Tagbusiness angels

What Can Europe Teach Canada About Equity Crowdfunding?

Nathan Rose, Assemble Advisory

The content of this article has been adapted from Equity Crowdfunding: The Complete Guide For Startups And Growing Companies, launching on Amazon on November 1. SeedUps subscribers can download the entire book for FREE, this week only. Click here to download.

As Canada’s nascent equity crowdfunding market struggles along, the European market continues apace. There have been many more successful fundraisings on the other side of the Atlantic Ocean – Europe (and particularly the United Kingdom) accounts for a very large part of the approximately US$2 billion equity crowdfunding market, according to Cambridge University.

In my new book, I spoke with over a dozen successful crowdfunders, representatives from the leading European platforms, and a number of other experts at the forefront of the equity crowdfunding revolution. There were contributions and case studies from the United Kingdom, France, the Netherlands, Germany, Sweden, Finland, and Estonia.

Here is a sample of some of the key takeaways, and insights that Canadians can learn from their European cousins.

  1. Equity crowdfunding works best when a strong relationship already exists with your crowd.

“We didn’t really build our crowd through crowdfunding. We already had built our crowd, so crowdfunding was simply an opportunity to deepen that relationship.”

– Tom Blomfield, Monzo, raised £1 million on Crowdcube (UK-headquartered platform).

  1. To get journalists interested, you need to be doing something unique or special – just doing a crowdfunding campaign won’t interest media anymore.

“Everyone by now has heard of crowdfunding. To get journalists interested, you need to find your own unique take on it. Create the story. Ask yourself why should readers care about yours?”

– Charlie Thuillier, Oppo Ice Cream, raised £650,000 on Seedrs (UK-headquartered platform).

  1. A lot of work needs to go into outreach, even before your campaign starts. If you want to run an equity crowdfunding campaign in the future, begin warming up your community NOW.

“We spent two years of work building our community, and to get the media explaining how our technology works and why we do what we do. I do a lot of events and conferences and meet a lot of people. That’s why we were successful.”

– Sandra Rey, Glowee, raised €611,000 on WiSEED (France-headquartered platform).

  1. Having a ‘lead investor’ before your public campaign kicks off will hugely improve your chances. It means your campaign will start with momentum, and investors will have more confidence if you have a ‘smart money’ backer.

“We contacted several potential investors before launch. It was crucial to have some money already, so that when the people were directed to our campaign page through our social media, they wouldn’t be directed to a campaign with nothing yet committed. Investors saw that we had 50% of our target already raised on day one.”

– Jarno Alastalo, Heimo, raised €170,000 on Invesdor (Finland-headquartered platform). 

  1. Equity crowdfunding can have transformational positive benefits. Some campaigns even believe the exposure was even more valuable than the money they raised.

“The overall impact on our business has been incredible. We got great press coverage, and a huge number of new people have heard of us as a result of crowdfunding. I just wish that we had raised more!”

– André Moll, MyCouchbox, raised €300,000 on Companisto (Germany-headquartered platform).

In 2016 we saw more countries embrace the opportunities that equity crowdfunding allows – including in the United States where Title III crowdfunding came into force in May. And in Europe, there is a strong push for additional equity financing for companies and innovative projects, aided by supportive regulators.

When different equity crowdfunding markets learn from each other, each of them will become stronger. Despite regulatory differences, running a campaign has much in common between countries, so taking note of what is working elsewhere in the world will have strong applicability for Canadian campaigns too.

If you enjoyed this article, you can read a comprehensive overview of equity crowdfunding by downloading Nathan Rose’s new book, FREE on Amazon for this week only, featuring even more insights from SeedUps and many other interested participants in the crowd economy from around the world. Click here to get your copy.

 Nathan Rose Nathan Rose is the founder of Assemble Advisory, an agency for companies wishing to pursue equity crowdfunding campaigns, and the author of the upcoming book: Equity Crowdfunding: The Complete Guide For Startups and Growing Companies.

 

The Evolution Continues

SeedUps Canada platform evolves to increase deal quality and investor interest

The collaborative funding model emerges as best fit for entrepreneurs and investors

For the past three years, we’ve been at the forefront of advocating for change in the way Canada’s early stage companies access capital and engaged venture investors find investment. Credited as the technology that supported the “First Ordinary Investor” to take an online stake in a private company, the team at SeedUps has been encouraged by the innovation movement taking hold in Canada and the regulators’ efforts to expand capital formation for early stage companies.

