Category Archives: Equity Crowdfunding

Equity crowdfunding is eroding the best returns VC funds used to enjoy

Share

VB | | May 13, 2018

There’s been a sea change in Series A investment rounds that has been gradually – but persistently – eating away at venture capital (VC) funds’ highest-ROI category investments, and the reason it’s happening may surprise you.

According to Cooley’s VC trends, the median Series A valuation has moved up from $16.5 million to $23.0 million in just the past two years. VCs aren’t just competing for fewer early-stage deals, they’re also paying a lot more for them. Around the time that orange became the new black, seed rounds became the new Series A, with valuations doubling between 2012 and 2017, according to Pitchbook. (What used to be called seed-stage is now termed “pre-seed.”)

How we got here

You might think this is just an organic consequence of too much money chasing too few deals, especially given that the last time we saw this much VC investment was in pre-bubble 1999. Ironically, one of the most powerful changes brought about by dot-com was the democratization of angel investing in startups, taking many early stage deals off the table before VCs could get a look at them.

Based on over 30 years of raising capital, plus my own participation in the ecosystem as an angel investor for the past last 20 years, my sense is that widespread angel investor empowerment began after the dot-com bubble. By 2000 a lot of “new money” investors were minted, and only a relative few had taken enough gains off the table before the bust to be able to invest in venture capital funds. Many took to the streets, joining angel investment clubs and online communities to start sprinkling their money around on green shoots.

See:  Jan 8, 2018: Intro Presentation on Raising Equity and Funding for your Startup

As fans of the TV show Startup Junkies will recall, in 2007, my company at the time, Earth Class Mail, was faced with the dilemma of whether or not to accept a venture investment from Ignition Partners (the largest VC fund in Seattle at the time). We raised a lot of eyebrows among Silicon Valley VCs for raising $12 million in angel money, including $8.9 million from 96 Keiretsu investment club members alone (what “crowdfunding” was before it moved online). Most VCs were dismissive of the investment prowess of angel groups at the time.

Take VC money, lose control

Our concern over taking VC instead of more angel money? By investing just $6 million out of a total of $18 million, one VC would redefine the Series A term sheet, effectively take control of the board, and ultimately determine the company’s destiny.

That concern turned out to be justified. After all, we had a good thing going with an army of “brand ambassador” angel investors who helped us find customers, strategic partners, and plenty of capital. Alas, our management team was drawn to the allure of a prestigious VC investment like a moth to a burning light.

We knew that taking institutional VC with aggressive Series A preferences meant ceding control to a single concentrated investor.

Just one year later, Ignition had its own internal scandal that caused an implosion within the partnership. The shrapnel impacted many of its portfolio companies, including us. As a result of this external event, our founders, 70 percent of our employees, 140 angel investors, and three board members were kicked to the curb. The company lost its engine room and bridge in one catastrophic event, sending it into survival mode for the next five years and an eventual packaged bankruptcy designed to get only the VC’s money out when the fund reached its 10-year term.

For my next startup, I went to the fledgling AngelList platform (before they introduced deal syndication) and put our seed round together from a handful of savvy angel investors pitched over a web conference, and a F500 corporate strategic investor.

I used AngelList again with my current startup, iMovR, to raise a quick $225,000 round through the Barbara Corcoran Venture Partners syndicate in 2015. Even angel groups were beginning to lose their popularity due to the many time-consuming stages of their processes.

An exciting alternative: Equity crowdfunding

It was the JOBS Act of 2012 – creating Title III and Title IV equity crowdfunding structures – that ultimately squeezed VCs out of many of the best early-stage deals. Why? Instead of just the four percent of the population that have the income to declare themselves accredited for participating in Reg D rounds, anyone in the general public could invest in a Reg CF or Reg A+ offering.

While equity crowdfunding rounds attract large numbers of small investors, these angels become avid brand ambassadors for companies and help them generate more visibility and sales. The SEC even managed to catch some of the lightning of Kickstarter’s popularity by enabling “investor perks” as part of the security offering, now a fairly common feature of crowdfunding deals.

