April 24th, 2017
Will Canada make room for institutional crowdfunding?
There was a moment a few months back when many people could not get over the gall of Zach Braff. Instead of going the usual route to make his next film, the actor-director turned to the popularcrowdfunding platform Kickstarter to raise money for the project. Though this may end up giving him more creative control, his move showed just how difficult it is to get anything financed, unless you take it to the people.
Optimize Capital Markets, which launched earlier this month, is a Canadian example of how the crowdfunding model is being applied to a more specific group of people, namely institutional and accredited investors. Though physically headquartered on Bay Street in Toronto, the company claims its Crowdfunding Portal can provide a more efficient and transparent means of exploring and evaluating investment opportunities than traditional financial systems.
Matthew McGrath, a former RBC vice-president who founded Optimize Capital Markets, said his venture is distinct from Kickstarter and other microfinancing sites in that the average deals will be much higher, and vetted much more thoroughly.
“One of the things you learn very on is that the critical success factor is due diligence, and when you start to roll up your sleeves and look at any transaction, you realize that, rightly or wrongly, deals in the $2 million to $10 million range represent terrific value for investors,” he says. “Those kind of firms are still faced with every bit of a funding gap as the smaller opportunities that are out there.”
The main challenge to this approach may be educating potential investors about the process -- and the potential pitfalls. While Canada has launched a number of crowdfunding initiatives already, the sector is somewhat scattered and fragmented. In response, an industry group called the National Crowdfunding Association of Canada (NCFA) has formed and is hosting Webinars and live events for those new to the concept.
“We’re looking at investor protection,” says Craig Asano, the association’s executive director, adding that a survey and other projects are under way to help bring Canadians up to speed quickly. “All that research and education will be useful for everyone, including the regulators and participants.”
As with anything in the tech space, there is already a worry that Canada is falling behind the U.S. and international markets, Asano adds. McGrath, however, suggests the pace of crowdfunding in Canada will happen as it should.
“If you look at when banks started to go online with services or brokers started going online with discount broker services, it wasn’t overnight that people fired their broker,” he says adding that Optimize Capital Markets is prepared for the fact that its first-mover advantage in the institutional investor niche may not last long.
“We will see a number of competitors entering the marketplace in the next six to 12 months. And there will not be one clear winner,” he says. “There will be number of very good quality firms that are in this space, with five to 10 firms that are dominating. We would expect that.”
In other words, expect the crowdfunding market in Canada to get a lot more crowded.