We’ve also been engaging with other stakeholders in the funding arena, specifically the Angels and early stage Venture Capital firms (“VCs”) that supply much needed growth capital to our passionate entrepreneurs. We’ve continued to advocate that SeedUps is not a competitor, rather a technology-enabled resource to help them fund their chosen companies faster and more efficiently. Although quick to recognize and invest in disruptive technologies in their portfolios, they have been slow to embrace technology for their own financing processes.

We’re now two years down the road and much has changed. The securities regulators have implemented complicated “crowdfunding” rules that create confusion for both the company raising capital and the investors wanting to invest. Three different regulations and three different registrant models adopted by select provinces have resulted in much confusion and low adoption by the industry as a whole. These new regulations may even result in companies taking on funding from hundreds of new investors without realizing the post raise obligations of managing those investors or more importantly, the ongoing reporting requirements built into the new regulations. These two issues alone, may prevent a crowdfunded company from accessing their next round of capital. Not the intended outcome.

Startupfest Montreal BDC Video

Watch the BDC Video

While the regulators seem to have missed the mark, the industry seems to be getting it right. I recently attended and spoke at Startupfest in Montreal and was encouraged to see participation from all players in the capital raising eco-system. Ryan Eakin, our peer at CircleUp says it best, “If you are supportive of helping entrepreneurs thrive, creating more opportunity for more small businesses across the country and spurring economic innovation, you want to bring all parties to the table. You just want to do it in a more transparent, open way, not a historical old boy’s network that has led to disproportionately fewer new ideas being funded.”

SeedUps_ProcessThe SeedUps technology platform allows this to happen. Early stage private capital has traditionally been funded by a small group of high net worth individuals ready to take a risk. By using our technology, companies can access a broader group of individuals that may want to invest smaller amounts alongside these investors. Angels that want to fund a company, yet don’t have enough cheque writers at the right time, can present their companies to an engaged investor community to fill the round. VCs can find additional capital for their portfolio companies – all in an efficient, transparent manner where documents are executed online. And better yet, individual investors are pooled together into one shareholder, keeping the cap table clean for the next round of investment.

For companies trying to access Angel or VC capital, SeedUps provides the tools to prepare and present their opportunities to this important source of funding. We can also direct companies to our partners like banks, online lending platforms and government funding programs for those that can support this type of financing. With over 700 companies applying for funding on SeedUps, we know that many of them are not ready to face these investors. As a result, we have developed an Investor Readiness Program (“IRP”) that helps these companies prepare to face investors that ask the tough questions. The result, an increased chance of a successful capital raise – a win-win for the investors and the entrepreneurs alike.

So, we’re leaving the Crowd behind us – for now.  We’ll continue to advocate for positive change that makes it easier for companies to access capital and for investors to have the freedom to invest in companies they believe in. We even have a few ideas in the works. As of now, it’s simply our opinion that the crowdfunding rules implemented by the various securities regulators to date do not work. They are in fact, as some might say, Dead in the Water.

Canada Equity Crowdfunding

YVRCanadians are known for being modest and risk averse.  Could this explain why Canada equity crowdfunding appears to be relatively underdeveloped so far? We talked to some of the market leaders to discover how Canada equity crowdfunding is doing in the key areas that determine market traction: regulatory environment, platform activity, deal flow, user growth, and media coverage.

Regulatory environment
The 2016 National Crowdfunding Association of Canada conference in Toronto saw a gathering of the portals and regulators, as well as the lawyers helping everyone to navigate the new regime.

Fantastic progress has been made on the regulatory front, but there is still widespread frustration that the regulations governing Canada equity crowdfunding aren’t simpler. Canadian market participants look with envy at the simpler regimes found in the likes of the UK and New Zealand. The fact that regulations are imposed province-by-province is an additional complicating factor, and according to law firm Dentons, a Canadian national regulator is difficult to see, despite a united push from the industry.

Securities marketed to the public in Canada require either a prospectus or an exemption. A prospectus can take a month or more to prepare, needs to filed with the regulator, and carries with it the significant burdens of a full due diligence process. For startups and SMEs, preparing such a document represents an untenable upfront cost.

To avoid the need to create this heavy, lawyer-and-time-intensive document, exemptions exist for offers marketed exclusively to accredited investors, and friends, family and close business associates.