More: 

Eighteen months ago, I started a spreadsheet to track dozens of crowdfunded deals to help us choose between Reg CF, Reg A+, and the new breed of “side-by-side” Reg CF/Reg D hybrid offering structures. At the beginning there were virtually no other companies at our stage of revenue ($10 million+). A study commissioned by the SEC indicated one-third of the crowdfunded companies were pre-revenue, and the majority had generated under $1 million in sales. Issuers were often first-time entrepreneurs.

Remarkably, in recent months there have been numerous Reg A+ and side-by-side rounds issued by companies with $5 million-$15 million in revenues-to-date and led by seasoned entrepreneurs who clearly had the connections and track records to raise traditional VC. In interviewing some of these CEOs I sensed many of them chose this path after having similar challenges with VCs in their prior ventures.

Many angel investors have startup experiences of their own and have seen first-hand how some VCs can push perfectly good companies to exit too fast or for valuations that advantage the VCs over all other stakeholders. They also recognize that investing directly into companies means they get to pocket the fund expenses and 20 percent profits interest that are deducted before winnings are shared with limited partners.

Continue to the full article --> here

 


The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with cryptocurrency, blockchain, crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders globally. NCFA Canada provides education, research, industry stewardship, services, and networking opportunities to thousands of members and subscribers and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry.  Join Canada's Fintech & Funding Community today FREE!  Or become a contributing member and get perks. For more information, please visit:  www.ncfacanada.org

Share

Report: Crowdfunding Platform OurCrowd Reaffirms Expectation to Top $1 Billion this Year

Share

Crowdfund Insider | | May 6, 2018

OurCrowd is one of the largest crowdfunding platforms in the world and, perhaps, the largest early stage platform globally by now. The five year old firm has quickly gone from zero to nearly $1 billion in capital raised with the expectation to surpass the billion dollar mark at some point in 2018.

See:  Israeli crowdfunding co OurCrowd raises $72m

Recently, OurCrowd CEO and founder Jon Medved visited with SkyNews in Australia to update on their progress. Medved explained their approach of providing access to the venture capital access class to a far wider audience. You can’t pick up the phone and call Sequoia Capital if you are a smaller investor. Medved said the most exciting news is the fact OurCrowd now has had 20 exits from their portfolio companies. One of the more recent exits was with Jump, a company in the bike sharing space that was sold to Uber and Invertex that Nike bought. OurCrowd’s success means that it is adding about 500 global investors each month.

Continue to the full article --> here


The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

Share

Here’s what motivates a crowdfunding investor to back a campaign

Share

Insider.co.uk | By Philip Gates | Apr 23, 2018

Crowdfunding is a rapidly growing way to raise much-needed capital for businesses. But how can you make one eye-catching enough to attract investors? John Auckland of crowdfunding communications agency TribeFirst outlines the dos and don'ts

Equity crowdfunding campaigns - such as Drink Baotic - are all about attracting and engaging investors. So what exactly are investors looking for? What makes the difference in their decision to invest or not?

Retail investors versus sophisticated investors

You can categorise investors into two types: retail and sophisticated.

Retail investors are investing more emotionally. Sophisticated investors typically invest more than retail investors, but the amount they invest doesn’t necessarily reflect their level of sophistication.

Check out:  How to Think About Your Business Model and Pitch It to Investors

While it’s definitely more a spectrum than two clear camps, there are some common identifying features:

● Retail investor goes with gut decision/Sophisticated investors have an appraisal process.

● Retail investors make their decisions based on emotional attachment/Sophisticated investors made decisions based on rational attachment.

● Retail investors will typically look for pros/Sophisticated investors are looking for cons.

● Retail investors = heart first/Sophisticated investors = head first

● Retail investors are gambling with disposable income/Sophisticated investors view crowdfunding as one of the riskier assets in their portfolio.

● Retail investors want to be part of a journey/Sophisticated investors are investing to make a return.

Some critics of crowdfunding have claimed that retail investors shouldn’t exist at all. I find this view patronising.

