Tagfinance

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.

My week with Uber in Toronto

Be the Dragon TourWith great anticipation, I boarded a flight to Toronto for the last stop on our “Be The Dragon” investor tour last Monday morning. Oddly, for a Calgarian, I love visiting the city, having spent much of my career commuting back and forth and I always enjoy returning to my local hangouts when I’m in town. Although I have been on an AirBnB streak for quite some time, I couldn’t seem to find one that was convenient to the financial district so I used one of my favorite apps, Hotel Tonight, to book the Hotel Victoria, a gem of a hotel located at Yonge and King.

The four hour flight gave me time to finish my presentation for the Dragon event and on arrival, I boarded the UP headed to Union Station, then had an easy two block walk to the Hotel Victoria. I walked the short distance to my first meeting, cursing the fact that I had just left a warm and balmy Calgary for a snowy and cool Toronto. After my meeting I ordered up my first Uber ride. My driver, a young entrepreneur that wanted me to convince his wife to move to Calgary as he had just read that the single housing market in Toronto was out of reach for most millennials, took me to a dinner meeting with a client, where I struggled with an “all meat” menu for my pescatarian palette! After a fun night, my client graciously drove me to my hotel and I settled in for the night.

Since my hotel was centrally located in the financial district I set out to take the subway to my first meeting, only to find that the TTC was not running due to an electrical fire, so once again, ordered up an Uber to take me to my meeting. Driver #2 had only been driving for a few weeks, but shared his enthusiasm for the part time gig, allowing him to work on his tech start-up while earning money to pay the bills as he pursues his dream. With the TTC back up and running, I took the subway to my next meeting, quite pleased that I actually emerged near the entrance of the meeting address.

After a great meeting discussing the disruption of fintech in the private capital markets, my host and I set out to walk through the blustery streets to our restaurant reservation at Ki, one of my favorite spots, especially when the host pays (thanks RP)! After dinner, with the snow blowing like crazy, I decide to hire an Uber for my trip home only to realize that I was only a couple of blocks from my hotel so I sucked it up, put my head down and walked through the snow to my hotel.

Spoke Club

The Spoke Club – Toronto

The next morning was the day of the Dragon event. I was concerned that the weather would affect the attendance, but was also secretly hoping it would, as we were incredibly over sold at that time. I hired an Uber and headed across town to the Spoke Club to check out the venue and settle some last minute logistics. Let me tell you, I love the Spoke Club. The entire team was more than accommodating and the vibe was exactly what I was looking for. After a quick check on the space, I ran out to meet with one of Toronto’s leading Angel groups to talk about the blurring lines between investment crowdfunding and other stakeholders like Angel groups and early stage VCs.

The Dragon event attracted a full house of Angels, first time investors, entrepreneurs and even a surprise visit from an old business partner of mine that I hadn’t seen since we sold our company to Pitney Bowes over ten years ago. From there, we moved on to a VIP reception and dinner for the #CCS2016, the 2nd annual crowdfunding summit scheduled for the next day at MaRS Discovery Centre. After a seriously long day, I gathered all of my belongings and hired Uber #4 to take me to the Victoria. Deepak, my driver, was a funky, young, enthusiastic entrepreneur that eagerly listened to me describe my exciting day and delivered me safely to my hotel.

Early the next morning, I grabbed my phone to catch up on overnight activities and saw a recent text that read …

‘Sandi – it’s DPak, your Uber driver from last night. I found your make-up bag and wallet in my car and I want you to know that I am keeping it safe. Unfortunately, I will not be able to get back to the city until 7PM tonight – but I will meet you wherever you are to return it to you safely’

Seriously! Are you kidding me? Has “local taxi company” ever sent you a text message?

I knew this day was going to be great – although my thoughts turned to how to survive a day without any money. Coffee was top of mind, but I soon realized that I could download money to my Starbucks app to get a cup of coffee – morning fix done. My next issue – how to get to the conference – but hey – I had an app for that, so Uber #5 took me to the conference.

CCS2016

Speaking at the #CCS2016 Summit

The #CCS2016 was a huge success – thanks to Craig Asano and the team at NCFA for all they did to make it happen. One of my favourite speakers, Ted Graham, Innovation Leader at PWC presented an engaging speech called “5 things I learned about disruptive innovation as an UberX driver”. Check out his post here.

