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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.

 

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.

 

 

 

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.

There’s a New Way for Companies to Raise Capital from the Crowd

CrowdfundingOn May 14th, six Canadian provinces jumped into the equity crowdfunding space in a big way. BC, Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia announced a new prospectus exemption for early stage companies to raise capital. When I first read the press release, I have to admit, I wasn’t that excited. But, after chatting with the regulators and reviewing the documentation, I’m warming up to the idea.

It is obviously disappointing that once again, the provinces aren’t aligned in this exemption, but we are used to that in Canada. Although Ontario says they will not be part of it, Alberta is suspiciously quiet at this time, so maybe we’ll hear something from them soon. Overall – I think they may have it right. Here’s what I know at this time:

  1. Financial reporting – early stage companies will no longer be required to present financial statements prepared by outside accountants that conform to GAAP or IFRS standards, a costly, and frankly unreasonable task for companies that have had little or no financial history to date. We work with early-stage companies every day – companies that are seeking “go to market” funding in the range of $250K – $1 million. I’d say the financial requirement is the single biggest obstacle they face today. This is indeed good news.
  2. The Offering Document – is straight forward for a company to complete and clear, concise and easy for investors to read and review. I like the standardized format. We’ve already created a Form 1 “Start-up Crowdfunding – Offering Document” template. Download your copy here.
  3. The Maximum Raise – of $500,000 ($250,000 at a time) sounds reasonable to me – that capital, combined with capital from Friends and Family, Angels and Accredited Investors can certainly help most early stage companies gain some traction and aligns nicely with the reduced disclosure as identified above. The average capital ask on our platform is currently $600,000 – so it seems that the regulators have it right on this one too.
  4. The Maximum Investment – OK … this might be the one area where they got it wrong. $1,500 is a really small number. The average investment on the SeedUps platform today sits around $4,000. Remember, this isn’t the minimum investment, it is the maximum investment. I think it is an arbitrary number, and one that should be re-evaluated in the near term. Concurrent raises can balance out the average investment, but many eligible investors will wish they could invest more in early stage companies they believe in.
  5. Concurrent Raises – companies can raise capital under another exemption concurrently with this exemption and contribute those investments to the minimum raise in order to close the offering. This means that Angels and other sophisticated investors can participate in the capital raise. (One caveat – a non-regulated “funding portal” can’t execute the purchase under another exemption – but an EMD that is offering the securities could).
  6. Eligible Securities – the commissions have provided great flexibility in terms of the types of securities offered. In addition to common shares, companies can issue debt, convertible debt, preferred shares and limited partnership units. These alternate forms of capital, or combinations thereof, can make sense for certain early stage companies wishing to delay their valuations until a later date.

Bottom line – at SeedUps Canada, we’ve always advocated for lowering the cost of raising capital for early stage companies, without compromising investor protection. This new exemption does just that. Now, when raising capital, companies have several options at their disposal. We’re excited about the prospects for the companies we are working with. Stay tuned!

How to Raise Capital from the Crowd


So you’re ready to access new capital to grow your business.  Do you know what it takes to successfully raise capital?  It takes more than just a good idea and a good story.  You’ll need to be fully prepared.  You must comply with securities regulations, corporate governance and present your investment opportunity in a clear and transparent way.  Here are some steps to consider as you prepare your pitch.

Corporate Governance

Is your business incorporated?  Do you have the appropriate articles to support issuing shares in your company?  Do you have a board of directors (including some independents) or an advisory board?  As they say – you need to get your business affairs in order prior to reaching out to the public for investment.  You’ll also have to consider the type of shares you are offering and the amount of equity you are offering for the investment.

Investors will have to complete documents including subscription agreements, risk acknowledgement forms and validate their qualifications to invest in your offering.  Fortunately, SeedUps Canada provides online execution of these documents, making it an efficient and compliant environment to raise capital.  Be sure to seek the appropriate legal and financial professionals to help you organize your fundraising.

Compliance – Securities Regulations

SeedUps Canada is a CrowdFinance platform.  That means you raise money in exchange for shares in your company.  Selling securities is regulated by the various securities commissions in Canada and companies raising capital on the SeedUps platform must offer their securities under one of the following prospectus exemptions:

  • Offering Memorandum (OM) Exemption
  • Accredited Investor (AI) Exemption

The Offering Memorandum Exemption

The Offering Memorandum – Form 45-106F2

In Canada, private companies can raise capital from the public – meaning the Crowd – through an Offering Memorandum (OM) exemption. The OM is a document that provides information about your company and the shares you are offering to investors. The document contains disclosure about:

  • the business of the company,
  • the company’s financial and material facts and contracts,
  • the directors, management and promoters,
  • the securities offered,
  • the risks of the investment, and
  • how the money will be used

It is a legal document of a prescribed format that gives rise to significant legal obligations on the part of your company. Like any other important legal document, it should be prepared with the assistance of an experienced securities lawyer who has a thorough understanding of your business.  We’ve created an OM template that you can review and complete so you are well prepared prior to engaging legal counsel, often times resulting in reduced legal fees. Download template here.

