Equity Crowdfunding: Noise or Music to Your Ears

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Venture Law Corp | Alixe Cormick (blog) | Nov 6, 2014

Crowdfunding music or noiseThere seems to be a perception in Canada that equity crowdfunding is “noise” or a “flavor of the month” fad that will quickly disappear. It is the  opinion of some, the traditional ways of raising capital, using brokers, finders, angel network events, and venture capital pitch meetings, works and will never be replaced.

Certain regulators and market professionals  involved in the capital markets even believe there is no legitimate role for equity crowdfunding. Some even believe that equity crowdfunding will increase fraud, reduce the ability of companies to raise capital, and end in tears for all involved.

On October 30, 2014, I participated on a panel at the annual Vancouver Island Economic Alliance Summit titled “The Buzz Around Business Crowdfunding – Noise or Music to Your Ears?” Daryl Hatton, the CEO of FundRazr, one of the top donation and perk crowdfunding portals in the world, and Peter Elkin, an active angel investors and the Founder and CEO of Capital Investment Network, rounded out the panel participants. Stephanie Andrew, an Associate Partner at Espresso Capital, acted as moderator. Dirk Heydemann, of Heydemann Art of Photography in Nanaimo, introduced the panel and sponsored the panel session.

The room was filled with community economic officers, community leaders, small business owners and others interested in learning more about crowdfunding. Daryl Hatton provided the audience with an overview about crowdfunding and highlighted a few recent equity crowdfunding campaigns to help illustrate the diversity in who is using crowdfunding and for what purposes on platforms such as Fundrazr and others.

My formal presentation as part of the panel focused on equity crowdfunding.  I wanted to drive home that equity crowdfunding is happening now.  Operating portals exist in Europe, United States and in Canada.  Average successful equity crowdfunding campaign sizes vary across funding portals with some portals average campaign size ($1.6 million) coming close to the average private placement size on the TSX Venture Exchange ($1.9 million).

Although Canada is looking at two crowdfunding specific securities law exemptions from registration, Canadian securities laws already have private placement exemptions that can be used to crowdfund a business venture.  There are benefits and drawbacks associated with all forms of crowdfunding, but it is definitely not just “noise”.

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