Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Equity Crowdfunding, Alternative Funding
Today’s the first day to form crowdfunding stock exchanges for the masses
LA Times | James Rufus Koren | January 29, 2016
For companies that want to match start-ups with small-time investors, today is the first day to ask for permission from federal regulators -- and one local firm wants to be at the front of the line.
Santa Monica's StartEngine plans to announce this morning that it has applied to the Securities and Exchange Commission to become a registered funding portal. Those portals will act as stock exchanges where, starting in May, small companies will be able to sell shares directly to the masses.
Related: SEC Approves Title III of JOBS Act, Equity Crowdfunding with Non-Accredited
Like Kickstarter and other crowdfunding sites, portals will for a fee list businesses looking to raise cash. But there's a big difference: Money given to a company through a Kickstarter campaign is a donation often rewarded with a company's product; money given through an SEC-approved portal buys an ownership stake.
StartEngine is already a player in other types of equity crowdfunding geared toward larger companies and wealthy investors.
Since 2013, companies have been able to go online to solicit investments from so-called accredited investors -- those with a net worth of a least $1 million or annual income of at least $200,000. The new rules will let anyone invest, even if they don't meet those criteria.
Howard Marks, StartEngine's executive chairman, said he wants to get into this new market, which he thinks could prove to be big business.
"Anyone with an idea can put themselves out there and raise money," he said. "It's the true democratization of capital."
Related: Equity Crowdfunding Portals: In a Nutshell
The new crowdfunding rules, approved by the SEC in October, will allow private companies to raise up to $1 million a year from small-time investors. And they won't be required to do the kind of reporting and auditing required of bigger companies or firms raising larger sums.
The relaxed rules are part of the JOBS Act, a 2012 law championed by President Obama to boost start-ups. But critics say the new rules could prove to be a bad deal for small-time investors who are less savvy.
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Register today for the 2016 Canadian Crowdfunding Summit | Innovation | Investors | Entrepreneurship
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 ncfacanada.org.
Equity Crowdfunding: Five Strategies Guusto Used to Become Canada’s First
Futurpreneur Blog | January 26, 2016
Written By: Joe Facciolo, Co-Founder of Whistler Tasting Tours & Guusto
Fundraising is an inevitable task that plagues most start-up founders, especially those in Canada who are once, twice removed from the silly money that resides in and around Silicon Valley. As water cooler conversations in the tech community often center around the progress of your current “raise”, the topic regularly turns to stories of how investors south of the border move quickly, with the notion that start-ups boasting a solid business idea, a prototype and a semblance of being able to execute should get a shot at finding product market fit or die quickly.
Whether there is any truth to the tales of our southern start-up brethren quickly and effortlessly raising seed capital, this is not the reality for the vast majority of Canadian start-ups.
This is why May 14th, 2015 was a historic day for entrepreneurs and start-up companies across the country. Long-awaited regulatory changes came into effect and opened the door for equity crowdfunding in Canada; this is a practice that has been legal for over two years in a number of European countries.
Related: Equity crowdfunding will soon be legal in Canada. Should you jump in?
With that, I’m excited to say that Guusto, an instant gifting platform (send food, drinks, movies and more) that I co-founded with my childhood friend and business partner, Skai Dalziel, is officially the first Canadian company to raise funds using the ‘Start-up Crowdfunding Exemption’ (via FrontFundr), and were 200% subscribed! Finally, financing opportunities are no longer just the domain of wealthy angel investors.
Eligible start-up companies are able to accept funds, up to $1.5 million annually, from any resident of British Columbia, Saskatchewan, Manitoba, Quebec, New Brunswick or Nova Scotia (Ontario coming soon) in exchange for shares in the company. There is a cap of $1,500-$10,000 per individual investor, depending on the province. The portals also allow for larger sums from accredited investors or friends and family.
Related: The Real Data on Equity Crowdfunding Performance
Raising funds is no easy task, and that includes equity crowdfunding. To successfully close a deal, it takes thoughtful planning. Below are five strategies that helped Guusto make it happen, and perhaps these tips can help you do the same.
