Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Fintech Opinions
Clayton Christensen on Disruptive Innovation
Clayton Christensen (Harvard Business School Professor) | May 10, 2013
Disruptive innovation, a term of art coined by Clayton Christensen, describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.
Some examples of disruptive innovation include:
| Disruptor | Disruptee |
|---|---|
| Personal computers | Mainframe and mini computers |
| Mini mills | Integrated steel mills |
| Cellular phones | Fixed line telephony |
| Community colleges | Four-year colleges |
| Discount retailers | Full-service department stores |
| Retail medical clinics | Traditional doctor’s offices |
As companies tend to innovate faster than their customers’ needs evolve, most organizations eventually end up producing products or services that are actually too sophisticated, too expensive, and too complicated for many customers in their market.
Companies pursue these “sustaining innovations” at the higher tiers of their markets because this is what has historically helped them succeed: by charging the highest prices to their most demanding and sophisticated customers at the top of the market, companies will achieve the greatest profitability.
However, by doing so, companies unwittingly open the door to “disruptive innovations” at the bottom of the market. An innovation that is disruptive allows a whole new population of consumers at the bottom of a market access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill.
Characteristics of disruptive businesses, at least in their initial stages, can include: lower gross margins, smaller target markets, and simpler products and services that may not appear as attractive as existing solutions when compared against traditional performance metrics. Because these lower tiers of the market offer lower gross margins, they are unattractive to other firms moving upward in the market, creating space at the bottom of the market for new disruptive competitors to emerge.
On Crowdfunding
"I do think it can be disruptive (depends on the business model, and the target market). For now, as it takes root, I think that the disruptive crowdfunding opportunities are targeting non-consumptive areas – consumer being one. The sorts of opportunities that KickStarter targeted being another example.
These are companies or projects that otherwise struggle to get funding. While I wouldn't say that most entrepreneurs find it easy to get funding, there are certainly more people out there funding technology and healthcare companies than in other areas. So I think that crowdfunding platforms in those spaces (technology and healthcare) will find that they have a harder time (since they're essentially taking on incumbent seed and angel investors), and face other complicated issues, like adverse selection (only go to the crowdfunders after they haven't been able to get well-known angels or angel groups to invest).
I would say that for now the areas where it has the most opportunity to disrupt is by taking root in these underserved areas that traditional financiers have traditionally found unattractive. This is a classic entry point for disruption – expand participation in the market by lowering cost at the low end of the market, where incumbents don't see profit opportunities. Later, as the platforms gain scale, then they may start to add scope, or may start to add later-stage funding opportunities. That's likely where all of this goes next."
Continue to Clayton Christensen's blog --> here
5 Reasons Why crowdfunding is HOT in Canada
Posted By: Craig Asano | Posted Date: November 17, 2012
1. Technology Advancements and Social Media
Today we collaborate and share online documents stored in the clouds and host virtual meetings and webinars with hundreds of global participants at the click of a few buttons. The advancements in technology, networks, security and online communications combined with the rise of social media have reached a tipping point. Usage and awareness have increased immensely in wired countries with high adoption rates of smart and mobile devices, new apps and platforms appear weekly and are changing the way the world communicates, interacts, shops and soon invests.
People are increasingly reaching out connecting with online communities that share similar interests to exchange ideas, solve problems and interact with one another for social benefits such as the number of ‘friends, likes and connections’. According to ComScore’s 2012 Canada Digital Future in Focus study, Canada leads the world in online engagement in terms of average hours, pages and total visits per visitor. Canadian visitors topped highly wired countries including the US, UK, and South Korean spending on average 45 hours per month online with the majority of time spent on social media and entertainment site like twitter, linkedIn and Tumblr.
2. Disintermediation
Disintermediation is about cutting out the middlemen and bringing buyers-sellers, creators-supporters and projects-communities together directly with one another. People want easy, transparent solutions, not complicated ones. Traditional business models have built up too many layers of management and middlemen making transactions slow, costly and sometimes less than transparent.