Risk Acknowledgement Form 45-106F4

Each investor must complete a Risk Acknowledgement Form that accompanies the OM.  We have sample forms for you to discuss with your legal counsel.

Subscription Agreement

Each investor must sign a Subscription Agreement that forms part of the OM.  We have a sample subscription agreement for you to discuss with your legal counsel.

Need legal advice?  Check out our participating partners.

Financial Statements

The Offering Memorandum must include audited financial statements prepared in accordance with Canadian GAAP or IFRS for publicly traded companies.  If your company is located in Alberta and you are only looking to raise up to $500,000 in capital, you have the option of offering your securities under a Blanket Order (OM Blanket) whereby the financial requirement is relaxed to allow for non-audited financial statements that are prepared in accordance with Canadian GAAP or IFRS applicable to private enterprises.

Need accounting advice?  Check out our participating partners.

The Accredited Investor Exemption

The Accredited Investor Exemption gives a company the ability to raise capital from high net worth individuals.  These investors are deemed to be sufficiently knowledgeable of investment matters therefore do not need the protection of securities legislation.

Only 3% of the Canadian population qualifies as an accredited investor, so pitching your company’s offering to this limited audience may not be your best approach.  Although the disclosure required in this type of offering is much less than that of an OM offering – the potential of a successful offering may also be reduced.

Is an offering document required?

No, there is no requirement to prepare and present an OM for an offering made to accredited investors.  Most companies will prepare a document that has pertinent information about the business, its market and competitive advantage. While there is no requirement or prescribed format for an offering document, potential investors will want to understand enough about your business to make an investment.

Risk Acknowledgement Form 45-106F9

Beginning May 5, 2015 all accredited investors must also complete a Risk Acknowledgement Form.  We have sample forms for you to discuss with your legal counsel.

Subscription Agreement

Each investor must sign a Subscription Agreement that clearly quantifies how the investor meets the accredited investor standard.  We have a sample subscription agreement for you to discuss with your legal counsel.

Need legal advice?  Check out our participating partners.

Due Diligence

Waverley Corporate Financial Services Ltd (Waverley) is a registered Exempt Market Dealer and handles all securities related activity on the SeedUps Canada platform.  Waverley has an obligation to understand the structure, features and risks of the securities offered by your Company.  As part of due diligence, we will gather certain documentation to present to Waverley including:

  • Background checks on key Officers and/or Directors
  • Certificate of Incorporation or Partnership Agreement
  • Underlying Organizational Documents (Articles of Incorporation, relevant shareholders’ agreements, employment contracts, etc.)
  • Detailed Business Plan
  • Detailed Pro-forma Projections
  • Investor Deck
  • Pre and Post Financing Capitalization Tables, and
  • Other supporting documents

Valuation

How do you know what your company is worth? It’s a challenge for early stage companies that may be pre-revenue or just going to market. At SeedUps, we have an alliance with Equidam, a platform for business valuation that allows you to better estimate your future and compare your company with others. Your company valuation is computed using 5 different quantitative and qualitative methods based upon your input and the best financial data available.

It’s free to generate an executive summary and SeedUps referral companies receive preferred pricing for an annual subscription with Equidam, where you can

download the full 16 page document at every stage of your company’s development.  Click here for more details.

Marketing Materials

Video Production

A video pitch is a powerful tool for you to communicate your investment potential in a succinct and compelling manner. It will help bring your business to life, show that you are serious and add credibility to your pitch. You don’t need to be a professional videographer to make a short video these days and by doing one you will surely increase your chances of success.

Need help? Check out our video production partners.

Investment Deck

A presentation deck that succinctly describes the investment opportunity and why an investor should be interested can help market your opportunity. You should ensure that the information in your presentation is consistent with the information provided in your offering documents.

Media and Press Releases

If your company has be recently covered in the press – we can post links that can be shared with our investors.

Marketing Plan

We’ll work together with your team to prepare a marketing plan that will include social media, email marketing, blogging and events. To learn more about preparing for your pitch – review our Pitch Checklist.

Offering Costs

Offering Documents

If you do not have any of the Required Disclosure Documents prepared, you will incur professional services fees to prepare and present the documents.  Although the fees can vary relative to the preparedness of the company, the complexity of the business and the choice of professional firms, we would suggest that these fees can range as follows:

  • Accounting – $2,500 to $10,000
  • Legal – $2,500 to $20,000

These fees are generally required to be paid prior to the capital raise, so your Company should be prepared for such costs.

Success Fees

If you comply with all of the requirements to present your offering on the platform and Waverley signs off on due diligence, your Company will incur an onboarding fee of $3,200 and a $10 “per investor” fee payable to SeedUps Canada and a success fee of 5% payable to Waverley at the time of closing (when you get your money).

Moving Forward

If you are prepared to move forward with us, we will present you with Engagement Letters outlining the terms of our agreement and begin the steps required to present your offering on the platform.

Paperless Paperwork

Have you already found your investors? The SeedUps platform has all the tools you need to execute your private capital raise quickly and accurately. With our platform, companies, securities lawyers and other advisors have an integrated solution that makes it easy to move the capital raise online. Ask us about Paperless Paperwork.