Tag Archives: technicity

Legalizing Equity Crowdfunding In Ontario: A Panel

Following Darren Westlake’s keynote on equity crowdfunding in the UK, Cindy Gordon of Helix Commerce moderated a panel on whether equity crowdfunding should be legal in Ontario, with panelists Peter Aceto (CEO of ING Direct Canada), Brian Koscak (Chairman of the Exempt Market Dealers Association of Canada and a partner at Cassels Brock & Blackwell), Richard Reiner (partner at CC Stratus Capital), Adam Spence (Founder of Social Venture Exchange) and Darren Westlake (CEO of CrowdCube).

Blogging panels is always difficult, and I won’t try to attribute comments to specific people, but here are some of the points covered [my comments in brackets]:

  • Crowdfunding isn’t just for startups; it can also provide significant benefits to small businesses looking to expand or take on new initiatives.
  • Crowdfunding works well as seed funding to get a startup to the stage where it can be considered for larger funding sources such as venture capital.
  • The share structure will need to be considered fair to the early crowdfunding investors and to the later venture investors, in terms of control, returns and liquidity. [This is a major issue.]
  • Social and environmental companies have difficulties with access to capital, and may benefit greatly from crowdfunding. [Many small investors will follow their conscience in crowdfunding investments, as has been seen with Kiva microfinancing.]
  • Canadians are early adopters of financial technology (ATMs, web banking, internet-only banks) and are likely to accept equity crowdfunding quickly.
  • Social media, including some aspects of crowdfunding, encourage/reward transparency. [If you’re going to be successful in raising funds through crowdfunding, be prepared to willingly expose the inner workings of your company.]
  • Crowdfunding would make it feel normal to invest in startups, and tax incentives for small business crowdfunding would support this significantly.

There are some crowdfunding approaches already being tried out in Canada, including debt/bond/co-op structures such as with ZooShare, which provides co-operative investment into a plant that turns Toronto Zoo poo into biogas. ZooShare’s scheme requires that you join the co-op as a member, then can buy community bonds that pay interest over seven years. Obviously, allowing for equity crowdfunding will greatly expand the opportunities for investment, since not everyone want to join a co-op to buy bonds in order to invest in interesting opportunities.

We’re going to be doing a table exercise on benefits and concerns of crowdfunding, then the conference wrapup, so this will probably be the last post from this Technicity conference on crowdfunding. I’m not really an entrepreneur any more – I’ve done two startups in the past, but currently just operate as an independent – but I have a lot of friends with Canadian startups that could benefit from crowdfunding, and I’m fascinated by any intersection of social and business.

Lessons From Crowdfunding In The UK With @Crowdcube

Toronto is a hotbed of tech startups – ranked 4th best in the world (not sure what “best” really means in this context) – and innovative startups need innovative investment methods. Today’s half-day Technicity conference, sponsored by IT World Canada, is focused on the topic of innovating investment with crowdfunding, specifically looking at legalizing equity crowdfunding in Canada. The room is full of small business owners and entrepreneurs, crowdfunding platform companies, politicians and lawyers. And me. The day was moderated by Cindy Gordon of Helix Commerce International, who also chairs Invest CrowdFund Canada, an industry body helping to support the regulatory changes required to legalize investment crowdfunding.

We started with a brief address by the Ontario minister of economic development and innovation, the Honourable Brad Duguid, who sees equity crowdfunding as an essential measure to remain competitive. In an interesting coincidence (or maybe not), the Globe & Mail published an article this morning on how Ontario is looking to loosen crowdfunding rules, especially around allowing for companies to offer equity in exchange for crowdfunding, as opposed to treating those funds as donations as they must do currently. We also heard from Fawn Annan, president of IT World Canada, on some of the other international efforts on crowdfunding: earlier this year, the US opened up equity crowdfunding via the JOBS Act; Italy (through the Decreto Crescita) and Australia (through the Australian Small Scale Offerings Board) have recently put similar rules in place. In Canada, securities are regulated at the provincial level, not federal, meaning that each province needs to change the rules independently.

We had a keynote from Darren Westlake, CEO of Crowdcube, a UK equity crowdfunding platform. He discussed some examples of crowdfunding, including Kiva (debt-based micro-financing) and Kickstarter (donation-based crowdfunding, usually with some sort of perq offered in exchange if the project is successful). As he pointed out, the UK isn’t short on innovation: it’s short on commercialization due to restrictive securities regulations and lack of innovative funding methodologies. He developed Crowdcube to bring together investors and small businesses looking to raise funds, and they have raised over £4.2M ($C6.7M) in 31 deals, with over 24,000 registered investors since their launch in early 2011. The average investment is £1,800, with the largest single investment of £100,000 and the biggest overall deal at £1M.

Crowdcube vets the businesses that apply (rejecting about 75%), requiring them to have a business plan including financial projections, a video explaining their business and other information that will make them attractive and credible to investors. They do identity, money laundering and other checks, but don’t provide any guarantee that the company is going to do what they say they are: this limits their liability as a crowdfunding platform. They have an all-or- nothing funding model, where all funds are returned to the investors if the target is not met, and Crowdcube takes 5% of successful deals. They’re definitely not restricted to tech startups: their first deal was Bubble & Balm, a fair trade bodycare products company, and escape the city, a network . They’ve even raised money for themselves, raising £300,000 to expand their business.

Westlake went through the advantages of crowdfunding to both entrepreneurs and investors. For entrepreneurs:

  • New way to raise finance
  • Wider investor reach
  • Easier to promote
  • Cost-effective
  • Marketing effect
  • Crowd feedback

And for the investors:

  • Financial return
  • “Armchair dragon” for the fun of investing
  • Support friends and family
  • Participation
  • Lower/spread risk versus angel investing
  • Simple to invest

He discussed crowdfunding efforts in other EU countries, including the Netherlands, Belgium, France and Germany; the EU has a number of regulatory challenges to equity crowdfunding including the Prespectus Rule (European Directive), financial promotions (laws regarding what can be said to prospective investors), and public company limitations. He finished with his vision of the ideal environment for crowdfunding success:

  • Anyone can invest with relatively low barriers (mixture of high net worth and crowd)
  • Low investment level
  • Allow wide promotion via online or offline
  • Low/no imposed minimum document standards
  • Convenient, secure payment method
  • Authorization required for crowdfunding platforms

Definitely some guidelines for Ontario, and the rest of Canada, to take to heart as we open up our equity investment landscape.