Firstly, as long as you are aware of the risks, then it’s your money to do with as you will. Secondly, I have seen many well-managed and institutionally-funded companies still go on to fail.

See:  Fintech lures millennial investors away from asset managers

Risk exists everywhere. But is it any less noble to invest in something because you believe in the idea, rather than investing simply to make a profit?

And the crowd has proven it has greater foresight than you’d think. The data suggests the crowd is often as good at predicting the future success of a company as professional analysts.

It’s not surprising, really. The crowd is representative of the market.

What can you do to stand out to both retail AND sophisticated?

So what can you do to appeal to both kinds of investors.

Assuming your company is in a healthy state, organise a consumer marketing and PR campaign to hit at the same time as your crowdfunding campaign.

You’ll be able to update investors with your progress in real time. Having a buzz about your company during your raise will drive retail investors to your campaign and give sophisticated investors confidence.

Also:  Venture funding best practices

What will turn investors off?

There are some things that you need to avoid entirely, including:

● Not answering questions openly on the public forum.

● Not including a financial model.

● Not making yourself available during the campaign.

● Not doing your homework.

Continue to the full article --> here


The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

Share

Canada’s Largest Investment Crowdfunding Platform Hits $10 Million of Combined Capital Raised to Support Growing Canadian Businesses

Share

Digital Journal - FrontFundr Release | April 9, 2019

Investment crowdfunding is an alternative source for companies seeking capital to grow their businesses.

VANCOUVER, BC, April 09, 2018 /24-7PressRelease/ -- "We are pleased to announce that we have now raised a combined $10 million for Canadian companies through our online platform," said Peter-Paul van Hoeken, FrontFundr's C.E.O. "We have enabled over 18 Canadian companies to obtain the funding they need to grow while creating communities of supporters and advocates for each company's products and services."

Craig Asano, Founder and CEO of the National Crowdfunding and Fintech Association, NCFA Canada said. "We are thrilled to see the growth of FrontFundr and congratulate them on reaching the $10 million milestone! It clearly demonstrates the availability and potential of investment crowdfunding capital to support the growth of Canadian businesses."

See:  How to Effectively Market an Equity Crowdfunding/Reg A+ Offering

Investment crowdfunding is an alternative source for companies seeking capital to grow their businesses. Partly available in some Provinces it was fully legalized in 2015. Crowdfunding not only allows Canadians to invest in private companies, from as little as $100, but it allows companies access to capital and a community of stakeholders. A recent example, and part of the $10 million raise, is Red Mountain, that enabled people to own a piece of a ski hill in British Columbia, Canada. Over $2,500,000 was raised through the campaign, from 742 backers, many of whom gained perks such as lift passes as well as shares.

About FrontFundr:

FrontFundr is an online investing platform that empowers Canadians to find and make direct investments in the private companies they believe in - and become stakeholders in their future. FrontFundr's online exempt market dealer (EMD) status plus its modern technology lets users across Canada easily invest in innovative growth businesses in under 12 minutes and starting from $250. Own your share.

View source:  here

 


The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

Share

Becoming a dragon in my own right.

Share

FrontFundr | Jill Earthy | March 29, 2018

My parents were really good at giving me advice about most things. Most things that is, except investing. I guess they were brought up being told that you don’t talk about money. We never had any serious conversations about investing, which never bothered me until recently. I had reached that point in life (finally) where I had a good job, paid off my student loan, and had some rainy day money in the bank. It all left me wondering, what’s my next step?

I read a blog about the 50|30|20 rule, and I stick to that: 50% for fixed costs, essentials, food, rent, getting to work, 30% for discretionary spending, and 20% for saving.

I know I want to buy a condo and get on the property ladder, so that is a big goal for me. I have an online advisor who is helping me get that nest egg together. I’m maxing out my available RRSP limit which is 18% of my income. 10% of that I’ll use for my down payment, and the other 8% will go towards actually retiring one day.  That leaves me with 2% of my income to invest as I see fit. But until recently, I was still struggling with where. And how?!