In addition, the offering memorandum exemption provides a somewhat lighter document – but liability issues have driven offering memorandums to expand to a size not too different from a full prospectus. An offering memorandum still requires an audit and is still very costly to prepare.

The major change in the Canada equity crowdfunding landscape is the “Crowdfunding Exemption” which came into effect in January 2016 in Ontario, Quebec, Saskatchewan, Nova Scotia, Manitoba and New Brunswick. This offers companies wishing to raise up to CA$1.5 million an even more streamlined offering document and is being seen as the start of the true spirit of equity crowdfunding. BC joined in this exemption in May of this year.

Startups/SMEs

Several platforms are targeting early stage/SME ventures and both accredited investors and retail investors. The two with the most traction are SeedUps (based out of Calgary, Alberta) which launched in early 2014, while Frontfundr (based out of Vancouver, British Columbia) launched in spring 2015.

In her blog post “Why isn’t Canada embracing [crowdfunding], SeedUps CEO Sandi Gilbert opined that culture is not the key barrier, “The space is very new in Canada – with SeedUps being the lone voice for early stage investment until recently. The Canadian public in general isn’t even aware that they can invest in deals online. So getting the word out is important.”  Frontfundr CEO, Peter-Paul Van Hoeken echoed this in a recent Globe & Mail piece, “It’s a process to create a crowdfunding market… We don’t think the cultural difference is a primary factor.”

So far, not very much money has changed hands in Canada equity crowdfunding, but considerable platform activity, user growth and interest is indicative of much more to come.

Later stage ventures

The OCMX offers “institutional” crowdfunding for later stage ventures and has operated since 2009.  InvestX launched a private equity platform late 2014 focused on Canadian and US investors. Some might say that what The OCMX is doing is more corporate finance or investment banking than “crowdfunding” often defined as small amounts raised from a large number of people online.

On the matter of culture, InvestX CEO Marcus New comments on one of the factors on slower Canadian adoption, “Entrepreneurship is not celebrated in Canada the way it is in other countries especially the US where there is an eco system that supports entrepreneurship.”

In terms of new portal entrants, NexusCrowd and Crowdmatrix are local operators which are setting up to launch, and the Israeli platform OurCrowd has also expanded its global presence to the Maple Leaf State.

Media attention

In a recent speech, Terri Kirk, CEO of Funding Portal revealed Canada has the 6th highest adoption of fintech in the world, but even so, 57% of Canadians are unaware of what “fintech” is. So there is some way to go.

Still, Canada equity crowdfunding has captured the attention of the mainstream media, with CNN, Bloomberg and Fox all featuring stories. As the level of deal flow accelerates, more media coverage in this new funding medium will follow.

The aforementioned National Crowdfunding Association of Canada annual conference in Toronto saw a packed house of over 440 delegates and dozens of speakers, sponsored by big names in the Canadian funding landscape. Events are taking place regionally as well, organised by the national association, and by the portals undertaking their own education efforts to drum up interest from investors and company founders. Clearly, interest in the space is healthy and accelerting.

In summary

Defining what is “equity crowdfunding” and what should be counted in the $ raised figures is a difficulty, and means market size estimates vary widely. Craig Asano, Executive Director of the National Crowdfunding Association of Canada, said “The challenge is the definition of what’s included (and what’s not) in the aggregate count.  I think platforms/transactions that are openly raising funding under the equity crowdfunding banner should be counted.”

Another challenge is that much of the raises claimed by the various platforms take place offline.  As private companies, there is no real method to verify the totals but they are well aware of the importance of building trust in the sector.

FundRazr is an established Canadian platform that utilizes rewards and corporate sponsorships rather than securities to raise capital for ventures. CEO Daryl Hatton believes “Investors are unaware of the option to invest in this class, wary of it given low levels of knowledge and understanding and our natural conservative nature.”

The good news is that Canadian culture – i.e. conservatism – does not appear to be killing Canada equity crowdfunding. And Canadians may be less risk-averse than we assume – after all, they have been pouring investment dollars into mining exploration for decades. If Canadians can use that same pioneer spirit to build a knowledge economy, we can expect it to result in new jobs and growth. Investors take note.

About the Authors

Bret Conkin is the Founder of CrowdfundSuite, a Crowd investing and Crowdfunding Consultancy. CrowdfundSuite provides platform development and other expert services to help organizations profit from the new Crowd Economy.  Bret is an Ambassador to the National Crowdfunding Association of Canada.  He has founded and collaborated on multiple tech start-ups including Canada’s first Crowdfunding platform Fundfindr launched in 2008.