1. Get Legal Advice
Speak to your lawyer (get one if you don’t have one) and make sure that your shareholders agreement and offering documents are tight.
2. Launch with Initial Traction & List Investors
Get a few investment commitments, even if they are small, so that when you launch your campaign it’s not sitting at 0% subscribed. Moving the dial-up will give additional confidence to others who might be considering the deal. No one wants to be first. Furthermore, list your investors with their bio on the deal site. If they’ve made other successful investments, make sure that this is noted.
3. Set A Realistic Target & Oversubscribe
Equity crowdfunding is new in Canada and has not reached mass adoption. Take that into consideration when setting your goal. It’s better to set an achievable target and oversubscribe (even if it’s lower than your dream goal) than to never reach the finish line. Overachieving always looks better than underachieving.
Related: This is the best time for startups to get funding in Canada. Here’s where to look for it
4. Video Q&A With Founders
People invest in people. Posting a video on the deal site will give potential investors a look at who you are and how you address some of those burning questions. Have someone off camera conduct the interview so that it appears as natural as possible.
About Guusto
Guusto (guusto.com), named a Top 5 BC Tech startup, is an instant gifting platform that allows you to send food, drinks, movies and more – redeemable at 1500+ locations. Pick up the tab at lunch for a client or buy a friend a glass of wine on their birthday and do it from anywhere. Guusto for biz allows high volume gift senders to generate any number of gift links and earn refunds when they go unclaimed.
About Joe Facciolo
Joe is the Co-Founder of Guusto and the Co-Founder of Whistler Tasting Tours. After graduating in 2003 from Western University, he spent four years living and working abroad. The experiences gained sent Joe back to Canada armed with ideas, drive and a heightened social conscience. When not at the office, Joe can be found playing beach volleyball, riding the bike and ski trails in Whistler, or enjoying good food and a laugh with good company.
Register today for the 2016 Canadian Crowdfunding Summit | Innovation | Investors | Entrepreneurship
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 ncfacanada.org.
Is VC The Right Money For Fintech?
TechCrunch | Micah Rosenbloom | January 23, 2016
Financial technology has never been a more exciting or innovative category — especially in New York City. Oddly, tech is not the driving force in many of these ventures. The Blockchain and Bitcoin notwithstanding, most of what we’re seeing now is financial product evolution and the unbundling of the large bank. Most of these companies could have been built 20 years ago.
Outside cryptocurrency and a few tools that enable better trading decisions, most of these startups developed a proprietary model to score the credit risks of potential customers and paired it with a clever go-to-market strategy that will appear to a new class of debt holders.
In the consumer space, this could be financing for home flippers, school loans, high-deductible health plans or even Uber drivers who want to buy new cars as a means of earning income. On the B2B side, companies have formed to help small business get financing by creating obscure products, like securities based on accounts receivable financing.
Related: Report: Current State of the Financial Technology Ecosystem in the Toronto Region
As a seed-stage VC that invests across many categories, these are hard businesses to assess. The industries they serve are varied, obscure and almost impossible to do due diligence on. Their technology typically feels like a black box that requires blind faith in their assertions. On the surface, this would make them seem unattractive.
But often these businesses have made hundreds of thousands of dollars in “transactional volume,” with promising metrics, like repayment rates and customer acquisition costs. So, from the standpoint of initial traction, there is evidence of a product market fit, and they look attractive.
Related: Crowdfunding Investment in Technology Could Hit $8 Billion By 2020
Almost all of these startups make sense as businesses, but I think founders and investors need to spend time thinking through two key questions. First, as an investor, would I want to buy the debt OR the equity? Do I want to be a customer or an investor? Second, from the founder standpoint, would it be better to take venture money or run the business from cash flows and keep the profits — the typical approach for Wall Street finance firms.
Would I rather be a customer or investor?
