven Venture” by Marc J. Lane. The sub title is: “Business solutions to the world’s most vexing social problems”. It provides an overview of many different topics relevant in the social enterprise sector including examples where new ways of doing things have been tried and been successful. From my perspective as a lawyer it is interesting because the author is an attorney in the United States so there is often mention of legal structures.

The preface contains an overview of what comes as the author argues that new business strategies are solving social problems in education, health care, poverty and the environment. He writes: “For-profit, social purpose businesses are defining success in terms of both financial and social returns. Nonprofits are becoming entrepreneurial, supplementing charitable donations and government grants with revenue earned by the businesses they own and run, instrumentalities of mission in their own right. Progressive nonprofits are partnering with each other, and even with for-profits, breaking down cultural barriers, leveraging their competencies, and gaining economies of scale. A growing number of passionate social entrepreneurs are deploying invested capital to test and develop business opportunities intended to drive positive social change.”

He goes on to give the following specific examples: “Newly validated business models and entity forms that invite collaboration are emerging, including the low-profit limited liability company (L3C), which, by law, laces mission above profits and faciliteates foundation funding of chariatable and educational businesses, and the benefit corporation, which requires its managers to make decisions not only to enrich its shareholders, but also for the good of society as a whole. Social impact bonds – futures contracts on social impact – provide long term funds for promising social interventions, transfer risk to privacy capital markets, and tap into public coffers only when specific social benefits are achieved, Microfinance and microcredit are helping the poorest of the poor become self sufficient business owners. And worker owed co-operatives are converting the disenfranchised into self-reliant entrepreneurs”

Some of the most interesting examples I found in the book that were given were as follows:

the section on where to begin for those who have a good idea was a nice overview of some of the key considerations that a founder needs to think through. It is certainly one thing to have a groundbreaking and unique idea it is a rare combination to have the right experience, drive and team to be able to implement that idea.
the section on the Nobel peace prize winner Mohammed Yunus (who visited Christchurch April 2017 and who I went along to listen to) went into a lot of depth about not just the Microfinance industry and Grameen Bank but also about the social business ideas that he advocates. It was also interesting to read more about his theory that a social business may profit but its investors must not – am not sure I agree with that.
the section about co-operatives in Europe and in particular Spain where many companies have risen which are owned by their workers. This was interesting to read about but not sure if it would be transferable to other places which did not have the history of them going back several decades.
the section on impact investing was interesting to read and gave glimpses of the possibilities – this quote summarizes that: “Impact investing is investing with a mission. It’s an investment strategy that merges profit-seeking with philanthropy. When an impact investor invests, he or she seeks a financial return and a social return – to make money and help clean the air we breathe, or feed the hungry, or build butter schools. An impact investor does not put profit in conflict with social progress.”
three chapters at the end are devoted to how to assess impact investing and work out what it has achieved. As he states: “Unlike the traditional profit-driven business, an enterprise Int he business of producing an intangible bottom line – social good – cannot measure success in terms of dollars alone. In addition to demonstrating profitability – or at least financial sustainability – mission-driven ventures must show that they’re making progress toward achieving their social missions. They must demonstrate their social impact.” But how do they actually do that – what metrics will they report on? How will you compare an organisation focusing on alleviating poverty with one focussed on reintegration of prisoners into society? These are the challenges that these chapters deal with as they wrestle with what “social metrics” might look like.
It would be great if the next edition of the book features some examples and discussion of developments in places like Australia, New Zealand, Asia or South America.

To conclude this overview of the book I think it achieves the purpose the author set out in the preface – “…the Mission Driven Venture recounts the life stories of modern day heroes, people who, for very personal reasons, took on a social challenge as their own and vowed to overcome it through the prudent application of sound business principles. The lessons they learned and the successes they won translate into models worth replicating and adapting. My hope is that their thought leadership will help inform your decisions and inspire your actions.”

I would recommend this book to anyone who wants to get a really good overview of the state of social enterprise around the world today and gain a glimpse into what the future might look like at the same time. If you are in Christchurch and would like to have a look at or borrow my copy send me an email at stevenmoe@parryfield.com

Great vision and ideas take resources to realise. Whether you are starting a company, a non-profit venture, or even a charitable project, one of the first things you need to find is money to fund the research and development of your new idea.

Banks are the traditional source of funding, but sometimes, you can look instead to your family, friends, professional contacts or other people with similar vision for financial contributions. What are some of the key things to think about if you want to go down that route and seek contributions from them?