Nathan Rose is the Director of Assemble Advisory, a consultancy for companies wishing to pursue investment crowdfunding campaigns. Assemble Advisory assists with picking the right platform, putting together offer content and financial models, allowing companies to raise money sooner.

An Exciting New Way to Invest

SeedUps Canada is an online investment crowdfunding platform where ordinary individuals and sophisticated investors come together to discover, evaluate and invest in growing companies. Companies raise capital through a secure platform where they can pitch, attract and close investors. Investors execute investments online, and stay informed of investee companies’ activities. It’s a disruptive model that is changing the way individuals can invest, and companies find investment.

Become an investor

Companies on SeedUps take advantage of new capital raising rules allowing them to reach out to all investors, not just the usual suspects. By reaching out to their peers, founders can attract investors and validate their product or services at the same time. So now, you too, can invest in your favourite private company.

It’s simple and free for anyone to sign up. Once your investor profile is complete you’ll be able to access eligible campaigns where you will find videos and pitch decks, ask entrepreneurs and management questions, request further information and invest – all in a secure online environment.

Three tiers of investors

Generally, there are three types of individual investors that can invest on SeedUps. It’s simple and free for anyone to sign up. Simply answer a few questions to complete your investor profile and you’ll be able to access eligible campaigns, ask entrepreneurs and management questions, request further information and invest. Your ability to invest is driven by:

  • where you live
  • the type of investor you are
  • the type of offering, and
  • the amount that is suitable for you based on your investment portfolio and financial circumstances
Accredited Investors

AngelTom is an executive at a Fortune 1000 company. He earns over $200K a year ($300K with his spouse) or has at least $1M of financial assets. He’s invested in private companies before but is looking for dealflow. He has no investment limits.

Eligible Investors

EligibleJane is a business analyst at a consulting firm. She earns at least $75K ($125K with her spouse) or has at least $400K of net assets. She wants to start investing in private companies. Her maximum investment ranges from $1,500 to an unlimited amount.

Ordinary Investors

Crowd_GreenRobert is a developer at a technology firm. He earns less than $75K per year and is new to investing.He’s passionate about technology and wants to start investing in companies he finds interesting. His maximum investment ranges from $1,500 to $10,000.

Moving investments on-line

There’s a new generation of investors that are embracing the private capital markets, feeling empowered by choosing their own investments. Technology has changed the way companies find capital. Companies can now save time and money by pitching their deal to an interested online audience where investors browse through engaging company deal rooms, watch videos, review customized investment documents and execute transactions online.

It’s like Dragons’ Den and E*TRADE combined.

Each company has a target and maximum raise. Your investment is not released until the raise has reached its target. At that time the money is sent to the company and you become an shareholder in the business. If the target raise is not met, your funds are returned to the account from which they were drawn.

Deal Review and Vetting

brokersCompanies profiled on SeedUps have been reviewed and vetted by Waverley Corporate Financial Services Ltd. Before a deal goes live, the company is subject to a due diligence process to validate the company, its management, directors and its business model. The company is required to submit financial forecasts that are reviewed to ensure they are a fair and reasonable reflection of the business as it currently stands, and that their forecasts are backed by reasonable thinking and assumptions.

You should carefully review the information provided in the company profile and consult a financial advisor with respect to your ability to withstand a loss of your investment. There are no guarantees that your investment will deliver returns.

What You Own

sharesTypically, investors receive common shares issued directly by the company.  These shares represent an ownership stake in the company. If the business is sold, you are entitled to a percentage of what is earned in the sale of the business. In addition, if there is a dividend, you receive your share of the distribution.

In other cases, investors may receive preferred shares, limited partnership units or convertible debt in the company. The rights of these investors will differ from above, so be sure to carefully review the offering documents presented in the business profile. Be sure to read the offering documents to understand the terms of your investment and consult your personal advisor if you have any questions.

Ongoing Communications

ChatYou are investing in private companies that, in most cases, do not have an obligation to publish financial statements or provide quarterly updates. These companies do understand the importance of regular communications and our technology makes it easy to get messages out to their shareholders.  In any event, we send regular updates to our investor base and we’ll be sure to keep you up to date with the information we have on the activities of the companies that successfully raise capital on SeedUps.