From an equity investment perspective, one must start by looking at the financials. In these types of ventures, the gross loan portfolio appears large — but consider that the actual net revenue or return from these businesses is anywhere from a tenth of a basis point, topping out at 1-2 percent. Thus, to be a venture-worthy investment, literally billions of dollars must be loaned. In finance, size matters.
The yields are generally double-digit; as a retail investor, I’d love to invest in clever debt structuring products that can return 10 percent a year with little volatility. Perhaps that’s why a lot of “smart” hedge fund and institutional money is flowing to these platforms (like Lending Club, OnDeck, etc.). Demand outstrips supply of loans on many of these platforms.
Related: Why Venture Capitalists Are Turning to Crowdfunding
So they’re clearly good businesses. But it’s often harder to see how these deals become attractive from an equity perspective. As a VC investor, do I see the potential for 10X returns in under a decade? A few lucky winners will IPO, but it’s hard to envision who these businesses will ultimately sell to — the lion’s share of our returns come from M&A. Even if the startup does find a buyer, these kinds of companies often have low valuation multiples, making them less attractive venture capital investments.
Strengths and weaknesses of stockbrokers turned startup founders
The question for founders is, do they really want to play the VC game? Many come from Wall Street and, contrary to popular belief in the startup ecosystem, many of these folks are quite entrepreneurial and almost definitionally risk takers.
They see opportunity in the seemingly lucrative land of tech startups. As Willie Sutton said when asked why he robbed banks, “That’s where the money is.” While the motivations may be different than others drawn to startups, these folks seek to enact the same sorts of disruption in the market they know best, finance.
Related: Fintech Innovators Unveils 2015 “Fintech 100″ List
All that said, fintech entrepreneurs (and I’m certainly generalizing here) are less focused and experienced in product development. Finance is centered around transactions rather than building cumulative experiences. This is probably the right focus for such ventures — and sometimes I wish other company founders had such focus on generating profits! — but it runs contra to building a business where you have to put off a dollar today to make 10 next month.
The founders get this conceptually, but sometimes they can be fixated on making the company grow linearly by getting more “paper” under management, rather than developing a solution that unlocks exponential growth.
Financial technology has never been a more exciting or innovative category.
This mindset is even reflected in the way they incorporate their businesses. Further compounding the challenge for equity investors is that some of these attractive companies are incorporated as LLCs. This is because of the nature of these cash flows, the losses from these ventures can be used to offset gains from the founders, and from other investors in the venture. Most VCs, ourselves included, almost exclusively invest in C-corporations.
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Register today for the 2016 Canadian Crowdfunding Summit | Innovation | Investors | Entrepreneurship
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 ncfacanada.org.
How Quebec’s Dubuc Motors is using U.S. equity crowdfunding to bring you a flashy, fast electric car
Financial Post | Damon Van Der Linde | January 22, 2016
MONTREAL — For a region that has never had an automotive manufacturing sector and where winters are too harsh for most sports cars, Quebec City-based Dubuc Motors says it was surprisingly easy to find local sources for almost all the parts it needed to build a high-performance electric vehicle.
What has really proven difficult for the company is sourcing Canadian investors to help take its Tomahawk electric sports car from a prototype to the consumer market.
After years spent seeking financing close to home, Dubuc Motors is looking south, becoming the first electric vehicle company in the world to launch a car through the U.S.’s very new equity crowdfunding program.
“Nobody wanted to invest in cars in Quebec,” said cofounder and company chief executive Mario Dubuc. “We wanted to prove that our technology was different and we could make it.”
On Friday Dubuc Motors began their campaign to raise money through StartEngine, one of a handful of online platforms that facilitates the U.S. JOBS (Jumpstart Our Business Startup) Act, which allows private companies to connect with investors for the funds they need.
Related: SEC Approves Title III of JOBS Act, Equity Crowdfunding with Non-Accredited
Dubuc and business partner Mike Kakogiannakis met in Moncton, N.B., where Dubuc’s wife ran a chip wagon near Kakogiannakis’ wife’s ice cream parlour. The two bonded over their mutual love of cars and, although neither had formal experience with the automotive industry, in 2004 began designing the Tomahawk electric sports car part time.