1. Will This Ruin the Relationship?

The first point is not a legal consideration as such – more of a home grown truth: money has a unique way of affecting relationships (often in a bad way). You may think your relationships are above this and of course there is 100% certainty your new idea will be a tremendous success. But if whatever your friend or family member invested was lost how would this impact that relationship?

If you can foresee that there could be hard feelings and resentment then you need to seriously weigh up if it is worth risking that relationship.

2. What Contribution Will They Make?

Second, think about what form the contribution will take. Will you be seeking loans from people with a fixed end date and payment of interest? Or do you actually want to bring people on board as partners in a partnership or shareholders in a company and involve them in the future success that you will hopefully enjoy?

What will fit best for you, your contributors and the future of your project?

3. How Involved Will they Be?

Third, consider what level of say each person will have in the decision making for the project. How involved will these people be in the decision making or are they simply silent contributors with limited rights – these points should be clearly agreed and documented.

4. Do I need to comply with the Financial Markets Conduct Act?

Fourth, understand the rules relating to fundraising and what exclusions might apply – some of these are outlined below. The Financial Markets Conduct Act 2013 is incredibly long and detailed but the basic policy approach is that you will be caught by it and need to provide disclosure of information to investors unless there is an exemption for what you want to do.

What are the key exclusions that might apply?

Some of the most relevant exemptions in the context being discussed in this article would be:

Close business associates

Offers to people who already know the business are subject to an exclusion because they would be unlikely to need full disclosure before making an informed decision about whether to invest or not. They need to be able to assess the merits of the offer and obtain information from the person making the offer.

Whether a person actually is a close business associate will need to be assessed on the facts but the term is defined to include situations such as the person being a director or senior manager of the company, holding 5% or more of the votes of the company, is a spouse, partner or de facto partner of a person who is a close business associate (these are just some of the examples to show the nature of the relationships caught).

Relatives

Along similar lines to the last exclusion, offers can be made to relatives. They are defined to include the following: A spouse, civil union partner, de facto partner, grandparent, parent, child, grandchild, brother, sister, nephew, niece, uncle, aunt, first cousin. The list also includes spouses, partners and de facto partners of those people listed as well as whether or not they result from a step relationship or not. Also included are trustees of a trust where one of the above is a beneficiary.

We had an interesting one recently where a person said that their Godfather wanted to invest – there was a close relationship but they were not a “relative” under this definition, so you need to objectively think about things each time and not just make assumptions that someone is a relative as they need to fit the definition.

Small Offers

A small offer must be for debt or equity securities and for up to a maximum of 20 investors and raising a maximum of $2 million in any 12 month period.

Such offers need to be a “personal offer” which can only be made to certain individuals, such as those who are likely to be interested in the offer (eg some previous connection and interest known), a person with a high annual gross income (at least $200k in each of last two income years) or someone who is controlled by such a person.

Some other key points:

Small offers also have an advertising prohibition so it is important to check what you will do to get the word out and make sure it is not going to breach that requirement.
Notification is required of certain information about the offer to the FMA within one month of the end of the relevant accounting period that the small offer was made.
A warning needs to go on the front of documents which looks like this:

“Warning

You are being offered [name of financial product type (for example, ordinary shares)] in [name of issuer].

New Zealand law normally requires people who offer financial products to give information to investors before they invest. This requires those offering financial products to have disclosed information that is important for investors to make an informed decision.

The usual rules do not apply to this offer because it is a small offer. As a result, you may not be given all the information usually required. You will also have fewer other legal protections for this investment.

Ask questions, read all documents carefully, and seek independent financial advice before committing yourself.”

Other Exclusions

This article has been focused on investments by family and friends so has not looked at every possible exclusion. In fact the above are the ones that we see most commonly being used in most situations. However, for more detail on other exclusions have a look at this article on Wholesale Investors and Crowdfunding and/or the FMA site here.

We often provide advice to people around the appropriate fundraising strategy for their start-up and from experience every situation is unique. This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. If you would like to discuss the options and work out what might fit best for you then drop us a line (Kris Morrison at krismorrison@parryfield.com or Steven Moe at stevenmoe@parryfield.com) and we would be happy to discuss.

You can access a review of the key points from the Zero to One book by Peter Thiel here. In particular have a look at these four statements of what he has observed:

It is better to risk boldness than triviality
A bad plan is better than no plan
Competitive markets destroy profits
Sales matter just as much as product.

His conclusion here is that we need to be careful about broad brush conclusions reached as a result of mistakes like the dot-com crash. Instead he says that: “to build the next generation of companies, we must abandon the dogmas created after the crash … the most contrarian thing of all is not to oppose the crowd but to think for yourself”.