After a jam packed day, my partner Don, took a few of us for dinner and Deepak and I exchanged text messages to coordinate a “meet” at the Victoria where a very grateful me, met a very gracious Deepak, with my make-up and my money! As it turns out, Deepak was very interested in the SeedUps platform as he is working on his own start-up and wanted to learn more about how to raise capital to take his product to market. Another budding entrepreneur enjoying the flexibility afforded to Uber drivers.

So what is this all about? I just spent a week in a city that is embracing innovation and isn’t scared to disrupt the status quo to create and foster an environment that supports creative entrepreneurship.  Uber is just one part of that. Every one of my Uber drivers was personable and engaged.  Uber encourages customers to rate their drivers, but a little known fact is that drivers can also rate their customers, so being obnoxious or not being ready when your Uber arrives could result in a lower rating. If you notice that it is taking a long time for your Uber to arrive, look in the mirror!

Calgary was built by risk taking entrepreneurs that had the freedom to develop a market driven economy. Now, our city seems to be happy with the status quo, protecting a transportation industry that is not delivering the service Calgarians want and deserve. Competition is at the heart of that customer service. Come on Calgary, it’s time for action. Uber is just a start.

 

 

 

New Offering Memorandum Regulations Announced

The Canadian Securities Administrators have released the final regulations for the new Offering Memorandum (“OM”) Exemption, quasi-harmonized in six jurisdictions in Canada. Ontario will join the rest of Canada and open up private capital investment to “non-accredited” investors in January of 2016, while Alberta, Saskatchewan, Quebec, New Brunswick and Nova Scotia will enforce the new rules effective May 2016.

The new regulations are designed to provide further investor protection when purchasing securities in private issuers. The key changes fall into three categories:

  • Ongoing disclosure – non-reporting issuers will be required to, among other measures, provide investors with audited annual financial statements and an annual notice describing how the proceeds raised under the OM were used.
  • Disclosure at time of offering – any marketing materials will be required to be incorporated by reference in the offering memorandum so that they are subject to the same liability as the disclosure provided in the offering memorandum in the event of a misrepresentation. This would include videos, pitch decks and executive summaries companies use when marketing their offering.
  • Investor limits – individual investors relying on the offering memorandum exemption will be subject to annual investment limits – $10,000 for an ordinary investor and $30,000 for an eligible investor. If the securities are sold through a dealer, all investments are subject to suitability, but the annual limit for an eligible investor increases to $100,000 per year, subject to suitability.

Companies will be encouraged to be able to reach the large Ontario investor marketplace, but the regulations are certainly complex and will take a while to digest. The 166 page document contains many more details – some of which pertain to certain jurisdictions. I’m glad the regulations don’t come into effect for a couple of months … it will take us that long to figure them all out!

Stay tuned!

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

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.

It’s Time to Disrupt the Private Capital Markets

Guest Post – Neal Gledhil, Founder & CEO ECN Capital

Somewhere along the way, it became very expensive for companies to raise capital from private investors. As public company costs continued to rise and investors’ confidence in the public markets waned, it was obvious that companies not ready to do an IPO would look to private capital as a stepping stone to the public markets. The regulators agreed – implementing prospectus exemptions designed to be used by those companies that required this pre-IPO money or in fact, were never going to be a candidate for the public markets.

Today, private capital investment far outweighs the capital raised in the public markets with many companies choosing to stay private while raising substantial amounts of capital. These issuers have had much success working with EMDs to market their offerings to their investor base, and EMDs have become known for the types of investment products they bring to market.

Investors have embraced the private capital markets as well, feeling empowered by choosing their own investments rather than committing their entire investment portfolio to fund managers who, at their discretion, make investment choices on their behalf.  But this ‘freedom to choose your own investments’ is a tricky business. Where do investors find deals they want to invest in, and where do the Issuers find the investors that are looking for their offerings? In many cases, access to deal flow relies on who you know, naturally flowing to professional investors that have the time and the patience to listen to investment pitches and conduct their own due diligence.