Why Invest in Companies on SeedUps

Idea_1The SeedUps investor community invests for a number of reasons. Typically, they want to support a business or industry they are interested in, or they want to invest in a management team that has a track record of success. They understand the risks and rewards of investing in private companies and want to put a small portion of their investment portfolio into companies they believe in. Our registered users include first time investors, angels and early stage venture funds.

On SeedUps, you can invest in a diverse variety of industry sectors and select a company that resonates with you. It’s easy to browse profiled companies and make an investment online. The platform guides you through the investment process, seamlessly and efficiently.

Investing in Private Companies is Risky

launchInvesting in private businesses is risky, but the returns are potentially high if you diversify and invest in companies you understand and interest you. When you invest in companies on SeedUps your risks include illiquidity, lack of dividends, loss of investment and dilution. You should only invest in these businesses as part of a diversified portfolio. Investment opportunities on SeedUps are suitable only to investors who are qualified and suitable to purchase the securities and who are familiar with and willing to accept the high risk associated with private investments.

Investors should implement a diversification strategy that involves spreading your money across multiple investments. There are no guarantees that your investment will deliver returns. If the company goes out of business, your shares will be worth nothing.

The impact of investment crowdfunding

Developments in technology and regulation mean that now, SeedUps can offer a variety of investments for small investors – both equity and debt. We provide the missing link that connects companies to an untapped groundswell of support — as well as a huge pool of capital held in private hands. We’re leading the charge in Canada and welcome you aboard!  Register now at SeedUps.ca

This communication is for information purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy any financial product.  Securities offered through Waverley Corporate Financial Services Ltd., an Exempt Market  Dealer. Investment opportunities on SeedUps Canada are suitable only to investors who are qualified to purchase the securities and who are familiar with and willing to accept the high risk associated with private investments.  You will have to complete and sign additional documents to determine your suitability to make an investment.

 

 

 

SeedUps Canada Launches “Be the Dragon” Investor Tour

There’s been much press about the new capital raising rules for Canada’s early stage companies.  As Canada’s first on-line platform to facilitate a private company investment from an “Ordinary Investor“, we’ve waited a long time to see these new rules come into effect. Today, companies looking to raise growth capital can reach out to a broader audience by presenting their deals on-line and attracting investment from Canadians that, until now, didn’t have access to private company investment opportunities.

Don McDonald, CEO Waverley

So now, we’re hitting the road on our “Be the Dragon Tour” to introduce this next generation of private capital investing to investors, both old and new.  Don McDonald, CEO of Waverley, the EMD that handles securities related activities on SeedUps states, “Investors want to learn more about this next generation of investing. Angels and early stage funds are curious about using SeedUps to fill out financing rounds for their portfolio companies and first time investors want answers about the risks and rewards of investing in private companies. This road show will help answer those questions”.

The tour launches in Vancouver on February 11th with stops in Calgary on the 17th and Toronto on March 2nd. The Toronto stop corresponds with #CCS2016, the 2nd Annual Canadian Crowdfunding Summit where SeedUps is a Diamond Sponsor. Participants at the “Be the Dragon” tour events will learn how on-line platforms are transforming the private capital markets, hear from companies raising capital and enjoy networking with investors from all walks of life.

For more information about the tour, go to our event page here. There are limited spots available, so register on-line now.

A special thanks goes out to our Tour Partners.

Tour Partners

This communication is for information purposes only and should notbe regarded as an offer to sell or as a solicitation of an offer to buy any financial product. Securities offered through Waverley Corporate Financial Services Ltd., an Exempt Market Dealer. Investment opportunities on SeedUps Canada are suitable only to investors who are qualified to purchase the securities and who are familiar with and willing to accept the high risk associated with private investments. You will have to complete and sign additional documents to determine your suitability to make an investment.

ATB and SeedUps Canada partner to spread word about equity-based crowd funding

Calgary — ATB Financial and SeedUps Canada are partnering to help educate small businesses and investors about a new phenomenon: equity crowd funding. Formed in 2014, Calgary-based SeedUps, with its exempt market dealer partner Waverley Corporate Financial Services, is the first online equity crowd funding platform in Canada, allowing early-stage companies an opportunity to raise capital from a broad range of investors. Through equity crowd funding, investors become part owners of the businesses they support.

