Forbes | Chance Barnett | June 10, 2015
By 2016 the crowdfunding industry is on track to account for more funding than venture capital, according to a recent report by Massolution*.
Just 5 years ago there was a relatively small market of early adopters crowdfunding online to the tune of a reported $880M in 2010.
Fast forward to today and we saw $16 Billion crowdfunded in 2014, with 2015 estimated to grow to over $34 Billion.
In comparison, the VC industry invests an average of $30 Billion each year.
Meanwhile, the crowdfunding industry is doubling or more, every year, and is spread across several types of funding models including rewards, donation, equity, and debt/lending.
And now under new laws enacted in 2013, equity crowdfunding has sprung forth as the newest category of crowdfunding and is further accelerating this growth and disruption.
If we look at what is driving this growth and change… we see that the collaborative economy has brought new disruptive models to giant existing industries like real estate and transportation, leveraging automation and the internet to create massively scalable businesses.
For some notable specific examples see this visualization of the sharing economy with data from Mesh Labs founder Lisa Gansky, and the recent Venture Beat report led by Jeremiah Owyang showing 17 new billion dollar valuation companies created within the sharing / collaborative economy.
Many of these collaborative economy companies reached over $1 Billion valuations within 4 years or less.
Next up in the crosshairs of the collaborative economy? The Finance industry – and the growth rates are already exponential. We’re seeing the disruptive power of collaboration online being unleashed on angel and venture capital via new laws and top crowdfunding sites focused solely on equity crowdfunding (see Canadian Crowdfunding Directory).
Here are the recent crowdfunding industry growth figures, as reported by Massolution in their 2015 Crowdfunding Industry Report.
The World Bank estimated that crowdfunding would reach $90 Billion by 2020. If the trend of doubling year over year continues, we’ll see $90 Billion by 2017.
To put that in perspective, venture capital averages roughly $30 Billion per year and in 2014 accounted for roughly $45 Billion in investment, whereas angel capital averages roughly $20 Billion per year invested.
Equity crowdfunding, the newest category of crowdfunding, opened up publicly in September of 2013 under Title II of the JOBS Act and, while restricted to accredited investors only, has grown to an estimated $1 Billion invested online. In 2015 the estimate is for over $2.5 Billion to be invested through equity crowdfunding.
If equity crowdfunding doubles every year like the rest of crowdfunding has, then it could reach $36 Billion by 2020 and surpass venture capital as the leading source of startup funding.
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 ncfacanada.org.
NCFA Canada | Craig Asano | June 8, 2015
On June 1, 2015, Neil Gross, Executive Director of Canadian Foundation for Advancement of Investor Rights (FAIR Canada) contributed an article to the Globe and Mail that highlighted a series of risks to the reader community, specifically: 1. Extreme Failure Rate, 2. Fraud, 3. No Accountability, 4. Illiquidity, and 5. Dilution. (see original post which appeared both online and in print: Crowdfunding has its place, but it's a crazy way to invest.
Below are a few responses from the crowdfunding industry and community which intends to provide readers with a more holistic view of both the opportunities and risks inherent with investing in crowdfunding markets:
Neil Gross’ article in the June 1 edition of the ROB (“Crowdfunding has a place, but it’s a crazy way to invest.”) is grounded in a fundamental misunderstanding of risk in business and in the investing world.
Mr. Gross contends that start-up businesses are intrinsically high risk and that equity crowdfunding actually increases the risk of investors in those types of firms.
Today’s business world has become intrinsically riskier up and down the spectrum of companies, from the largest to the smallest, as disruptive technologies attack established business models in the supposedly safest industries. Look what’s going on in banking. The CEO of RBC sounded the alarm several months ago when he commented that the banks were on a ‘collision course’ with the likes of Facebook and Google.
And, that’s just the tip of the iceberg as many specific banking business lines from foreign exchange to mobile payments come up for grabs by new upstart competitors unburdened by legacy branch networks and haphazardly-stapled together technology systems.
On the same ROB page was an article on P2P lending whose author called the development, “A game-changer – if we don’t hinder innovation.” Crowdfunding too can be a game-changer unless, as too often happens in the financial sector, this innovation is stifled by super-regulation.
The iron reality is that no firm of any size is safe today. Just ask Encyclopedia Britannica.
Just the reverse. Crowdfunding can decrease the risk for investors as a whole. A company that fails to excite potential investors and that fails to attract a crowd of those investors is likely going to fail in the marketplace.
Crowdfunding may simply lead to poorly-conceived firms with weak business plans getting frozen from accessing capital sooner, rather than later. So, crowdfunding may result in more efficient capital markets in Canada than we have today.
An episodic debate in Canada has been around varying views over the role of retail investors in funding early-stage companies.
Mr. Gross’ article clearly lands on the side of those who distrust retail investors to look after their own interests – unless accompanied by huge dollops of regulation and professional advice.