E-bay is a good ecommerce example that enables buyers-sellers to connect directly with one another reducing the need for traditional wholesalers, distributors and brokers that usually exist in a traditional retail model. Users benefit from a cost effective, efficient and enhanced shopping experience where users can rank and review products for the benefit of others, ask questions, buy online via a secure check-out process in a 24/7 online store that never turns out the lights.
3. SMBs face high challenges when raising start-up capital
There’s a funding gap that exists to raise small amounts of capital (i.e. up to $1m). Take a look at an example. A Canadian small business (by definition <100 employees) seeks $500k early stage funding to develop an innovative product (based on their successful prototype) and market a polished product to the public via online and retail networks.
The entrepreneur asks friends and family networks (F&F) for support and raises $50-$100k but from here it’s an uphill battle without a clear funding roadmap and a difficult landscape to navigate for first time start-ups. Incubation and accelerator programs are difficult to get accepted into and have a limited amount of program funding available for entrepreneurs to tap into. Traditional bank start-up loans are drying up or the loan amount is too small with larger lines of credit being available for operational businesses with more defined revenue streams and customer prospecting channels. Projects funded by VCs have been on a steady decline for years. In 2000, $5.9 billion was invested in 1007 Canadian startups, according to Thomson Reuters, compared to just $1.1 billion in 2010 that was raised by 357 Canadian firms representing an -80% decline of in a ten year period (source).
SMBs are the ‘backbone’ of the Canadian economy. Small businesses create jobs and significantly contribute to Canada’s GDP, exports, tax base and represent role models for future youth entrepreneurs. 48.3% of the entire Canadian workforce is employed by small business, or put differently; almost one person in every two is directly reliant on the success of a small business for their livelihood. In 2009, small business represented 28% of Canada’s total GDP and also accounted for 25% of Canada’s total export value. Small businesses also play an important role as a feeder system to a much larger business and financial eco-system. Successful smaller companies eventually move up the ladder, acquire other businesses or assets, and grow into larger public companies
4. Crowdfunding Effect “Paradigm Shift”
Entrepreneurs are starting to realize that there is a new source of capital in crowdfunding markets on the horizon that can fill the gap of their funding needs in an efficient (average fundraising period is around 30 days) and cost effective manner. In addition to receiving the much needed early seed capital from supporters they will also benefit from the ‘crowd intelligence’ of their backers who can provide invaluable research, feedback and validation of their ideas. These fans have an invested interest and will want to see the project succeed. They will become top marketing evangelists promoting the business or project through their social media channels making key introductions along the way.
For many investors the light bulb has just turned on. People are suddenly realizing that they can participate and contribute to a project financially or otherwise and make a difference to the outcome. Web 3.0 is where social media meets finance in a personalized, dynamic, mashed-up and user engaged project-stream.
"Crowdfunding touches a nerve at the core of what makes people tick and how they view and engage and invest their livelihood, time and resources towards causes and projects that they can directly be involved with and share the journey with its creators", said Craig Asano.
5. Global Momentum for Equity Crowdfunding
Crowdfunding has gained a tremendous amount of momentum in North America and Europe. Since the JOBs Act was signed into law in the US on April 5, 2012 making it legal for entrepreneurs to raise up to $1 million of early stage equity-based financing (expected to be in full throttle by mid-2013) there has been an groundswell of activity and buzz surrounding crowdfunding in the media, entrepreneurs, investors, regulators, academics and the general public. While non-equity forms of crowdfunding are currently thriving all over the world, equity-based crowdfunding models are currently legally permitted in Australia, UK, Netherlands, France, Belgium, Germany and now the US will soon be added to that list.
Why not Canada? Canada needs to develop and implement ‘made in canada’ solutions that support all forms of crowdfunding or risks losing its best entrepreneurs overseas who will seek funding elsewhere creating a negative ripple effect on jobs, the Canadian economy and the entrepreneurial dream.