“We call it being an owner, not a donor,” says Sandi Gilbert, founder & CEO of SeedUps. “Crowd funding has been around for a long time. I grew up on a farm and when we needed to build a new barn, we just got the neighbourhood together and they came and helped us build the barn. At SeedUps, we’re using technology to give companies a broader reach so they don’t have to go door to door to raise capital.”

ATB—the largest Alberta-based financial institution—and SeedUps will work together to build and distribute educational materials for both early-stage companies and investors so they can learn how to participate and benefit from equity crowd funding.

“We’re working hard to be the bank supporting entrepreneurs in Alberta,” says Sean Ballard, ATB’s director of innovation. “We want to help show entrepreneurs and investors how to raise and use capital, where equity crowd funding fits in and how to grow. It’s a great way to serve our customers better.”

Jump On was the first company to be profiled on SeedUps and the first to generate an investment. Based in Calgary, Jump On books unused charter aircraft and offers low airfare to destinations across North America. So far, Jump On has raised $100,000 in capital through SeedUps investments that will go towards development of new computer software. It was capital the company may not have otherwise been able to raise.

“It was an opportunity to put our name in front of a new group of individuals that was beyond our reach,” says Roger Jewett, Jump On’s founder and CEO. “We were looking for a simple way to give our customers a way to become shareholders and, on the flip side, we wanted our shareholders to become customers. It just seemed to be the perfect fit. It’s been phenomenal.”

Equity crowd funding is also a way for non-accredited investors to participate in high risk/high reward venture capital.

“Typically in North America, investing in private companies has been restricted to accredited investors or, in a word, millionaires,” says Gilbert. “Demographically in Canada, that’s a very small amount of people, maybe three or four per cent of the population. But what about the people who make $150,000 a year or who have $400,000 in their investment portfolio? That’s a large group and we’re opening up new investment opportunities for them.”

For further information, please contact:
Barry Strader, Corporate Reporter, ATB Financial
Cell: (780) 886-4398; Office: (780) 495-1343
bstrader@atb.com

– See more at: ATB Financial, Yahoo Finance

ASC Unveils Startup Business Exemption

ASC LogoToday – amongst all the election noise – a little seen press release was issued from the Alberta Securities Commission … Notice of Publication and Request for Comment for a Proposed Multilateral Instrument 45-109 Prospectus Exemption for Start-up Businesses.

In short – it is the ASC’s answer to the recent Start-up Crowdfunding Exemption recently issued by six other jurisdictions – but better. I haven’t dug deep into the detail just yet, but from my first initial review, I have to say I like it. It has a lot of common sense rules to it – a $1 million capital raise, common sense disclosure, a $5,000 maximum investment from an ordinary investor and the ability to conduct concurrent raises, all through a registrant.

For those of you that remember my older post “The Trouble with the OSC’s Crowd” the ASC has solved many of the issues I have with the OSC’s yet to be implemented version. And, better yet, they don’t even call it a Crowdfunding Exemption – it is simply a Start-up Business Exemption that is directed principally at small and very early-stage businesses and is designed to allow them to raise a defined amount of money in a more cost effective way while still providing appropriate investor protection. It is after all, another tool in a company’s capital raising toolbox.

Our team is currently reviewing the proposed exemption in detail and will work with other stakeholders in providing comment. For now, we are pleased to see this initiative from the ASC. Although they stand on their own (with the Nunavut Securities Office), they have provided some solutions for multi-jurisdictional offerings. Stay tuned – we’ll provide more comments soon.

Regulators need to heed the rise of crowdfunded ‘techquity’ markets

Re-posted with permission from the authors – Keller & Motala. 

Robert Keller is a senior securities lawyer with over a decade of experience in litigation and regulatory policy. Michael Motala is a political economist and law student who comments on the digital economy.

It comes as no surprise that millennials are distrustful of equity markets. The Great Recession continues to cast its long shadow on the labour market for young professionals, and in Canada at least, we are in a technical recession. Tanking commodity prices and schizophrenic stock markets reaffirm the volatility of conventional investment instruments. Squeezed out of traditional career paths, many young people have turned into tech entrepreneurs.

In an economy marked by diminishing venture-capital funds, however, this new wave of young talent is turning to crowdfunding to capitalize their business ventures.

Oculus RiftA prominent example is Palmer Luckey, the 23-year-old virtual-reality inventor who became very rich almost overnight last year, when Facebook acquired his venture, Oculus Rift, for $2-billion (U.S.), leaving his original crowdfunders stunned. The Oculus Rift was an unlikely gamble in 2012. Yet, the success of its original Kickstarter campaign, which sought $250,000 in seed capital, exceeded its target by almost 1,000 per cent.