Kakogiannakis, 33, says he believes Tesla Motors Inc. “paved the way” for the electric car market in North America and gave the industry a credibility it needed.
The Tomahawk looks like a hybrid between a Dodge Viper and a Tesla Model S, with a hint of Lamborghini. It can go from 0 to 60 km/h in three seconds and has a top speed of more than 250 km/h — higher than those in the Tesla line. It also has a bonded aluminium chassis invented by the Dubuc Motors team, something Kakogiannakis saiys he was inspired to create after he took up flying planes.
Related: How An Electric Car Company Won Britain’s Equity Crowdfunding Race To Profit
Four years ago the entrepreneurs made the leap to work full time on the car.
Every component of the Tomahawk is sourced from within 45 minutes of the company’s Quebec City facility, Kakogiannakis says, except the windshield, battery and tires.
What was difficult locally, was finding either government support or investors willing to put up capital for the company.
Dubuc says for two years the company tried to find funding in Quebec and elsewhere in Canada.
“All the time it was ‘no’ and closed doors. When I started everybody thought that I was a fool because nobody was making cars in Quebec,” Dubuc says.
“The reason it took (us) 12 years is, I believe, that society wasn’t ready,” Kakogiannakis says “In 2004 when we were talking about this, people looked at us very strangely.”
Still, Tesla’s brushes with bankruptcy have drawn unfavourable comparisons when Dubuc Motors approached venture capital firms, making it difficult to secure funding.
“They don’t seem to think about how (Tesla) was the first one on the planet to come out with an electric car, the hurdles they had to go through and the naysayers along the way,” says Kakogiannakis, who is also Dubuc Motors’ chief operating officer.
Related: Hacking the Startup Fundraising Matrix
He says at first he worried the company was doing something wrong in the way it sought financing, before learning that even Tesla CEO Elon Musk was unable to secure venture capital in the early stages.
“I realized that he laid it on the line himself, while he had a lot more capital and stature than we did. If he didn’t find (VC funding), what were the chances that we would?”
So far, the company has spent more than a million dollars developing the Tomahawk, sourced entirely through Kakogiannakis and Dubuc’s personal resources, in addition to some “love money” along the way.
“My paycheque for the past three years has been zero,” says 51-year-old Dubuc, who began working on cars out of personal interest at 14. “I didn’t want to be 70 years old and regret that I didn’t do this.”
That drive led Dubuc Motors to StartEngine, which is helping the company take advantage of the JOBS Act, a process sometimes described as being like a “mini IPO.”
Kakogiannakis says the target is to raise $15 million for a minority stake in the company, somewhere around 10 per cent, though the final amount would depend on how investors react to the initial campaign.
Related: Cash-strapped B.C. startups begin tapping equity crowdfunding
Because the Tomahawk is designed to be the only “2+2”-seat (built for the driver and one passenger in the front plus two smaller seats in the rear) electric sports car, Dubuc Motors believes this is a demand not currently being met.
Kakogiannakis says although Tesla’s current line of cars may look sporty, the target market is not the same as those who would be in the market for a high-performance roadster.
“We wanted to develop a product that wouldn’t compete with the big automakers. If we were to do that we would get hammered,” he said. “What we’re trying to do is complete Tesla’s line, not compete with it.”
This car is not for everyone in either the electric or combustion engine realm, as Dubuc Motors is aiming for wealthy customers who want a flashy, fast car.
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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 ncfacanada.org.
Financial Crowdfunding in 2016, What it’s Achieved and Where it’s Going
Finance Magnates | Jeffrey Levine | January 21, 2016
In this guest article, Jeffery Levine draws a comparison between the online gaming and trading market and that of crowdfunding.
The past few years we have seen a tremendous growth in crowdfunding platforms. By crowdfunding we mean investing by the man in the street – what is called in the industry a retail client. We are not talking about investor clubs or crowdfunding for qualified investors.
