Below you’ll find a checklist of 10 questions that you should be asking, if you are raising capital from NZ investors and are intending to rely on the eligible investor exclusion under the Financial Markets Conduct Act 2013 (FMCA) to bring on board one or more of your investors.

background

The questions reflect recent guidance from the Financial Markets Authority (FMA) in its report released in October 2022.  That guidance clarifies the FMA’s expectations of companies (and other entities) who are seeking to rely on the eligible investor exclusion in order to qualify for a lighter compliance burden for their capital raising activities.

10 questions to ask when presented with an eligible investor self-certificate

The questions below assume that you’re a company raising capital, and a prospective NZ investor has just sent you their eligible investor certificate.

1. Is the certificate for the person actually making the investment, or an entity controlled by them?
2. Have all of the details been filled in and is the certificate signed?
3. Is the certificate dated no more than 2 years ago?
4. Has the investor listed in detail their grounds for self-certifying that they have sufficient experience to qualify as an eligible investor in the certificate?
5. Is there a connection between the grounds listed in the certificate and the proposed investment?  E.g. if the investor is subscribing for shares in your company, does the certificate include a description of their specific experience in investing in private companies?  Beware any certificate that lists irrelevant or vague experience.
6. Has a financial adviser, qualified statutory accountant or lawyer (independent adviser) signed the certificate, confirming that – having considered the grounds for the investor’s certification – they are satisfied that the investor has been sufficiently advised of the consequences of the certification, and they have no reason to believe that the certification is incorrect or that further information or investigation is required as to whether or not the certification is correct?
7. Have you checked and confirmed that the independent adviser is independent of your company, and has not provided professional services to your company (or a member of your corporate group) in the last 2 years?
8. Are you comfortable the investor does actually have the experience they have described in their certificate?
9. Is the certificate a standalone document, separate from any investment or transaction document?
10. Is there a warning statement on the front of the certificate of the kind required under the FMCA and its regulations?  See our template certificate for an example of that warning statement.

If you can’t answer yes to all of the above, you’re best to hold off until you have sought further information and evidence.

Let us know if you would like any help.

in need of a refresher?

Confused about what the eligible investor exclusion is, or otherwise in need of a refresher about the broader context?  Check out our guide to securities law for tech companies raising capital here.  We’ve recently updated that guide to reflect the FMA’s report.

In a nutshell, if you want to take investment from an NZ investor (regardless of the amount), under NZ law you have two options – (1) comply with the full suite of information disclosure and offer registration requirements set out in the FMCA, including preparing a product disclosure statement and registering your offer on the Disclose Register, or (2) ensure that one of the specific exclusions set out in Schedule 1 of the FMCA applies to each of your investors.

If your investor qualifies as a wholesale investor, a Schedule 1 exclusion applies to them.  There are several categories of wholesale investor defined in the FMCA.  Eligible investor is one of those categories.  To be an eligible investor, the investor must self-certify in writing that they:

• are an eligible investor on the grounds that they have previous investment experience that allows them to assess the merits of an investment or class of investments, their information needs in relation to an investment or class of investments, and the adequacy of any information provided, and
• understand the consequences of certifying themselves as an eligible investor. 

The investor must also obtain written confirmation of that certificate from a financial adviser, qualified statutory accountant or lawyer that is independent from the entity raising money.

why should you care?

Yes, it’s the investor’s responsibility to fill out their certificate and arrange for an independent adviser to confirm it, but it’s the company who will face the consequences of relying on a shonky certificate.  The potential consequences include civil or criminal liability, not to mention reputational damage.

looking for a template?

A template wholesale investor certificate that can be used for eligible investor self-certifications can be found on our website.