March 23rd, 2017
[Podcast]: What You Need to Know About Crowdfunding Right Now
Profit Guide Business Cast | Robert Gold | March 31, 2016
Insights and best practices from the entrepreneurs and experts at the 2016 Canadian Crowdfunding Summit
Once a niche funding source for personal projects and products no consumer would ever want to buy, crowdfunding has evolved into a legitimate, common form of capital for startups and innovative businesses.
Want proof? Look no further than the agenda of the second annual Canadian Crowdfunding Summit, held at the MaRS Discovery District on March 3, 2016. Panelists and speakers at the event, hosted by the National Crowdfunding Association of Canada (NCFA), included a who’s-who of Canadian and international entrepreneurs and experts. And Ontario Finance Minister Charles Sousa was on hand to open the conference (see Opening Speech).
“The future of crowdfunding is now,” believes NCFA Executive Director Craig Asano. Here are eight ways to take advantage of crowdfunding, courtesy of the entrepreneurs and experts who spoke at the Summit:
1. You need to do your homework
Raising capital from the crowd seems like a relatively straightforward process: shoot a video and start a campaign on Kickstarter or another platform, then sit back and watch the money roll in. If only it were that simple.
Before the Revol Technologies team put their custom-fit earphones on Indiegogo, they studied past successful crowdfunding campaigns. “I reached out to as many people who have done campaigns in the past [as possible] to get valuable information on the do’s and don’ts of their campaigns,” explains Dan Blumer, the co-founder and CEO of Montreal-based Revol. “So essentially taking the templates of others and doing them ourselves.”
It paid off, big time. Revol’s original goal was U.S.$100,000, but the campaign ended up raising U.S.$2,570,000, and the company has since made an additional six figures in pre-sales on Indiegogo.
2. You need to educate your angels
New regulations around equity crowdfunding allow companies in most parts of the country to tap retail investors for capital. But simply building the largest pool of civilian backers you can won’t lead to the best results. “It’s not sufficient to assume that just because they’re rich they’re necessarily going to be able to add value to the shareholders agreement [or] understand the down rounds [or] how to value a business notes Bill Morrow, CEO of Angels Den Funding Inc, a British platform founded in 2007.
The U.K. has had equity crowdfunding for several years now, and Morrow’s opening keynote at the Summit detailed what it takes for a country to make the financing model successful. “For Canada to actually be able to progress, you kind of need to have an education program for both entrepreneurs—Canada’s really good at that—but for the angels as well,” he told me.
For example, retail investors may not be familiar with the risk-reward calculations in niche or specialized industries. “The challenge for us is that as a research and development-oriented enterprise, the message can be complicated,” admits Buck Young, the co-founder and Operations Manager of CannTx Life Sciences, a medical marijuana company. “Our challenge will be to really simplify that and condense it.”
3. The fundamentals still matter
His main business is software, but Michael Hyatt also has a side-gig investing in startups as a Dragon on Next Gen Den, the online spinoff of the hit CBC entrepreneur pitch show. Hyatt says the same rules of success apply today as a decade or a century ago. “Great businesses show great value to clients and are something they really, really need,” he says.
One particularly important skill for entrepreneurs: the ability to pivot. “Do I like their market and do I think they can make it?” Hyatt says he asks when evaluating an investment opportunity. “And do I think they can pivot when one of the founders leaves or they lose funding or something else happens? Because inevitably it does.”
The same rules apply to investors looking to back a company through a crowdfunding platform, or to founders seeking capital via one.
4. You need to deliver
Plenty of companies have raised six or seven figures through crowdfunding campaigns, and then failed to meet their targets or deliver their products on schedule. Equity adds a whole different set of pressures to the mix, because those disappointed backers are now shareholders.
“I see a lot of companies raise millions of dollars for a really great product, [but] there’s a big difference between raising that money and then shipping that product and then getting acceptance,” says Hyatt.
Putting in the early work pays off. “The most successful campaigns are the ones that take the time to plan, [to] understand their consumer and the market and the community they’re trying to build, and then execute that plan,” says Daryl Hatton, founder and CEO of Vancouver-based crowdfunding platform FundRazr. “Otherwise they tend to fail rather quickly and rather embarrassingly.”
5. It’s not just for startups
While much of the conversation this year has been about the new equity crowdfunding regime, other forms of the financing model can and do exist. There is of course the original kind, where campaign backers on platforms like Kickstarter or FundRazr receive rewards in the form of experiences or physical goods in exchange for their money. But crowdfunding is also being applied to asset classes like debt and real estate.
The last of those categories has seen a particular proliferation of platforms and interest. “The predictability of cash flows, the ease of understanding and analyzing rent rolls, cash flows, [and] financial statements [make real estate] a lot more predictable compared to the other asset classes,” says Amar Nijjar, the founder and CEO of Tornto’s R2 Crowd.
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 1300+ 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.