Founders - Why we founded Snowball Effect

  • Written by Snowball Effect
  • Published on

In a few weeks time, subject to the Financial Markets Authority's licensing process, we will launch Snowball Effect to the market. Investors will have access to a new class of equity investments - high growth Kiwi SME businesses. Those businesses in turn will have access to an efficient new source of growth capital.

Snowball Effect aims to be New Zealand's leading equity crowdfunding platform. Our vision is a New Zealand economy, fuelled by emerging businesses, backed by everyday Kiwi investors. But every company has aspirations - so what really motivated us to found Snowball Effect?

We believe that Snowball Effect will fundamentally change the way New Zealanders think about starting and growing businesses, and how they make and grow their investments. Snowball Effect is driven by some core values which include a commitment to developing entrepreurialism and investor sophistication to leave a lasting benefit on the New Zealand economy.

But before we delve too deeply into our personal and collective values, we're keen to share our story and how we've gotten to this point. Snowball Effect is not something new for us - we've been working on this for more than two years.

In 2008/9, we worked together on a major international expansion project for Fonterra. During this project we found that we shared a desire to help New Zealand companies to grow. We had complementary skills that meant we could add value to diverse businesses regardless of their key challenges or growth requirements. And most importantly, we really enjoyed working together as a team.

We started looking at ways to continue working together.

In our discussions with New Zealand companies, we found a number of obstacles restricting their growth ambitions, including:

  • The absence of a cost-efficient mechanism to strengthen ties with loyal customers, suppliers and other partners
  • The lack of an effective channel to road test ideas and concepts with a wide variety of stakeholders
  • Extreme frustration with limited funding options, or funding pathways that were too time consuming, distracting, and uncertain

We also spoke to a large and diverse range of investors. In general, investors loved the idea of being able to back young, exciting Kiwi businesses - an opportunity that very few Kiwi investors have had available to them. They told us that they were bored by the existing investment options, and wanted more dynamic, exciting, and relevant engagement with the companies that they invested in.

In 2012 we evaluated a number of different business models to address these gaps in the market, and our solution was equity crowdfunding. It was at this point we sought legal advice and engaged the law firm Wynn Williams. This was the first luck we encountered as a company - Wynn Williams have been incredibly supportive and big believers in the potential for equity crowdfunding to change the game for Kiwi companies and investors. We became actively involved in the government's consultation processes which produced New Zealand's new equity crowdfunding regulations.

As we refined our model and engaged a web development company, we also wanted to test our own early conclusions about the market potential. In 2013, we went through The Icehouse's Market Validation Programme, which strongly confirmed our findings.

Through all of these developments, and through Snowball Effect's subsequent recruitment of full time staff, non-executive board members, advisory group members, and scaling up of operating infrastructure, the core values that drive us have not changed.

We believe we offer something that will help New Zealand companies to grow and harness the power of their existing crowds of supporters, while giving investors the opportunity to become advocates for companies and share in their success.

We want good outcomes for companies and investors, but we're not naive. Let's be clear - equity crowdfunding is not right for all companies. Some will fail to meet financial expectations after they successfully raise funds. Others may go on to be highly successful and handsomely reward those who backed companies when given the chance. The risks will be high, but our research has told us overwhelmingly that Kiwis are eager to back young companies that they believe have the potential to flourish.

If we can create a great investing and funding environment for both investors and businesses, Snowball Effect will be well on the way to fulfilling its vision. And New Zealand will be a better place, which is what really motivates us.