A couple of weeks ago I was scrolling Facebook and saw ad online for FrontFundr. Turns out they are Canada’s largest investment crowdfunding platform (which essentially is like crowdfunding for adults - instead of perks or early access to products, you get shares in private companies). I never knew that investing in private companies was even an option for me, given I’m no Kevin O’Leary!

See:  Peter-Paul Van Hoeken, CEO and Founder of FrontFundr, Joins National Crowdfunding Association of Canada’s Advisory Group

Speaking of Dragon’s Den, I already knew that I loved watching the show and choosing the companies I would back if I were a Dragon. FrontFundr is kind of like that. I just go on their website, review the opportunities, and can invest starting at $100.

So, I did it, I backed a company with a very cool product. I completed the whole process from my phone, and it took me about 10 minutes once I decided which company I liked. I love the company. The team know what they’re doing and the numbers stack up. I know this is high risk, but I also know this is a company that I believe in -- I want them to be successful. I like the fact I can go out with my friends and talk about the company. It’s my company; I own shares in it. Most of my other investments are personless, I don’t connect with anyone, but this is one where I can truly say I own the shares.

Now you can #OwnYourShare of Canada’s largest online investment platform:

Become a dragon and invest in companies YOU believe in, starting at $250. Learn more from this person’s experience - http://blog.frontfundr.com/becoming-a-dragon-in-my-own-right

 

Continue to the full article --> here

 


The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

Share

Federal budget keeps Canada’s fintech sector in the ‘valley of death’

Share

The Globe and Mail | OpEd Michael King | March 1, 2018

Michael King is associate finance professor at Ivey Business School, University of Western Ontario.

In the world of startups, the period when entrepreneurs are spending cash to build out a new product or service but have no revenues is known as "the valley of death." The only way to survive is to find an investor who believes in the idea and is willing to finance it to production and to find customers fast. Almost as important as cash, however, is mentoring and strategic advice from someone who believes in the founders.

Currently, Canada's fintech industry is in the valley of death and is looking for mentoring, strategic advice and customers. The sector has been growing rapidly, investing in innovative products, but has yet to get traction. Canada's 2018 federal budget was a missed opportunity for Finance Minister Bill Morneau to voice his support for this innovative sector, to raise awareness among Canadians, to be a leading customer for these innovations, and to set a national strategy for this industry to succeed globally.

See:  NCFA Submission to Finance Canada (March 2018):  Urgent Need for Regulatory Change and Government Support

It is ironic, because the 2018 budget continues to focus on the right themes: promoting innovation; equipping Canadians with the skills to succeed in the digital economy; and creating economic growth and opportunity for all. Despite these lofty goals, the budget fails to mention the one sector that has the potential to achieve all three objectives: financial technologies or "fintech." In fact the word appears only three times in 367 pages, and then only in an annex.

Fintech innovations are affecting the daily financial activities of all Canadians – paying, saving, borrowing or investing. Whether you are paying a bill on your phone, transferring money abroad, taking out a loan online, comparing insurance using a website, or investing in an exchange-traded fund, Canadians will be seeing many improvements as fintech innovations are introduced by incumbents and new entrants alike. They will also likely be dealing with many non-traditional financial providers eager to bundle their product – whether it is social media, e-commerce, or part of the sharing economy – with unbundled financial products (e.g. a loan, an investment, or an insurance policy).See

The question no one is asking is whether these fintech innovations will be coming from a Canadian company or a foreign one.

While Canada has a highly educated work force, finance expertise, and talented entrepreneurs, it seems the Canadian government is indifferent whether these innovations are grown at home or imported from abroad. Canada's fintech ecosystem is not getting the support and attention directed at other crucial sectors, despite financial services accounting for 7 per cent of GDP and 4.4 per cent of all Canadian jobs. Of the government's five superclusters announced last month, financial services was a noteworthy gap.

What is behind this benign neglect for an important industry? It cannot be that Canadians are not hungry for simpler, less costly, and more responsive banking and financial services. The evidence from other countries is that fintech can enable higher savings for low-income individuals, access to capital for cash-starved small businesses, and better access to all financial services for underserved segments of the population. In many parts of their world, fintech innovations are democratizing access to finance and promoting growth from the bottom up.