To go back to the source of the growth of this – one needs to look at the power of the internet that started the huge industries of gaming, online forex and CFDs, crowdfunding for projects, charities and now peer to peer (P2P) lending. This is fueled by the dual need to have some fun, and investing to make some extra money. One common feature is that the companies in this new world are new world entrepreneurs and not from the old school of business. There are almost no big names with prior track records.
Related: Crowdfunding Investment in Technology Could Hit $8 Billion By 2020
The next step up in this trend is crowdfunding and we see this trend continuing and growing. P2P lending, and new lending companies are popping up like wild mushrooms. We are seeing this as a major challenge to banks and the big companies in the factoring space. The stats for 2015 are impressive. In the UK, the industry is in excess of $3 billion and in the US $35 million. This is driven by investors who are not able to earn any interest on their money. Returns for crowdfunding lenders are in the range of 5 to 7%. This implies that borrowers are paying around 9%+.
The next big growth is in real estate crowdfunding. In the UK, any targeted return of 5% is being snapped up. While this may look tempting – there are risks.
Related:
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Small Business Lending in the US & UK (Deck)
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Interview: Canada’s P2P Small Business Marketplace, Lending Loop, Gains Traction
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Let’s cheer – not fear – the rise of ‘fintech’ alternative lenders
Another growth area is investing in private companies such as startups and established businesses. Crowdfunding continues to grow in popularity with private investors, who have suffered years of low interest rates on their savings. AltFi estimates that equity crowdfunding will attract £140 million in 2015, more than double the £59 million raised last year.
Currently, there are limited crowdfunding options for financial investments like bonds and hedge funds. Under this model, a crowd platform would offer these products which are only available to qualified investors. There is some movement to get this changed. Blackstone has started to campaign to allow the retail investor to invest in hedge funds. Also, in South Africa, the FSB will allow the marketing of hedge funds to the retail investor under certain conditions.
With all this we are now seeing the beginning of a trend towards giving retail investors a greater choice. We are also seeing a move into this space in the Forex industry by IG. “IG Group, a global leader in online trading, has completed the acquisition of InvestYourWay (who offer managed portfolios) as part of IG’s strategic aim of expanding its product offering. This will assist IG in delivering on its partnership with BlackRock to offer a range of ETF-based investment portfolios.” (November 2015)
Related: Fintech Innovators Unveils 2015 “Fintech 100″ List
At present, there are very few forex brokers offering crowdfunding opportunities. This new market represents risks to the both the Forex market and private wealth management firms as the retail investor has more choice where to invest his funds. The opportunity is for these firms to embrace these initiatives. This is the new frontier.
This article was written by Jeffrey Levine, founder of www.strategic-consulting.co focusing on initiatives in the fintech , forex and crowdfunding space. In it, Levine takes a look at the crowdfunding sector are draws similarities to that of the online gaming and trading industries
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Register today for the 2016 Canadian Crowdfunding Summit | Innovation | Investors | Entrepreneurship
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 ncfacanada.org.
Crowdfunding Investment in Technology Could Hit $8 Billion By 2020
Small Business Trends | Shubhomita Bose | January 17, 2016
Investments in crowdfunded technology are set to increase seven-fold from an estimated $1.1 billion in 2015 to $8.2 billion by 2020, according to “Crowdfunding: Strategies & Impacts for Technology Markets 2016-2020,” a new study conducted by Juniper.
The study expects the crowdfunding industry to “see an accelerated growth from the lucrative, but less well-known, method of funding known as ‘equity crowdfunding’.”
“Equity crowdfundng” refers to raising money through crowdfunding means for a share or interest in the company, not simply an early or lower cost version of the product or other perks.
Related: Why crowdfunding is set to get a whole lot bigger in 2016
In other words, smaller technology investments will be available to firms unable to get investments from Venture Capitalists and Angel Investors.
Equity Crowdfunding to Grow
The crowdfunding investment research has identified the U.K. as the leading market for this equity crowdfunding with the U.S. come in lose behind. In recent years, equity crowdfunding has taken off in a very big way in the U.K. Equity crowdfunded deals and investments have, in fact, grown steadily since 2011.