Zero to One: Key points

It is hard to look past the credentials of Peter Thiel, who co-founded Pay Pal and was one of the original investors in Facebook and LinkedIn. It has endorsements on the back from Mark Zuckerberg and Elon Musk. The book came out in 2014 so has been out for a while and this article will pull out just some of the best and most challenging bits from it. This can form a cheat sheet for those who haven’t read it or a set of good reminders for those who have.

The basic premise is: “It’s easier to copy a model than create something new: doing what we already know how to do takes the world from 1 to n, adding more of something familiar. Every new creation goes from 0 to 1. This book is about how to get there.”

Thiel was directly participating in the dot-com crash around 2000 and early in the book he draws four conclusions that people took from it:

Make incremental advances – small steps are the best way forward.
Stay lean and flexible – operate without definite plan and be able to adapt.
Improve on the competition – build on what others have already done.
Focus on product, not sales – develop an excellent product that will sell itself.

He then contrasts some of those conclusions with these four statements of what he has observed:

It is better to risk boldness than triviality
A bad plan is better than no plan
Competitive markets destroy profits
Sales matter just as much as product.

His conclusion here is that we need to be careful about broad brush conclusions reached as a result of mistakes like the dot-com crash. Instead he says, “to build the next generation of companies, we must abandon the dogmas created after the crash … the most contrarian thing of all is not to oppose the crowd but to think for yourself”.

There is an interesting story that he tells in the book which I relate to since it involves Thiel’s background studying law. As a lawyer myself it is interesting to read about his experience and I do often think about the fact that having a role as an advisor means that I myself am less likely to branch out into something new like a start-up. In actual fact that is not true any more as our law firm has looked at disruption and what it means for law firms and is the co-founder of a start-up that I have been actively involved in setting up. But this story is illustrative of a general point about what we settle for and what we think will make us happy:

“The highest prize in a law student’s world is unambiguous: out of tens of thousands of graduates each year, only a few dozen get a Supreme Court clerkship. After clerking on a federal appeals court for a year, I was invited to interview for clerkships with Justices Kennedy and Scalia. My meetings with the Justices went well. I was so close to winning this last competition. If only I got the clerkship, I thought, I would be set for life. But I didn’t. At the time, I was devastated. In 2004, after I had built and sold PayPal, I ran into an old friend from law school who had helped me prepare my failed clerkship applications. We hadn’t spoken in nearly a decade. His first question wasn’t “How are you doing?” or “Can you believe it’s been so long?”. Instead, he grinned and asked, “So, Peter, aren’t you glad you didn’t get that clerkship?”. With the benefit of hindsight, we both knew that winning that ultimate competition would have changed my life for the worse. Had I actually clerked on the Supreme Court, I probably would have spent my entire career taking depositions or drafting other people’s business deals instead of creating anything new. It’s hard to say how much would be different, but the opportunity costs were enormous. All Rhodes Scholars had a great future in their past.”

Thiel then has a really interesting few chapters about pessimism and optimism and how that has played out in different cultures and eras. In his view this has shaped the way that we think about entrepreneurs as being lucky vs having a plan. He comments that “indefinite optimism” means there is a general feeling that things will improve but no plan or direction for how to get there – so it involves cultivating and maintaining what we have rather than creating something new. He comments that this short term thinking is evident in politics too where we are concerned about predictions of elections for what the future will look like in a few weeks or months but lack the focus on 10 or 20 or 30 years from now. Ultimately his conclusion on this topic is that design trumps chance and there needs to be a lot of thinking and planning when involved in a start-up. He states: “Long term planning is often under valued by our indefinite short term world.”

This theme is emphasised more in the middle chapters of the book: “It does matter what you do. You should focus relentlessly on something you’re good at doing, but before that you must think hard about whether it will be valuable in the future.”

He also spends time towards the end of the book analysing founders and the “big characters” that they tend to be (like Steve Jobs) and asks if they create their own images, if the media helps glorify certain aspects of them or if they are actually just naturally that way inclined. He seems to conclude it is a combination of all of those things and that the social media world we live in now leads to an emphasis on certain attributes compared to the past.

We ourselves have a startup at Parry Field Lawyers where we are working to develop an innovative and new product offering focused on the legal market so a lot of this book really resonated with our experience. The biggest takeaway for me was the basic point that founding a company that does something new is a lot of hard work and you need to be purposeful about choosing what you get involved in and who you choose to work with you. This type of book is useful in that it reminds us of some fundamental points about startups from a person who has had direct involvement in many of them.