See:  BCSC Consults Fintech Stakeholders and Requests for Comments (Closing April 3)

It may be that the government does not want to disrupt a stable financial system that has performed well over time. But that is not the attitude in countries such as Australia, where they view fintech as a valuable improvement and have committed to use government procurement to get startups on their feet.

Canada's growing fintech sector needs to hear that it is a valued part of the emerging digital economy, with great opportunities for jobs, investment, and growth. Britain, Australia, Hong Kong, Germany and Singapore are cheerleading their sectors. But as the Competition Bureau bluntly stated in a recent study, "Despite the attention that fintech is generating, Canada lags behind its international peers when it comes to fintech adoption."

Continue to the Full Article --> here

 

The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada.  For more information, please visit:  www.ncfacanada.org

Share

FrontFundr and SeedUps Canada announce partnership

Share

FrontFundr and SeedUps Canada Release | Feb 21, 2018

CALGARY / VANCOUVER - February 15, 2018: Four years ago, two visionaries began the process of reducing barriers for Canada’s early stage companies accessing growth capital. They each developed unique models to tackle this challenge, working closely with securities regulators and gaining buy-in from the early stage ecosystem. They have now come together to leverage their experience and momentum and help more companies and investors throughout Canada.

One, Sandi Gilbert, developed a suite of technologies that simplified the complexities of capital creation and management with a focus on the angel investing community.  The SeedUps platform, and its deal flow app AngelBot, has showcased over 50 companies to its angel network; and DealPoint, a SaaS solution for the private capital markets, has transacted over $4 million in exempt investment since its launch late last year. Next up - a blockchain solution where entrepreneurs and investors can manage their shareholdings post raise.

The other, Peter-Paul Van Hoeken, created FrontFundr, a national Exempt Market Dealer with a proprietary online platform that democratizes Canada’s private capital markets by allowing all Canadians to invest in early stage and growing private companies. FrontFundr has emerged as Canada’s clear leader, having assisted more than 20 companies to raise a combined total of over $8M from a wide range of Canadian investors - not just the 1%. This initiative has unlocked capital across Canada and broadened investor access to a multitude of opportunities.

Get Tickets Now:  2018 Fintech & Funding Conference:  FFCON18 VELOCITY | Toronto March 5-6

SeedUps and FrontFundr have now partnered to provide entrepreneurs with a full suite of tools to access the resources and capital they need to grow and scale their businesses. This partnership will help entrepreneurs prepare for and engage with a wide range of new investors; from retail to angels to institutions and investment funds - online and offline. Post investment technologies to help companies and their shareholders better manage their investments will bring transparency to private investing overall.

“Peter-Paul and I have long had similar visions to help entrepreneurs access capital in what we call the ‘funding gap’”, states Gilbert. “By matching our resources with an entrepreneur’s needs, we can increase the probability of a successful outcome for the entrepreneur and its investors”.

 

“This partnership supports our joint mission to truly democratize investing in private companies in Canada. We are bringing together professional venture capital and everyday Canadians to invest in companies that they believe in” says Van Hoeken.

Entrepreneurs are an essential contributor to the Canadian economy, with small business representing over 98% of businesses in Canada. New models of support and access to capital are critical for Canada’s growth.

Interested in exploring investment opportunities for all Canadians, visit FrontFundr

If you are a growing company preparing to capital raise, visit SeedUps Canada

 

For further information, please contact:

Sandi Gilbert at sandi@seedups.ca or Peter-Paul Van Hoeken at peter-paul@frontfundr.com


The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a national non-profit actively engaged with social and investment crowdfunding, alternative finance, fintech, peer-to-peer (P2P), initial coin offerings (ICO), and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, networking opportunities and services to thousands of community members and works closely with industry, government, academia and eco-system partners and affiliates to create a vibrant and innovative fintech and online financing industry in Canada.  For more information, please visit: www.ncfacanada.org

Share