Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Public Market Challenges and Equity Crowdfunding Capital
Capital | Sep 3, 2024
Image: Freepik/sentavio
As Canadian public markets face continued challenges, equity crowdfunding is transforming how companies raise capital
A gloomy outlook is on the table for Canadian public markets who are facing a decline in initial public offerings (IPO) activity, a reduction in liquidity, and valuation gaps when compared with U.S. public markets. Unless Canadian public markets improve their attractiveness and regulation streamlines the IPO listing process making it easier/cheaper to list, or the government introduces investor tax incentives (not the other way around), businesses are remaining private for longer. One impact of this that equity crowdfunding is fuelling innovation and growth and quickly becoming a viable and sustainable alternative, offering both companies and individual investors a fresh way to engage in new ventures, new products, and scale-up expansion.
Canadian Public Market Challenges
1. Wasteland of IPO Activity
With hundreds of firms going public annually, the Toronto Stock Exchange (TSX) and the TSX Venture Exchange (TSXV) were historically rich with new listings. However, currently we're experiencing one of the worst slowdowns in recent memory, without an IPO on the TSX in more over 18 months. Just 7 IPOs were listed on the TSXV in 2023, compared to 180 in 2007. During the pandemic (2020–2021), there was a temporary spike in tech IPOs with 20 companies going public but due to the industry's volatility over 50% of these companies have delisted, went private or were bought out.
2. Reduced Market Liquidity
As the number of listed companies drops, liquidity is a growing concern. Since 2008 the total number of operating companies listed on the TSX has decreased by 40%. Further the S&P/TSX Venture Composite Index (for smaller companies), is down 83% from its 2007 peak. Trading volumes have also hit 20 year lows, making it difficult for investors to trade without affecting stock prices.
3. Valuation Gaps and Capital Flight
Generally, it's considered very difficult for Canadian listed companies to get the same valuations to be inline with American competitors. For example, the S&P 500 is trading at a multiple of 21 times earnings (for every dollar earned by the company, investors will pay $21), whereas the S&P/TSX Composite Index is trading at around 14 times projected earnings. As a result of this valuation gap, companies are deterred from listing in Canada, since it's difficult to obtain those lofty valuations.
See: CCA Launch Crowdfunding Genome and Ecosystem Report 2024
To add salt to the wound, Canadian pension funds have reduced their exposure to Canadian domestic equities. Recent research from CD Howe reports, Canadian pension funds currently allocate only 4% of their assets to Canadian stocks, down from 28% in 2000. That translates into a withdrawal of $1 trillion of capital flight from the Canadian market (not chump change).
Equity Crowdfunding As A Viable Alternative
As public markets face challenges, equity crowdfunding has become a competitive alternative to traditional methods of capital raising allowing a wider range of investors to interact with a wider range of private companies. Here are just a select few examples of how investment crowdfunding is making a difference.
1. Growth and Scale-Up Capital: Knightscope
- Platform: StartEngine, US
- Amount Raised: $21.86 million
- Knightscope, an autonomous security robot startup, raised more than $21 million in its most recent equity crowdfunding investment. Prior to that the company raised $43.5 million via several crowdfunding campaigns. The latest funding has enabled the firm to expand its activities which has more than tripling its worth to $447 million. Knightscope's success with equity crowdfunding highlights how firms can use this financing tool to accelerate expansion.
2. Route to IPO: Vibe Bioscience
- Platform: FrontFundr, Canada
- Amount Raised: CAD $1.5 million
- Vibe Bioscience, a Vancouver-based cannabis firm, raised CAD $1.5 million through equity crowdfunding on FrontFundr. The money were utilized to grow operations and prepare for a future public listing on the Canadian Securities Exchange (CSE). Vibe Bioscience's successful crowdfunding round provided essential capital for development and also connected with a community of investors who supported the company's quest to become publicly listed.
3. Product Expansion: Nuudii System
- Platform: Republic, US
- Amount Raised: $300,000+
- Nuudii System successfully raised over $300,000 from its crowdfunding round and used the capital to invest in marketing. This led to a viral campaign on TikTok, driving $2.6 million in sales in 2023. This example shows how equity crowdfunding can be used to launch and market new products, reaching a global audience.
4. Launching a Fintech Venture: Nesto
- Platform: FrontFundr, Canada
- Amount Raised: CAD $500,000+
- Nesto, a Montreal-based fintech startup that specializes in online mortgage services, raised more than CAD $500,000 through equity crowdfunding. The money was used to broaden their product offerings and improve their tech platform. Nesto's investment enabled rapid growth in the fintech industry, resulting in an innovative and user-friendly mortgage platform for Canadians.
5. Growth and Expansion: Revolut
- Platform: Seedrs, UK
- Amount Raised: £1 million
- Revolut, a London-based global financial powerhouse, raised £1 million through Seedrs' equity crowdfunding platform amidst an investor frenzy. The funds were used to enhance the company's banking app and global operations. Revolut is currently valued at more than $45 billion, making it one of the world's most successful fintech businesses. This example demonstrates how equity crowdfunding can help a firm expand globally.
A Pipeline to IPO
The potential of equity crowdfunding to act as a springboard for an IPO is one of its main advantages. Equity crowdfunding provided companies like Vibe Bioscience the money and network of investors they needed to build their company before going public. A successful IPO depends on a company's ability to strengthen its offerings, hone its market approach, and increase brand awareness which equity crowdfunding delivers in spades (ticks all of these boxes).
See: Corporate Venture Capital in Canada: Insights and Challenges
Imagine if equity crowdfunding markets received greater support from more dealer/brokers, advisors, government and innovation folks in venture. It would help fill an IPO pipeline by helping companies strengthen their offerings prior to hitting the big leagues, thereby establishing a steady stream of more qualified companies ready to list and move to the next step. Now it's worth noting that not all companies are destined to go public nor should they but for sure a positive equity crowdfunding financing round can help them get there if their goals and requirements are aligned with the market.
Is Equity Crowdfunding Right for Our Business?
- Crowdfunding provides an alternative source of funding for businesses when traditional methods like IPOs or venture capital aren't available or practical.
- It helps companies build a loyal community of investors who are often also customers, strengthening brand loyalty.
- Equity crowdfunding also allows everyday people to invest in innovative businesses, making investment opportunities more accessible to everyone.
Equity crowdfunding is not risk free! Private companies are less transparent and liquid than public companies. To sell your private shares you need to find a buyer or wait for a liquidity event to exit your position (so you may not see a return on investment for a number of years, if any). With all startups and early stage companies, there's a high risk of failure (not crowdfunding related but worth mentioning to anyone new).
Outlook
Because of the major obstacles that Canada's public markets are facing, such as a decline in IPO activity, decreased liquidity, and valuation issues, equity crowdfunding presents a competitive option for businesses looking for finance as well as for individual investors searching for interesting, high growth companies to invest in.
See: OSC Activates 3 New Interim Class Orders to Boost Early-Stage Capital
Investment crowdfunding has shown its potential for a variety of purposes, including the creation of new fintech ventures, supporting product expansions, driving growth, and even acting as a bridge to an IPO.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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