Related: Equity crowdfunding will soon be legal in Canada. Should you jump in?
Juniper expects other countries to follow the U.K. model by legislating to allow smaller investors to engage in equity crowdfunding. But the future of equity crowdfunding in the U.S. remains bright the U.S., with the positive SEC (US Securities and Exchange Commission) ruling on the JOBS Act, Title III passed in October 2015.
This follows up earlier legislation as part of the Jumpstart our Business Startups (JOBS) Act of 2012 which began opening the door to more equity crowdfunding as an alternative kind of investment.
Hybrid Models in Focus
Well-known crowdfunding platforms such as Kickstarter have popularized the concept of reward-based crowdfunding, which benefits small businesses looking for funding. In return for their investment, project backers receive some type of incentive. But after some much-publicized failures, such as the Zano drones debacle, this model has lost much of its sheen.
Related: Crowdcube Founder Claims An Industry Tipping Point
Crowdfunding platforms are now looking at hybrid crowdfunding models, which allow users to invest in the project or company via equity or debt, rather than to receive an incentive for their support.
Report author Lauren Foye says, “The hybrid concept has been demonstrated recently, with video games crowdfunding platform ‘Fig’ hosting projects to be backed through a combination of the rewards and equity models. Equity is attractive for consumers, who feel they may be investing in the next ‘Oculus Rift’ or ‘Pebble Time’, hence in line to make a significant profit.”
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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 ncfacanada.org.
NCFA Canada Response to Russell’s Call to Dispense with Equity Crowdfunding
NCFA Canada About Us | January 15, 2016
With the proliferation of equity crowdfunding exemptions around the world, such as Ontario's crowdfunding regime that will become live later this month on Jan 25, it is unfortunate Mr. Ian Russell views equity crowdfunding as competition to the TSX Venture Exchange when in fact it is a complement. In his Letter from the President Mr. Russell, chief executive of the IIAC (Investment Industry Association of Canada), calls on regulators to dispense with equity crowdfunding in favour of the TSX Venture Exchange. The Financial Post in an article yesterday (Scrap crowdfunding to help TSX Venture Exchange, IIAC CEO urges - January 14) repeated his view that equity crowdfunding was hurting the TSX Venture Exchange. He expanded on his dislike of equity crowdfunding again in his BNN interview today.
Equity crowdfunding addresses the capital needs of Canadian companies at the seed and early stages of their business development, and the capital needs of Canadian companies at later stages that are unsuited to be public companies but are highly valued in their communities. These companies currently struggle to find the capital they need in Canada. The TSX Venture Exchange may indeed be an “effective vehicle for raising capital” but not for companies such as these who cannot afford the cost of being a public company.
The equity crowdfunding exemption coming into force January 25, 2016 in MB, ON, QU, NB, and NS, and the start-up crowdfunding exemption, which came into force May 14, 2015 in BC, SK, MB, QU, NB, and NS, both operate to fill a serious void in our capital market system today. We believe critics like Mr. Russell will be boosters of equity crowdfunding once it has a chance to take hold and evolve in Canada as it has in several international jurisdictions. Ironically, the same critics may ultimately become avid supporters of equity crowdfunding over time as the market grows and incubates more Canadian early stage ventures to market.
Related: Crowdfunding: enabling global entrepreneurship, the future of Canada’s innovation economy
Seed and early stage companies who have successfully raised capital through crowdfunding will need and look for additional capital as they ramp up and move into other development stages. Companies with a large shareholder base from equity crowdfunding are more likely to look for expansion capital through public markets like the TSX Venture Exchange when it makes sense for the company, its shareholders, and new investors.
Equity crowdfunding therefore has the potential to attract new investors and a diversified range of companies to the TSX Venture Exchange as these seed and early stage companies professionalize and grow. Albeit, not all companies who raise equity through crowdfunding will become public companies. Some companies may instead look to raise follow-on capital on accredited investor equity platforms run by investment dealers and exempt market dealers. It does not make sense to drive all companies who need capital to the public markets.