It’s important to recognize that the regulators aren’t going away and have set strict limits on the exposure of individual investors to individual firms.
It’s also worth recalling that the advice channel has not been immune from fraudsters like Bernie Madoff. Under the present crowdfunding rules, it’s hard to imagine any repeat of the multiple billions that were siphoned off by Mr. Madoff…and, sadly, he hasn’t been the only one of his ilk, only the most egregious example.
This takes us back to risk. There is risk in every path to investing.
By Richard Remillard, President, Remillard Consulting Group, and NCFA Board member
Other posts by Richard:
Canada needs a financial innovation institute
What I am confused about in this article is whether he is talking specifically about startups funding in general or crowdfunding?
Looking at the dot-com bubble bursting or past on-line IPOs that had a big downturn prior to some recovering, I sense this piece was written in haste without much research on relative investment options.
Each of his main categories, Extreme Failure Rate, Fraud, No Accountability, Illiquidity and Dilution can be attributed to angel investing and even seed rounds where the startup is being highly sought after. Realistically, the mandatory reporting of investment status is the only difference and as with any industry, expectations will dictate some information transfer. Eventually it may even become a way of weeding out riskier options if they are not very transparent.
Equity crowdfunding is creating a new playing field where people who have already been involved in the rewards/charity funding side of things can now take the risk with the longer-term reward for a company's success. If an investor does not do their due diligence and research the company, competition, industry and customer base, there is no difference in putting money in a risky stock market pick vs. equity crowdfunding.
The startups are still going to have to work as hard to convince people to invest in the their company because they will be in it for the long-term success, not short-term rewards. All of the elements of the pitch deck, understanding the investors and showing your roadmap for success will still be there. What will happen is a number of angel investors will be able to expand their portfolios with smaller investments. Partners in Venture Capital firms can put a stake early on with less invested and less to lose.
If anything, I expect this to be a new stage of the investment process where the startup has no existing customers, run rate, prospect funnel or even a minimal viable product (MVP) to showcase. Concurrently or prior to bootstrapping they will have the ability to pilot the MVP, gauge market interest, market for recruiting talent and even pivot along the way depending on market traction with less investment early on.
By Shahab Khan, NCFA Ambassador
LinkedIN Post: here
IT Business Article - contributor: here
Interestingly FAIR has proposed practical "solutions": here
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 950+ 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.
Yorkshire Post | June 7, 2015
TENNIS ACE Andy Murray has netted a long-term partnership arrangement with Seedrs, the UK-based equity crowdfunding platform.
The arrangement will see the multi-millionaire sportsman joining the Seedrs Advisory Board to provide advice to the firm on businesses working in the health, sport and wearable technology spaces.
This partnership represents the first time a major public figure has teamed up with an equity crowdfunding platform in this way, and it heralds a significant milestone in the development of the equity crowdfunding industry.
Murray said: “I’ve always been interested in investment, and being able to get involved in an innovative way to help support British startups really appealed to me.
“Equally as important was working with people I trusted and who fully understood the huge responsibility of handling people’s money. I’m looking forward to working with Seedrs and the entrepreneurs of tomorrow.”
Murray is said to have made more than £30m during his career in prize money and lucrative sponsorship deals.
He will not be offering advice to individual investors or recommending specific campaigns.
Murray will also be investing regularly in startups and other early-stage businesses through Seedrs and helping Seedrs to grow its brand in the UK and internationally.
Equity crowdfunding is revolutionising the way startups and other early-stage businesses are being funded.
It involves the raising of funds by obtaining many small investments from a large number of people through online platforms.
This form of business fundraising is proving increasingly popular, and it allows businesses not only to obtain the capital they need but also to build a community of supportive investors who can help them grow.
The equity crowdfunding market is growing quickly. Since its launch in July 2012, Seedrs has reported 15 per cent month-on-month growth, and within the next few years it expects to be funding hundred of millions of pounds into thousands of businesses each year.
Matt Gentry, who runs Andy’s management company, 77, said: “Andy is a keen investor, with his own management agency alongside a property portfolio, which includes a hotel.
“Crowdfunding is a space we’ve been looking at for a while, to complement his business interests, and he’s excited about being able to help startup businesses and entrepreneurs in the UK.
“Andy’s been lucky enough to have support from sponsors throughout his career, not only helping to aid him and his team financially, but also adding valuable mentoring in many cases.
“For him the opportunity to give something back to help to up and coming business men and women was very appealing.”
Jeff Lynn, chief executive and co-founder of Seedrs, said: “Andy Murray is the perfect partner for Seedrs as we drive our growth to the next level.
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 950+ 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.
