Tagprivate equity

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.”

The 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.

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.

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.

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!

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.

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.

The Power of the Crowd – PechaKucha Style

If you have 7 minutes in your schedule – click on the link to hear my PechaKucha presentation on the Power of the Crowd.