Related: Let’s cheer – not fear – the rise of ‘fintech’ alternative lenders
Mr. Russell in his letter suggests that regulators and the Federal Government look to the U.K. for policies that would stimulate the small business private and public markets in Canada. We agree, and wish to point out equity crowdfunding has played a big part in stimulating the U.K. economy. Since being adopted by the U.K. Government in 2011, over 1,000 companies have raised over £240 million through equity crowdfunding platforms. They have had zero fraud. In 2014, 30% of equity funding for seed stage private companies in the U.K. came from equity crowdfunding raises. In the third quarter of 2015, that number was well on its way to being around 50%. The U.K. Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), which provide tax relief covering from 30% to over 75% of an investment into an eligible private company has contributed to the success of equity crowdfunding and in stimulating the U.K. economy.
A few provinces in Canada have similar tax programs to EIS and SEIS (e.g., BC’s Small Business Venture Capital Act and NB’s Business Investor Tax Credit Act). These existing provincial tax programs lack uniformity and there are no similar national tax programs like EIS and SEIS in Canada. A national tax program would go a long way in stimulating investment in private companies in Canada and would work well with equity crowdfunding. We would recommend the Federal Government design any such tax program with additional tax incentives to encourage investment in companies located in provinces and territories traditionally ignored by angel investors, venture capital funds, and investment bankers.
Related: The Real Data on Equity Crowdfunding Performance
Dispensing with the “crowd funding” initiative as suggested by Mr. Russell would be a huge mistake and contrary to what is happening around the world today. According to a Goldman Sachs report released in 2015, the global equity crowdfunding market has grown from $400 million in 2013, to $1.1 billion in 2014, and $2.6 billion in 2015 (estimated).
As mentioned above, the U.K. has had an equity crowdfunding exemption since 2011.
In the U.S., as of this month, 29 states plus the District of Columbia have adopted or are finalizing rulemaking implementing crowdfunding exemptions, and 12 additional states are actively considering crowdfunding exemptions. Significant capital is being raised on intrastate equity crowdfunding platforms and accredited investor platforms in the U.S. According to Crowdnetic Corporation, between October 1, 2014 and September 30, 2015, there were 6,063 distinct accredited investor equity crowdfunding offerings in the U.S. raising U.S. $870 million. During the same period between 2013 and 2014, there were 4,712 offerings which raised U.S. $385.8 million. A federal equity crowdfunding exemption will be effective in the U.S. on May 16, 2016 which should further expand the use of equity crowdfunding in that country.
Equity crowdfunding is growing with a 115% average year after year growth rate over the last three years in Europe.
Equity crowdfunding rules have also been adopted and platforms operational in Australia, Asia, and a number of developing countries around the world.
Mr. Russell and the members of the Investment Industry Association of Canada may wish to save and protect the existing investment banking model in Canada but equity crowdfunding is not one of the nails in its coffin. It could indeed be one of the keys to its turnaround and salvation.
Sincerely,
On behalf of National Crowdfunding Association of Canada (NCFA Canada)
Links:
Moving Mainstream: The European Alternative Finance Benchmarking Report, Wardrop, Robert; Zhang, Bryan; Rau, Raghavendra; and Gray, Mia, February 2015.
Crowdfunding: Strategies & Impacts for Technology Markets 2016-2020, Juniper, January 11, 2016.
Equity Crowdfunding in the UK: Evidence from the Equity Tracker, Beauhurst and British Business Bank, March 2015.
“Crowdfunded companies are doing better than average – but why don’t Equity Crowdfunding Platforms tell us this?” Griffith, Sam, AltFi Data, July 15, 2015.
“Britain has become a business-creating powerhouse” Speech by Danny Alexander, (former) U.K. Chief Secretary to the Treasury, presented at the Saïd Business School on February 23, 2015.
Developing World Crowdfunding: Prosperity Through Crowdfunding, Annual Report, Allied Crowds, January 2106.
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 ncfacanada.org.
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