April 21st, 2017
FrontFundr kick-starts equity crowdfunding in B.C.
When Vancouver-based RentMoola Payment Solutions reached the stage where many technology startups would seek financing from venture capitalists, Patrick Postrehovsky and his team made the decision to try “untraditional” methods of raising money.
The CEO and cofounder of RentMoola told the Georgia Straight that, after tapping friends and family, the privately held company took advantage of securities regulations in British Columbia that permit it to sell shares to accredited and retail investors. Now, according to Postrehovsky, RentMoola is considering using new rules that allow startups to do equity crowdfunding—which is legal here but not in Ontario and the United States—to raise money in relatively small portions from a large number of people.
“Typically, if you’re going to raise capital, you go to your VC, you review term sheets,” Postrehovsky said in the Yaletown office of Silver Maple Ventures. “But the biggest reason why we didn’t want to do that, frankly, was the venture-capital term sheet is going to be very dilutive. They’re going to try to take control of your company, and we really didn’t want to do that for our team.”
Silver Maple is the company behind FrontFundr, a securities-crowdfunding portal that launched in May. RentMoola is one of three local startups hoping to raise capital on FrontFundr, which on June 18 became the first portal in Canada to use what’s known as the “startup crowdfunding exemption”.
Adopted by the B.C. Securities Commission and its counterparts in Saskatchewan, Manitoba, Quebec, New Brunswick, and Nova Scotia in May, the exemption allows early-stage companies headquartered in those jurisdictions to sell shares, convertible notes, or bonds to investors living in those six provinces via crowdfunding portals without filing a prospectus with their provincial regulator. Using the rules, a startup can raise up to $250,000 per crowdfunding campaign, with two of these permitted in a calendar year. An investor can contribute a maximum of $1,500 per campaign.
“It allows the broader investor community access to early private companies, and historically that hasn’t been the case,” Sean Burke, chief financial officer for Silver Maple, told the Straight, seated across from Postrehovsky. “There’s been exemptions available that they could use to get that access, but really what our platform does—and the new crowdfunding exemption—is it facilitates the actual process of doing an online investment.”
Guusto Gifts, one of the startups on FrontFundr, is the first company to attempt to raise capital using the startup crowdfunding exemption. The gift-giving-app maker is seeking to sell three percent of its equity for $50,000 by August 14. The minimum investment is $500, and Guusto must raise at least $20,000 for its offering to close. Guusto aims to gain a further $250,000 from accredited investors (who include people who earn at least $200,000 a year, have at least $1 million in financial assets, or possess at least $5 million in net assets) via FrontFundr using other exemptions from the prospectus requirement.
Burke said that FrontFundr, which charges startups a commission if their campaign is successful, aims to become the Kickstarter of securities crowdfunding. He remarked that the startup crowdfunding exemption gives retail investors the opportunity to be like the venture capitalists on the reality-TV show Dragons’ Den. According to Burke, “crowdfinancing”—his preferred term for securities crowdfunding—rewards startups with more than cash.
“By having broader access, you have brand champions,” he said. “People who are invested into the company are your biggest supporters who are going out there and advocating for you, talking about your product.”
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1100+ 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. Learn more About Us or visit www.ncfacanada.org.