April 24th, 2017
Startup Advice on Crowdfunding from Duncan, Director of TMT Research, Deloitte Canada
Duncan Stewart is a tech sage. He is the co-author of Deloitte’s renowned annual TMT Predictions, which is a forecast of trends in the technology, media and telecommunications sectors. He and his colleagues boast an 80% accuracy rate. Let’s just say, he ain’t your local weatherman. John Kenneth Galbraith famously declared, “The only function of economic forecasting is to make astrology look respectable.” I love that. But he never met Duncan Stewart. In part 1 of this 2-part series on my chat with Duncan, he shares his insights on crowdfunding in Canada. You can follow Duncan on Twitter here.
“The reason people are primarily doing crowdfunding is social good – that feeling of helping an entrepreneur build something that wouldn’t otherwise exist.”
Crowdfunding is VC kryptonite: while, “equity-based crowdfunding seems to make the most sense in earlier rounds – the seed financing rounds… having ignored traditional VCs in your earlier rounds, going back to them when you have a thousand shareholders is extremely difficult.”
Crowdfunding makes you the fat kid at the party: “Most companies stay private as long as possible because being public is extremely cumbersome… having thousands of shareholders makes for a less nimble corporate structure and nimbleness is one of the things that’s really important for early-stage companies.”
Double down of equity-based crowdfunding at your own peril: the Ontario Securities Commission has made it “relatively clear that [it] is approaching crowdfunding as you or I would approach a rattlesnake… their disposition is to be as careful with crowdfunding as possible.” Incidentally, I was at a presentation on Canadian crowdfunding regulation a few months ago, where Jim Turner, Vice-Chair of the OSC, clearly established that they believe the potential for abuse and fraud is so high that extreme caution is necessary.
The reward-based model ain’t so hot either: “84% of all reward-based crowdfunding projects run late… Because of the delay and also because of the disillusionment created by the gap between the vision of what you see on your computer screen and reality, there are very few advantages to buying a product on a crowdfunding website.” Duncan and his team are predicting a slower pace of growth in reward-based crowdfunding than other forecasters because, “the population of people who are willing and predisposed to support crowdfunding is almost certainly around 1-3%, and if those 1-3% become disillusioned and there’s no repeat business, there is no viral, geometric growth.”