The National Crowdfunding Association of Canada (NCFA Canada) is the voice for all crowdfunding stakeholders in Canada including platforms, industry partners, fundraisers and users.
NCFA Canada is an active contributor towards the solid foundation and self-regulation of a vibrant crowdfunding eco-system in Canada. JOIN today and be a 'stand out' in the crowd. Download eBrochure to learn more...
Contact Us
Craig Asano, Executive Director
(416) 618-0254
casano@ncfacanada.org
ncfacanada.org
Crowdfunding for Startups: An Incumbent’s Market
TheCrowdCafe Posted by: Jonathan Sandlund November 05, 2012
Crowdfunding for accredited investors is on the horizon. Implementation of Title II of the JOBS Act, which lifts the ban on general solicitation and advertising of security offerings, will kickstart this new funding mechanism, allowing companies to efficiently solicit and raise capital from a large (or small) number of accredited investors online. While the SEC is well pass their Congressionally mandated deadline of July – hmm, still trying to figure this one out – many in the industry are cautiously optimistic that we’ll see action by the end of this year. Or, you know, early next. As for crowdfunding under Title III of the JOBS Act, where we can all participate, the real democratization of capital, Q4 2013 is starting to look optimistic; a topic for another post – or novel.
Accredited crowdfunding has big implications for both traditional small businesses and tech startups, and everything in between; but we’re going to focus in on the startup side for this article. Who will be the crowdfunding platform of choice for high-growth/high-risk startups? While a slew of new crowdfunding platforms jockeying for this position have garnered much of the media attention, there is a segment of existing companies that has remained largely ignored in context of startup crowdfunding- yet these companies are in hugely advantageous positions to capitalize on the advent of accredited crowdfunding for startups.
These existing companies are ‘startup social networks,’ networks that, among other things, connect startups with investors. With existing deal-flow (companies) and capital (investors), the market is already made, and offering a crowdfunding solution is a natural decision. In fact, it’s a decision many have already made. Let’s take a look at who they are.
Angellist
Naval and Babak have built one of the most venerable brands in Silicon Valley, a position that certainly lends a hand to attracting quality deal-flow. Over 5,000 investors use Angellist and the platform has facilitated, through introductions, more than 1,800 transactions. This adds up to $1.3 billion in funds raised. Rest assured, between the company’s new Docs functionality and a hugely implicative partnership with Secondmarket, a crowdfunding foundation is being built. It also helps that Naval indicated in a Congressional hearing on the JOBS Act in September that Angellist is interested in developing new products as regulations permit. (Check out Bill Carleton’s excellent live-blogged summary of the hearing.)
Efactor
Efactor is a social community for early-stage companies, a University for startups of the sorts. If a network is a connected group of objects, Efactor’s primary objects are (i) startups, (ii) investors, (iii) mentors, (iv) online resources, and (v) offline events. I don’t expect Efactor to launch its own crowdfunding platform, but I do suspect they’ll partner with others. If they choose to do so, with over one million members in 185 countries across 90 industries, Efactor will put some serious weight behind platforms they align with.
EquityNet
EquityNet has been steadfastly building its network since 2005. The platform counts over 12,000 investors as users and has helped entrepreneurs raise more than $104 million. EquityNet has developed a number of tools to guide both entrepreneurs and investors; one such tool, Enterprise Analyzer™, is a patented process for algorithmically assigning risk/return profiles to private companies. The company is busy preparing for accredited crowdfunding under Title II. Just recently it launched a set of free crowdfunding tools, including a startup risk calculator aimed at helping businesses better identify and evaluate key business risks.
GoBigNetwork
With a strong foothold in the Midwest, GoBigNetwork consists of 20,000+ investors and has served over 300,000 startups. Crowdfunding is a already a done deal. Co-founder and 8-time entrepreneur, Wil Schroter, has been building his teams’ crowdfunding platform since May, Fundable.com, which is live today for perks. Ramping up for accredited crowdfunding, the company isn’t pulling punches on paid acquisition – try googling any variation of ‘crowdfunding’ and check out the paid ads.