AUM Law | Paul Hayward | June 5, 2015
This is the second of our nutshell series on regulatory developments affecting crowdfunding and other online financing portals.On May 14, 2015, the securities regulatory authorities of British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick and Nova Scotia (the participating jurisdictions) announced that they were adopting substantially harmonized registration and prospectus exemptions (the start-up crowdfunding exemptions) to allow start-up and early-stage companies in these jurisdictions to raise up to $500,000 per calendar year through online funding portals.
As explained in the related notice, Multilateral CSA Notice 45-316 Start-up Crowdfunding Registration and Prospectus Exemptions, the exemptions are being implemented by way of local blanket orders on or shortly after the publication of the CSA notice, and will be in effect until May 13, 2020.
The start-up crowdfunding exemptions consist of an exemption from the prospectus requirement (the start- up prospectus exemption) and an exemption from the dealer registration requirement (the start -up registration exemption).
The start-up prospectus exemption allows non-reporting issuers (but not reporting issuers) to issue eligible securities, subject to a number of conditions, including the following:
The eligible securities are subject to an indefinite hold period and can only be resold under another prospectus exemption, under a prospectus or four months after the issuer becomes a reporting issuer.
The conditions to the start-up registration exemption include the following:
- integrity,
- financial responsibility, or
- relevant knowledge or expertise.
- release funds to the issuer after the minimum offering amount has been reached and the 48 - hour right of withdrawal has elapsed, or
- return the funds to purchasers if the minimum offering amount is not reached or if the start-up crowdfunding distribution is withdrawn by the issuer.
Although it may seem unusual to provide an exemption from the registration requirement, but then reimpose many registration-like requirements as conditions of the exemption, this approach arguably reduces the registration requirement to a very “light touch” regime and allows the portal to avoid many additional obligations that ordinarily apply to registered firms. On the other hand, this approach may also result in some uncertainty, such as whether a regulator’s decision to remove the registration exemption is subject to the same “fitness for registration” criteria and protections as a decision to refuse, suspend or revoke a registration, and may result in some additional risks to investors, such as in relation to the portal’s ability to handle investor funds.
Nevertheless, on balance, the approach reflected in the start-up crowdfunding exemptions represents an attempt to tailor a regulatory regime that is sensitive to concerns about regulatory burden and principles of proportionate regulation, and allows issuers and portals a measure of choice over the regulatory regime under which they wish to operate.
As explained in our first nutshell of this series, Equity Crowdfunding Portals, we may soon see a number of different crowdfunding models operating in Canada, including the following:
In this regard, it is particularly welcome that the start-up crowdfunding exemption has been amended from the original March 2014 proposal to allow offerings to be made through portals operated by registered dealers. In view of this change, registered dealers that are subject to higher regulatory requirements may also add start-up crowdfunding offerings to their activities. This may make it easier for the remaining jurisdictions, such as Ontario and Alberta, to introduce a similar start-up prospectus exemption in the future.
At a time when there appears to be little apparent movement south of the border on the crowdfunding proposals published by the SEC in October 2013, the choice of models being made available to Canadian issuers and investors is very welcome.
Please contact a member of our Regulatory Compliance Group for guidance on any of the topics in this nutshell.
This nutshell is an overview only and it does not constitute legal advice. It is not intended to be a complete statement of the law or an opinion on any matter. No one should act upon the information in this nutshell without a thorough examination of the law as applied to the facts of a specific situation.
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 950+ 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.
TechCrunch | Natasha Lomas (@riptari) | June 4, 2015
Q: What do you get when you combine the swipe-to-like mechanism, popularized by dating app Tinder, with a wealth of potential equity crowdfunding investment opportunities?
A: an aggregator-sorter app called Tendr, that’s launched in the U.K. today (on iOS and Android) — promising to apply Tinderish thumb grease to equity crowdfunding investment campaigns to widen the deal flow funnel.
The aggregator app pulls in campaign content from multiple equity crowdfunding platforms at launch, including Crowdcube, Seedrs, Angel List U.K., Angels Den, Crowdfunder, Funding Tree and Investing Zone, letting investors maximize their exposure to businesses they might want to back within a single interface, while also applying an addictive, Tinder-style snap-decision sorting mechanism.
Tendr is really just a way of starring an investment opportunity that looks interesting for proper perusal later. So whether it ends up saving time or maximizing deal flow efficiency is up for debate. But it does offer a tweakable one-stop-shop for scanning multiple (U.K.) equity crowdfunding investment opportunities.
“Tendr removes friction, thereby increasing efficiency in deal sourcing,” argues founder Lex Deak, who is also the founder of global super angels investment club QVentures. “It is a useful tool for investors who are currently having to access up to a dozen platforms individually, it is also a nice lightweight channel for entrepreneurs and the wider start-up ecosystem for staying abreast of trends and what’s hot.
“As we grow we’ll be able to offer unsurpassed insight into how groups invest together and which deals are most popular. In the near future it will be the norm to invest in unlisted equities and alternative investments from your smartphone.”