Some organizations are seeing the writing on the wall and are rising to the occasion. New York’s Nasdaq exchange, for instance, is hoping to capitalize on emerging tech startups in Silicon Valley with the Nasdaq Entrepreneurial Center, a non-profit offshoot that recently opened in San Francisco to help young entrepreneurs connect with experts, mentors and financial backers. At home in Canada, programs such as Ryerson’s Legal Innovation Zone and the MaRS Discovery District are also incubating young tech talent.

Mr. Luckey’s good fortune suggests that crowdfunding offers a valid capitalization model, but it is emerging in untested regulatory waters. Unlike conventional shareholders, crowdfunders generally have few established legal rights in respect of the corporate venture they help create. With equity crowdfunding, in particular, investors generally have little say over the corporate governance of their investments, and little to no recourse when startups break their promises and sell out. Yet, crowdfunding activity continues unabated.

Securities regulators are taking note of emerging peer-to-peer “techquity” markets. In 2012, the United States’ JOBS Act established a right to use online equity crowdfunding portals to raise up to $1-million, but certain restrictions were enacted by the U.S. Securities and Exchange Commission in 2013.

In Canada, regulators have taken an even more restrictive approach. Six provincial authorities issued new regulations on crowdfunding in May of this year, imposing an aggregate limit of $500,000 (Canadian) a calendar year for each startup.

RegulatorsMeanwhile, the Ontario Securities Commission (OSC) pledged it would promulgate its own regulations soon, with a higher aggregate limit of $1.5-million a startup per calendar year. Both, under the final provincial regulations and those expected from the OSC, equity instruments issued through crowdfunding are subject to strict holding periods and sales of these instruments are only allowed under very limited circumstances.

Even if a startup decides to play by the rules, however – say, by establishing a home office in Canada and using a Canadian Internet portal – it remains to be seen whether the crowdfunding limits imposed will spur investment or end up impeding the market. In the public comment process on the new OSC rules, some industry members remarked that the legal and other fees involved in complying with the new regulations could eat up a considerable portion of the capital raised in each deal. Meanwhile, Kickstarter already offers a competitive, low-cost alternative for fundraising in 18 countries around the world, with few to no legal obligations imposed on the businesses raising such funds.

Other challenges arise from the fact that Canada is still a patchwork of different securities regulations. In the 21st century, many find it hard to believe that, in an advanced economy such as Canada’s, securities regulation is still subject to a 19th-century approach to jurisdiction.

Startups have to navigate different equity crowdfunding rules depending on the province in which they intend to raise funds, instead of dealing with a uniform federal market. This leads to inefficiencies, given the greater legal and administrative fees required for complying with different rules in different provinces, not to mention the frequent interjurisdictional conflicts, which only further inhibit the fundraising process.

In any event, strict enforcement of the new crowdfunding rules may not be possible or desirable. In Canada, enforcement resources have traditionally been directed to the most egregious cases. Moreover, Canadian regulators may have little to no recourse against a foreign-based enterprise that is soliciting funds from Canadian residents using a foreign portal. It’s a similar challenge to the one posed by Netflix and Uber: When dealing with businesses that have no physical operations in Canada, Canadian regulatory authorities are hard-pressed to enforce regulatory powers or even court orders against such businesses.

The traditional idea of regulatory jurisdiction is being upended by the Internet and digital innovation. To make matters worse, implementing restrictive guidelines threatens to push away innovators, who will shop for another forum in which to do business.

From taxicabs to liquor stores to cellphones, Canadian regulatory culture seems prone to a certain inertia. Canada’s international competitiveness and economic growth prospects may suffer a high opportunity cost from overrestrictive or inconsistent crowdfunding limits, which may be difficult to enforce in the first place.

But this problem is not unique to equity crowdfunding – it applies to all securities regulation in Canada. If Canadian regulators want to remain effective, they need to heed this new “techquity” reality sooner rather than later.

Originally published in the Globe and Mail, October 2, 2015

VCs | Angels | Investment Funds – Let’s Make Some Noise

As an early advocate and first mover in the equity crowdfunding space in Canada, I am often asked, “Why isn’t Canada embracing this innovative new way to finance early stage business?” While it’s true that we have enjoyed some early traction, we know we need to create a bigger impact and collaborate with other players in the capital raising eco-system to stimulate adoption.