Gust
David Rose and his team at Gust, formerly Angellsoft, have spent the last 8 years building a global infrastructure for seed-stage financing, distributing their software largely for free. (Build the network first, monetize second; we’ve seen this before.) The outcome: their software now powers more than 1,000 investment organizations. Gust has approximately 150,000 startups and 45,000 investors on its platform globally. As for monetization – excerpting from a wonderfully detailed answer on Quora - take it from David, “Among the forthcoming tools you will see are things like background checks and online deal closing facilities for investors; integrated 409A valuations and enhanced fundraising tools for entrepreneurs; regional ecosystem portals and data analysis for governments and media partners, and an almost infinite number of other possibilities for revenue generation…” Online deal closing facilities for investors… yep!
MicroVentures
Positioned as “an investment bank for startups,” Microventures is a network of over 4,000 accredited investors who have funded $4 million in transactions. The company heavily curates deal-flow, doing due diligence on deals before delivering them to investors. While many of the transactions on their platform appear to be secondary offerings (tranches of shares in facebook, yelp, etc.) their marketing certainly hints at competing for primary crowdfunded offerings post Title II.
You may be wondering where FundersClub, sitting on $6m of freshly raised cash, fits in this picture. Well, there are myriad accelerators/incubators that operate independently from the above networks. I see a huge opportunity in connecting these disparate nodes and building a pipeline of accelerated/incubated deal-flow for investors. I suspect FundersClub is looking to do just this by ‘api’ing out’ their process/platform. Of course, this is pure speculation.
This isn’t to say new crowdfunding platforms targeting the early-stage market can’t succeed. Opportunities to differentiate will exist through niches, i.e. geographies or industry verticals, or investor affinities such as University alumni whose capital is likely to be biased. But it won’t be easy. The pursuit of key assets that these ‘startup networks’ already possess will stymie many of the new entrants, mainly: (i) capital; (ii) reputation; (iii) companies; (iv) investors; and (v) validated experience. And it’s important to note a clear distinction between users and investors: investors invest. Acquiring investors will be an order of magnitude more expensive than acquiring users.
As for IndieGogo and Rockethub, the heavy hitting perk-based players who intend to support equity crowdfunding, I have a suspicion they’ll avoid competing on this front, electing instead to target for-profit projects. Think of investing in an indie film, CD, or book and receiving a percentage of the eventual sales. How awesome would that be? An radical new consumer experience. Big changes coming to the creative industry, and a big opportunity to facilitate them.
One last point to entertain, if you don’t mind. Between hiring on Angellist, offline events on Efactor, business plan software on GoBigNetwork, investor tools on EquityNet, and deal flow management products on Gust, connecting entrepreneurs with investors is only one spoke in the proverbial wheel…
Investment crowdfunding isn’t a portal play, it’s an ecosystem play.
The post Crowdfunding for Startups: An Incumbent’s Market appeared first on The Crowd Cafe
Crowdfunding Platforms and Broker Dealers: An Evolving Relationship
Posted by: Jonathan Sandlund October 23, 2012
The wave of crowdfunding platforms partnering with broker-dealers (“BDs”) continues with Earlyshares announcing a partnership with Point Capital Partners. This partnership will birth Earlyshares Pro, a crowdfunding platform for accredited investors, set to launch upon the implementation of Title II of the JOBS Act. Title II will lift the ban on general solicitation and advertising of security offerings to accredited investors – and while delayed – it is largely expected to be promulgated by the end of 2013. This will allow Earlyshares Pro, and other crowdfunding platforms with broker-dealer licenses or affiliation, to begin crowdfunding investments from accredited investors.