Investors wanting to put money into a business they’ve found via Tendr are redirected to the relevant platform. The app doesn’t currently have a business model of its own, but if usage scales Deak says it will be looking to take a cut of any transactions it generates. He says development thus far has primarily been bootstrapped by the management team.
“As our numbers grow and we include a wider variety of alternative instruments, such as loans and property deals, we will charge a small percentage on transactions,” he says. “We’re working on including tailored content for users in relation to their investment preferences which may open up an additional stream. Lastly we are collecting insightful data on the alternative finance sector, we will always make the majority of this data freely available but there may be a case for a cost for bespoke reports in the future.”
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 950+ 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.
BC Business | Geoff Dittrich | June 3, 2015
While exciting on the surface, issuing equity via crowdfunding could cause serious headaches later on
Crowdfunding has been all the rage for a while, and it’s popping up again as an area of interest among entrepreneurs. Startups have long been able to run crowdfunding campaigns to raise money, but they weren’t allowed to issue equity in their company for such contributions. Because of this restriction, crowdfunding has been more of a market validation or PR tool rather than a serious means of corporate financing.
But on May 14, the laws changed. Now, in B.C., startups can issue equity to the contributors of their crowdfunding campaigns. So, the big question: Should entrepreneurs now be considering crowdfunding as a serious option for financing their early- to growth-stage companies?
Fast facts
First, some fast facts about the new crowdfunding exemption.
Practical implications
Let’s say you raise $250,000 in contribution sizes that average around $1,000 each, and you offer shares to each one of those investors. You now have 250 shareholders on your cap table. For shareholder resolutions and shareholder agreements, that’s 250 signatures you need to track down. Even for the most avid lover of administrative work, that’s a nightmare.
There are certainly ways that your lawyer can assist you in managing this, whether through a unique share structure, shareholder rights (like a drag-along), voting trusts or even something as simple as amending your by-laws to allow votes via email. But even with all of this creativity, the fact remains that you still have a large number of shareholders on your cap table, and that will be a recurring issue that needs dealing with.
Legal fees
Crowdfunding equity will engage two types of legal fees: exemption-specific fees and standard equity financing fees.
So, while legal fees are a given in any equity financing, crowdfunding campaigns could deal you a greater hit.
Forfeiting the private issuer exemption
Here’s an implication that’s been overlooked by most. If your campaign is successful and you bring in over 50 new shareholders, you will be disqualified from using the private issuer exemption in future financings. This is a big price to pay.
Under the private issuer exemption, you can raise money (without a cap on investment amount) from close friends, family, close business associates and accredited investors. It is easily the most flexible and attractive fundraising tool available to early- and growth-stage companies, and you’ll lose that the moment your crowdfunding campaign exceeds 50 contributors (or fewer if you’ve already got investors on the books).
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 ncfacanada.org.
Calgary Herald | Mario Toneguzzi |May 28, 2015
With more companies turning to an online tool for capital, ATB Financial plans to launch its own crowdfunding portal for Alberta entrepreneurs next month.“Anyone in the world can boost a business on Alberta BoostR but only Alberta entrepreneurs and small businesses can actually launch a campaign,” said Neetu Sidhu, manager of ATB’s Alberta BoostR.
The beta stage of the platform’s development ended in November and several businesses are poised to launch fundraising campaigns when the platform goes live, she said.
“We got a lot of positive reception from business owners saying this is not only a great platform for me to raise money to either launch or grow my business but also a great marketing tool,” said Sidhu.
She said ATB is taking a different approach to the typical crowdfunding sites which are primarily based online. Events are also being created where companies can pitch their ideas to an audience who will be given ATB BoostR dollars to distribute to companies they like. An expert panel will also offer feedback to the companies.
Brenda Mahoney, an owner of Vin Gogh Paint and Sip Studio in Calgary which offers social evenings of painting and wine, said the Alberta BoostR program could be “fabulous” opportunity for her young business.
“When we started this we didn’t know that we had to have a kitchen for a liquor licence. So we did not have that in our business plan or our budget. So we took a loan out for the kitchen equipment. We’re hoping to raise some money to cover the costs of the kitchen equipment. We’re hoping to raise between $10,000 and $15,000,” she said.
The Calgary Chamber of Commerce hosted an informational event this week for companies to learn more about the growing crowdfunding trend.
Scott Crockatt, spokesperson for the Chamber, said another event involving the Chamber and ATB is planned for later in June where companies can pitch their idea to a crowd of about 200 people.
“We’re going to give everybody in the crowd a $20 voucher to put this towards the best business you think there’s a crowd fund to sort of help boost them up,” said Crockatt. “I think crowdfunding is catching on as another tool in the entrepreneur’s tool box of ways to source capital.
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 ncfacanada.org.
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