As a bootstrapped, single voice in the market, it hasn’t been easy.

Early this month, we announced we are seeking a small round of seed capital to fund our own traction. It’s not lost on us that we are looking for capital in the “funding gap”, the very stage in the capital raising life-cycle that doesn’t pique the interest of institutional investors, yet is too big for a typical friend and family round – the gap we intend to solve with our platform. We have several expressions of interest from those we have met and we are confident that we will accomplish the raise. But, the answer to the question above, might just be that no one has stepped up to the plate to fund an equity platform in Canada. I mean really fund!

This week, the UK’s two leading platforms, Crowdcube and Seedrs both announced new institutional investments into their companies, bringing their total invested capital to over US$42 million. Major institutions and venture firms have stepped up to the plate to help these disruptive finance tech firms change the way companies access capital and investors find alternative investments. Collectively, they have helped hundreds of companies raised over US$200 million in capital, with the majority of that capital going to early stage companies to accelerate their growth. Many of those companies have been able to grow their businesses, add jobs and create innovative products and services and are stimulating the UK economy. Some have been acquired (providing that all important exit) and others have gone on to IPO.

So, come on Canada, let’s not get left behind. Canadian investors deserve the right to invest in new and exciting ventures and our innovative early stage companies need these investment dollars to fund their next stage of growth. We’re working to make that happen, but we could use a little help along the way! To learn more about our capital raiseclick here.

A word from our lawyers: This communication is for information purposes only and does not constitute an offer to sell or a solicitation to buy any securities, nor should it be construed as a recommendation for any security offering. SeedUps Canada (a registered trade name of Crowd Capital Inc.) assumes no liability of any nature whatsoever for the accuracy or adequacy of any information disclosed herein.
You will not receive advice about the suitability of any security or about the merits of any investment. You should consult legal counsel with any questions about any investment. This communication may contain statements that are not historical facts, referred to as “forward looking statements”. The Company’s actual future results may differ materially from those suggested by such statements.

Are online groceries the next big thing?

Epicured MarketBusiness Insider has just released an in-depth report that looks at how new strategic e-commerce startups and big-name tech companies are pushing to move grocery sales online. Sound familiar?

That’s what Epicured Market’s Jillian Bowman is working toward.

She expects to launch her service, initially targeting the GTA, following her capital raise on SeedUps this summer.  20 million Canadians have digestive health conditions and Epicured Market aims to make it easier for them to make the necessary lifestyle adjustments to treat their digestive conditions with healthy, natural, real food solutions, while saving time and money.

We’ve also recently heard from Yuba, a Calgary-based startup focused solely on bringing 100% local foods to downtown Calgary’s 140,000 consumers. Comprised only of local vendors whose production exists within Alberta, Yuba’s goal is to support small to mid-size food producers while offering Calgarians the opportunity to choose higher nutrient and fresher foods, ensuring their food dollars are reinvested back into the place they live and work.

Shopping Habits are Changing

Busy lifestyles and dietary restrictions are influencing the likelihood that consumers will look to online grocery options. The Business Insider report found that only 15% of U.S. adults have purchased general food items online, but 25% said they have bought speciality food and beverages online, which are hard to find elsewhere.

The Market Outlook

Blue Apron, a U.S. company that packages up perfectly portioned ingredients and recipes that are delivered to your home once a week has been killing it of late. Early this month they announced a $135M round of funding at a $2B market cap. Sounds like the market is heating up! According to Business Insider Intelligence, between 2013 and 2018, online grocery sales will grow at a compound annual growth rate (CAGR) of 21.1%, reaching nearly $18 billion by the end of the forecast period. For comparison, offline grocery sales will rise by 3.1% annually during the same period. It looks like the grocery sector is about to get a shake up!

Check out Epicured Market on SeedUps and read the full BI Intelligence article here.

This communication is for information purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy any financial product.Securities offered through Waverley Corporate Financial Services Ltd., an Exempt Market Dealer registered in certain Canadian jurisdictions. Investment opportunities on SeedUps Canada are suitable only to investors who are qualified to purchase the securities and who are familiar with and willing to accept the high risk associated with private investments. You will have to complete and sign additional documents to determine your suitability to make an investment. The Epicured Market offering is available for investment to qualified and suitable accredited investors only.