This is where the capital raising costs explode. Issuers, intent on finding private capital, engage all sorts of advisors and representatives to market their deals, and EMDs saddled with the burdens of KYP, KYC and Suitability have to charge fees to review, evaluate and determine if the deal is suitable to be presented to their investor base through commissioned dealing representatives. For companies seeking smaller amounts of capital, say $5 – $10 million, the upfront costs they have to pay to dealers to market their deal become onerous. Not because the dealers are unscrupulous and greedy, just because that’s the cost dealers must bear to bring a deal to market. As our dealer friends at the PCMA can contest, being a registered EMD, isn’t a license to print money!

So herein lies the problem. Many a good company seeking capital has nowhere to turn and investors wanting to invest that never have a chance to find investment opportunities that may interest them.

Enter disruption. Enter technology.

“A disruptive business model expands participation in the market by lowering the cost to serve previously unprofitable customers, typically through the introduction of a new technology or business process.” – Ryan Caldbeck, CEO CircleUp

Until quite recently, there has been very little adoption of technological efficiencies in the private capital markets. Much of the process is antiquated and laborious, requiring person-to-person interface and paper pushing along the way.  Administration costs are high and the entire process requires a great amount of time and involvement by the EMD and the dealing representative to execute. Some of this is certainly a result of securities regulations, however the other part in my opinion, is that the investment community has been slow to adopt the technological efficiencies available.

From client onboarding to transaction execution, today’s dealers can achieve efficiency by embracing technology, not simply to comply with securities regulations, but to improve that compliance and create a better environment for the Investor. This doesn’t mean that person-to-person interaction is not required at certain points and in certain circumstances in order to comply with KYP, KYC and Suitability obligations, but technology can assist in much of the administrative burden while improving compliance.

We believe that the private capital markets are undergoing a shift as investors seek to discover opportunities outside of their usual networks and make investment decisions independently. This has been occurring in the public markets for years, illustrated by the significant rise in popularity of online discount brokers. It is a natural progression to manifest in the private markets.

Our goal in developing the ECN Capital marketplace is to use technology to improve the private market experience for all stakeholders. But beyond this, we are a conduit to find unique opportunities that would be typically inaccessible to most investors.

Implementing technological efficiencies in different parts of the economy typically results in broader exposure, convenience and a reduction in the costs. The competitive nature of industry means that those savings can be passed on to the end user. It should be no different in the private capital markets. These savings should be passed on to the investor and the issuer. This is our mission at ECN Capital, and it is an evolution that will undoubtedly occur in the industry over time.

Without question the disruption has begun and technological efficiencies will be implemented in the private capital markets reducing costs for investors and issuers. In our opinion, intermediaries will have to adapt and what is lost in revenues per transaction will ultimately be made up by multiples in volume.

 

SeedUps – Early Traction

Earlier this year, SeedUps Canada launched its online marketplace where ordinary individuals and sophisticated investors come together to discover, evaluate and invest in young private companies. We set out with a mandate to lower the cost of raising capital, simplify the capital raising process and broaden the investor base for early stage companies. We developed a platform where companies can prepare for a capital raise, attract investment from interested investors, raise the capital and manage the shareholder relationship post close. The platform addresses the funding gap – the challenges SMEs face when seeking early-stage funding in the range of $250K and $2 million.

Companies looking to raise capital on SeedUps utilize exemptions available through National Instrument 45-106, Prospectus and Registration Exemptions (NI 45-106), most predominately the Offering Memorandum Exemption (OM) as well as BO 45-512, Exemption from certain financial requirements of Form 45-106F2 Offering Memorandum for Non-Qualifying Issuers. These exemptions allow the company to attract investments from qualified ‘ordinary’ investors rather than relying only on investment from Accredited Investors.

In developing our technology we considered the compliance requirements of National Instrument 31-103, Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) focusing intently on the following:

  • Registrant compliance for Exempt Market dealers
  • Investor qualifications and risk tolerances
  • Issuer disclosure and transparency, and
  • Issuer / Investor relationship post close

Investor access is restricted to individuals based on their jurisdiction, their investor qualifications, the type of exemption and the jurisdiction of the Offering.  Investment is allowed only by those individuals that meet such qualifications and are deemed suitable for the investment upon review of their personal finances, investment portfolio and risk tolerance as gathered through the client onboarding process. It is important to note that all investments on SeedUps are considered high risk and only suitable for investors who acknowledge such, and who can, and are prepared to lose their entire investment.