A number of portals in the broad investment crowdfunding space have elected to go down the BD route:
- ConfidentCrowd: Aggregation of broker-dealers
- Crowdfunder: Gate Global Impact, LLC
- CircleUp: WR Hambrecht + Co
- Earlyshares: Point Capital Partners, LLC
- Fundroom: Wealth Forge, LLC
- Microventures: Own BD
- IRAvest: Gate Global Impact, LLC
- Fundable: BD license in the works (reference article)
- Seedinvest: BD license in the works (reference job listing)
- Wefunder: BD license under consideration (reference Q&A)
Rest assured, this is only the beginning. Food for thought: this highlights only crowdfunding portals choosing a broker-dealer solution; what about the 4,000+ broker-dealers who may choose a crowdfunding solution? (Hint: white-labeled, turn-key products are being developed by a number of players to make this easy-bake easy. Also, note ConfidentCrowd’s strategy.)
The advent of crowdfunding for accredited investors is great. It will allow crowdfunding platforms to leverage the best of technology and the internet to bring dramatic efficiencies to financial markets; investors and companies will be connected more transparently and ubiquitously than ever. The private fundraising market today is horribly fragmented, with intermediaries often the perverse beneficiaries of asymmetric information and market inefficiencies. It’s ripe for disruption. Enter crowdfunding.
I don’t think many of the incumbents understand just how momentous this disruption will be (1). Not the first year, or even the second, but as the seeds of disruption spread – and we experience a fundamental shift in how capital market information is shared and interacted with – I believe the disruption will hit with magnificent speed and force. It’s not a coincidence the intellectual father of market disruption was an early investor in a leading crowdfunding platform.
One consequence of this that deeply resonates with me is the opportunity it will bring to geographically-disadvantaged regions. Imagine being a promising startup in Columbus, Ohio: accredited investor crowdfunding will exponentially magnify your visibility and access to investor networks across the country, and potentially the globe. And less we forget traditional small businesses; they too will benefit as accredited investors are given a more efficient mechanism to invest in private businesses. This stands to be particularly impactful for more rural regions where wealth surely exists (read: investable capital), but private capital markets are often underdeveloped. The internet, with all of its efficiencies, will become the development these regions desperately need.
But we can’t stop here. We must ask ourselves: is this the full realization of the democratization of capital the JOBS Act envisioned? The answer is no. The markets will only be democratized when investors of all economic classes can participate. Title II and the upcoming genesis of accredited investor crowdfunding is a great beginning; we just need to make sure it’s not also the end. And on this note, jump over to two relevant posts by Mark Mohler of CrowdfundingLaw and Bill Carleton of Wac6, respectively: (i) Investment Crowdfunding in the U.S. is Dead Before Arrival; (ii) The McHenry Do-Over: Summary of the Interim Draft
Source: original post
Canada: Equity crowdfunding source of innovation, capital for startups
Quentin Casey | Oct 22, 2012 8:18 AM ET More from Quentin Casey
for a 'made-in-Canada' approach to equity crowdfunding. (Tyler Anderson/National Post)
Last fall, shortly after his business turned four, George Christakos decided it was time to expand. He wanted to boost the seating capacity of Brooklyn Warehouse, the north-end Halifax restaurant he co-owns with his father, Leo. Renovation plan in hand, the pair visited their bank to seek a loan. The request was rejected.
“They didn’t believe in us,” Mr. Christakos recalled. “So we decided to go to those who do believe in us — our regular customers.”
Putting their frustration aside, the father-son duo launched a crowdfunding campaign — a capital-raising technique that draws small contributions from a large number of people. (Mr. Christakos first heard about the concept from a friend, who produced a movie with $5,000 raised through Kickstarter, an online crowd-funding platform.)
With the proper regulations, crowdfunding is a new source of capital for innovation and new ideas. It gives the small guys a chance
Mr. Christakos’ crowdfunding effort was different but achieved the same result. Instead of asking for donations, he pre-sold meals at his restaurant. For $50, a contributor was promised lunch for two and two T-shirts. The most popular offering was a four-course dinner for two from a custom menu for $100. And for $1,500, Mr. Christakos offered two dinners a year for the rest of the restaurant’s life.
