What is a Wholesale Investor?
Companies need money, it is the fuel for the engine of their growth. Very often they will get that money through issuing equity (shares to people who invest) or issuing debt (loans to people who provide finance). If you do either of these activities you are offering a financial product and captured by the Financial Markets Authority and their rules which state you need to provide extensive disclosure documentation to those investing – unless an exemption applies.
In this article we want to talk about two critical exemptions which we see are commonly used.
A wholesale investor is essentially a person or an organisation with enough previous investing experience that they do not require disclosure documentation. Their experience is often shown by their investment activity, wealth and/or income. Wholesale investors can be exempted for all offers of financial products or only for some offers of financial products and the critical points to consider if you want to rely on this exemption are:
- Is the investor an investment business, such as a financial adviser or a licensed insurer
- Has the investor recently held or acquired financial products of aggregate value of over $1 million
- What is the investor’s wealth – do their net assets exceed $5 million
- Is the investor able and willing to certify that they are sufficiently experienced with the particular financial product you are offering
- Is the investor subscribing for at least $750,000 worth of financial product
Another option is crowdfunding – using this exemption, you will have to work with an FMA licenced intermediary to raise the funds. The licenced intermediary will offer your equity, debt or other financial products to investors for you. You can use the crowdfunding exception in combination with other exclusions (such as the wholesale investor exclusion above and others which we touch on here), but there is a limit of $2 million in any 12-month period (which includes any ‘small offers’ in that time period).
The FMA has provided a helpful overview of various options and exemptions which you can access here.
We have helped many companies with their capital raising and each situation is unique so feel free to reach out if you would like specific input on your context.