Traction

Entrepreneurs

Since launch, our platform has attracted interest from 150 companies seeking equity raises of up to $2 million, with the majority having a target raise of less than $500K. We’ve received the most interest from BC, Alberta and Ontario with smaller interest from the other jurisdictions.

We are currently working with several companies that are preparing their OM documents and some Alberta companies that are preparing their offering documents in accordance with BO 45-512 and expect to have several ready to present their offerings in the next several weeks.

Investors

We currently have 900 investors registered on the platform, with 50% of those certified as eligible and accredited investors. Alberta represents 60% of all investors with Ontario at 20% and BC at 14% respectively.

Most interestingly, B.C. investors investing in qualifying B.C. early stage companies can take advantage of the B.C. small business venture capital tax credit that encourages equity capital investments in B.C. small businesses, to give these companies access to early-stage venture capital.

We feel this will have a big impact for BC businesses and investors but we have not promoted this tax incentive heavily at this point as we have yet to profile a company that qualifies for the EBC.

The Typical Private Capital Raise

Any company that has been through a capital raise knows there is a process to raising private capital.  Whether online or offline, investors can be defined in three specific segments; Management’s network, the Network’s network and the Crowd.

The first investors are key to a successful capital raise.  Everyone wants to see someone else lead the way and typically, those lead investors are close to the company and its management or are advocates or customers of the company and have watched the development of the business to this stage – management’s network. Once these investments have been secured, the new investors share their investment story and create further interest in the company at dinner with friends, while watching a soccer or hockey game, at the nail salon – wherever. They also introduce the company to Business Angels and other sources of large capital – their network’s network. Then finally, interested and engaged investors learn about the deal, request information about it and ultimately get involved – the Crowd.

The premise of an online platform like SeedUps is to replicate this model in an efficient online environment that can harness the power (and capital) of the true Crowd.  Online platforms can give the Company access to thousands of potential investors in an online investment community.   Instead of running from board room to coffee shop to pitch the Company’s story, management post’s their opportunity on an investment platform where their network, their network’s network and the Crowd can review and evaluate the investment opportunity.

The Crowd can monitor the process of the capital raise and engage in dialogue with other investors and the Company’s management.  As the investment dollars come in – the Company thermometer moves toward the target raise. They learn more about the investment, become more engaged in the opportunity and may ultimately invest.

Where the Investors Come From

How Much They Are Investing

SeedUps investors register as Ordinary, Eligible or Accredited and come from a variety of backgrounds and investing experiences and to date have invested between $1,000 and $25,000 per investment. Investors are presented with the appropriate subscription agreements and offering documents based on their jurisdiction of residence and their qualifications to invest.

What’s Next?

We need to spread the word – so share our story so we can introduce this next generation of private capital investing to entrepreneurs and investors. We want to help Canada’s young companies raise capital and democratize the private capital markets to include ordinary investors who want to invest in companies they believe in or have a product or service they believe would make their friends and families’ life better. By my calculation, if just 1% of those individuals invested relatively small amounts into Canadian start-ups; that could translate into $1.5 billion in new capital for the very companies that will add jobs, grow their businesses and have a chance to become the next Big Thing!

 

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 arefamiliar with and willing to accept the high risk associated with private investments.  Investing in early stage companies is risky. You will have to complete and sign additional documents to determine your suitability to makean investment.

Equity Crowdfunding is not an extrapolation of Reward Crowdfunding

Guest Post – Paul Neiderer, CEO ASSOB – Australia’s largest capital raising platform for growing, unlisted companies with over $140 million raised

Because reward crowdfunding came first most regulators are fashioning their equity crowdfunding legislation for unaccredited investors around the pathway and figures reward crowdfunding has trodden.

They are two different animals though.

1) Reward crowdfunding is based on instant gratification (You get the DVD, watch, cooler etc as a reward)

2) Equity crowdfunding is based on hope. (You will wait years for an outcome and in the meantime you live on hope.)

However regulators, including advisory bodies like CAMAC in Australia, are building legislation recommendations that are built to handle volume (extrapolation from rewards) rather than recognising that the equity raises built on hope and protected by securities legislations will seldom have hundreds and thousands of investors. Why? If you pump up hope you mislead investors and there is plenty of legislation to prevent this. Directors are liable for misleading statements.