“The idea was to create these no-brainer deals,” Mr. Christakos said. “It wasn’t charity.”
In 60 days, the campaign raised $23,000 from 115 contributors, 80% of whom were located within the same postal code as the restaurant. “It involved people who truly care about having a neighbourhood restaurant,” he said.
Crowdfunding campaigns can take many different forms. Some involve donations, while others, such as Mr. Christakos’ effort, involve the pre-purchase of goods or services. Either way, the goal is the same: to raise capital from a large pool of contributors.
Related
The model is unique because crowdfunding participants are not investors; Their contribution does not secure a stake in the project or company. Increasingly though, Canadian entrepreneurs are calling for special regulations to enable so-called equity crowdfunding, where many investors each hold a small stake in an enterprise.
It’s a concept already established in countries such as Australia, Sweden, the United Kingdom and, soon, the United States.
In April, President Barack Obama signed the Jumpstart Our Business Startups (JOBS) Act into law. The act, when fully implemented next year, will allow companies to raise up to $1-million a year from small investors, without having to make an initial public offering. The act is intended to aid small businesses, increase startup funding and encourage more people to invest.
Craig Asano, founder and executive director of the National Crowdfunding Association of Canada, is pushing for this country to move in that direction. He wants to expand the “power and range” of local crowdfunding by pushing beyond the traditional donation and reward-based models and develop a “made in Canada” approach to equity crowdfunding. Otherwise, he said, Canada risks losing its best crowdfunding minds to the United States.
“With the proper regulations, crowdfunding is a new source of capital for innovation and new ideas. It gives the small guys a chance,” Mr. Asano said. “This has game-changing potential for our whole economy.”
One of the most vocal proponents of equity crowdfunding in Canada is the Canadian Advanced Technology Alliance. Equity crowdfunding would greatly benefit the technology sector by increasing the number of investors available to cash-hungry startups, said Gary Stairs, a CATA board member.
“There’s going to be a lot of what I call ‘Main Street’ investing,” he said. “Equity crowdfunding is going to be a good alternative for the micro investor and for the bootstrapping startup.”
So what’s not to like?
Rick Hancox, executive director of the New Brunswick Securities Commission, said equity crowdfunding is not without risks, which is why provincial securities commissions across Canada are studying issue.
“It presents a legitimate and valid way to raise money from a broad spectrum of investors. But it also presents an opportunity for fraudsters to raise a lot of money from a lot of people with very little protection,” Mr. Hancox said.
“If you’re a fraudster, here’s a great way to make a lot of money without really rocking anybody’s boat. Who’s going to complain because they lost 100 bucks?”
Such concerns are valid, but not worthy of derailing the spread of equity crowdfunding, said David Marlett, who founded the U.S.-based National Crowdfunding Association in March. The group already boasts 800 members and Mr. Marlett expects that number to rise swiftly by the time equity crowdfunding is finally rolled out across the U.S. — likely in mid-2013.
“There’s always going to be fraud,” he said from Dallas. “We all have to put on our big-boy britches and realize this isn’t an absolutely protected space,” he said, pointing to the existing use of donation and reward crowdfunding, which have no oversight. Existing crowdfunding models have a 2% fraud rate, which Mr. Marlett said is better than that of most credit card companies. “Will there be fraud? Yeah. Will it be to the extent that some people are worried about? Probably not,” he said.
“It’s an exciting industry. We encourage everybody to stick their toes in.”
Back in Halifax, Mr. Christakos said he would consider using an equity crowdfunding model for any future expansions of the restaurant.
As he sees it, equity crowdfunding provides one more option for small businesses cut off from traditional lenders. “Let’s not snuff this idea out,” he said. “It’s good for economic growth.”