What start up or growth SME wants hundreds and thousands of investors and more importantly what would they need to say (pump up) to get hundreds and thousands of “retail” or “unaccredited investors.

Both Crowdcube and ASSOB’s equity funding platforms have been operating for a number of years with “retail” or “unaccredited” investors. In ASSOB’s case 63% of investors are “retail” or “unaccredited”.

Recently I scrolled through 101 completed raises on Crowdcube. Most companies that had raised the funds they sought had obtained under 100 investors to achieve their targets. And with Crowdcube you can invest as little as a hundred pounds if you choose!

So why spend months working out how to build legislation to allow for hundreds and thousands of investors? Why not focus instead on the 95% of raises that will have under 100 shareholders, will create jobs and benefit society.

If we look at the American statistics for external funding sources the $60 Billion from Friends and Family is as much as all the other sources put together. It is in the legitimisation of these funds through proper share certificates and holding statements and loan documents that the bulk of equity crowdfunding potential lies for society. Yes there will be additional investors beyond this due to the raise being empowered by “equity crowdfunding” but for a raise based on hope I doubt it will be over 20% of the funds raised for 95% of raises. Friends and family funding will still provide the majority of funds raised.

 

Startup_Funding___FundableThis is where the regulators should be focussing. On the reality of equity crowdfunding as evidenced by existing platforms.

How can regulators empower startups and growth companies so that they can accept legitimate investment from friends, family, fans and followers of businesses plus say an additional 10 to 25% more from “the crowd”.

In Australia’s case there is over 20 years experience with friends and family funding through the small scale offerings legislation. Why not just modify it tomorrow, as you would in any lean startup environment, and and see if shifting from 20 to 100 retail investors per annum is a good start.

Ask any advocate of the lean startup.

Bringing in totally new legislation for equity crowdfunding based on the best unproven equity crowdfunding  legislation around the world is high risk.

It may only suit the 1 to 5% of companies that get thousands of investors and thus be a failure.

These  1 to 5% of companies would probably have been picked up by angels or VC’s anyway.

Surely regulations should be focussed on the companies that make up the 95% that will have less than 100 shareholders.

What’s Happening on SeedUps Canada?

The SeedUps investor base is growing! Dozens of new investors register each week and every day a new company submits a request for funding. What’s new?

Now Open for Investment

Jump On Logo

Jump On Flyaways continues to attract followers and investment with the thermometer making a move this week. The offering is expected to close in September so you still have time to review the details on the site. If you’d like to ask Roger Jewett, Jump On’s Founder & CEO a question, login to SeedUps Canada and click on the Investor Discussion Tab to submit your question. He’ll respond in the forum so you and others interested in Jump On can see the answer.

Jump On recently announced two new return flights from Calgary to Vancouver for September and the new 99 Club. You can learn more about these flights by visiting Jump On Flyaways.

Coming Soon

Pycap Venture Partners is getting ready to launch on SeedUps Canada. The Pycap Limited Partnership (LP) intends to raise up to $10,000,000 to invest in Tech Startups and will offer up to $300K in LP Units to our Crowd. This is a unique way for ordinary investors to participate in a Venture Capital fund that they otherwise would not have access to. Login to SeedUps Canada to learn more about Pycap and be sure to “Follow” the Company for updates on their “Go Live” date.

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.  Investing in early stage companies is risky. You will have to complete and sign additional documents to determine your suitability to make an investment.

Ten-step guide for successful equity crowdfunding

SANDI GILBERT
Special to The Globe and Mail
Published Friday, Jul. 11 2014, 5:00 AM EDT
Last updated Friday, Jul. 11 2014, 8:44 AM EDT

Crowd Funding Concept in Flat Design. (Tashatuvango/Getty Images/iStockphoto)Equity crowdfunding, where companies offer equity in return for financial investment, is a new and relatively uncharted means for raising capital in Canada. It’s an attractive proposition – businesses capture a wider market of potential funding and investors get access to more interesting investment opportunities.

At SeedUps.ca, Canada’s first equity-based crowd-finance platform, we’re fielding hundreds of requests from startups and small businesses looking for a new way to raise money. While the crowd can be a powerful resource, there are also certain steps that a small business must undertake to raise capital:

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