The rules posted yesterday by Canadian securities regulators are still being digested, but upon first read, they appear very encouraging for Canadian startups, small business and even public issuers. The regulators have struck a balance by ensuring investor protection via caps, while giving portals and issuers modest oversight and the latitude they require to raise critical funds via portals like FundRazr.
While some portals have established themselves by model – as “equity” or “donations” or “rewards” – FundRazr believes that it is in the best interests of the entrepreneur to provide a broad range of solutions that can be accessed as needed stages during the growth cycle from a single expert platform provider. In our opinion, this “funding continuum” will then continue into later stage venture capital or institutional funding by existing players. This has been validated by platforms like Circle Up in the consumer packaged goods space.
As background, FundRazr is Canada’s most successful crowdfunding platform with $44M raised to date and one of the seven most visited in the world, according to crowdfunding.com. In December 2013, FundRazr announced our intent to offer a “continuum” of funding solutions for entrepreneurs beyond the donations and rewards currently offered.
Here are four key reasons why the funding continuum born in Canada is going to help drive entrepreneurial funding.
1. The ability to build start-ups, not a portal community
A myth exists that certain platforms – chiefly Kickstarter and Indiegogo – have funding communities that can be tapped into, simply by posting Rewards campaigns on those sites. The reality is that entrepreneurs need to bring their own community and then platforms can help amplify those communities to ensure successful campaigns.
The solution is to allow entrepreneurs to run the “whole” campaigns on their own sites and on the platform simultaneously. This drives the traffic to the startup webpage or Facebook page and builds the community for the startup, not just for the platform. That sets the stage for follow-on campaigns later.
For example, followers of a donation campaign at seed stage will be likely customers upon a pre-order or rewards campaign. Now curated as advocates, those same early followers will get the opportunity to invest – turning customers into shareholders. The community and relationship will be cultivated efficiently as the platform has made the administration and communications easy, fluid and all taking place on multiple sites that the entrepreneur desires.
2. Canadian market and technological expertise
The securities, web and payment regulations landscape differs widely by jurisdiction. Cross-border issues exist. The support ecosystem that is evolving – financially, legally, and through marketing – needs to understand the local landscape. We feel that this will mean optimal funding solutions born in Canada.
As Canadians, we often see U.S. technology providers struggle to navigate our laws, culture and other market requirements. However, Canada is more than the 51st state and Canadian platform providers like JOI Media and FundRazr will offer solutions more in-tune to local market needs. To date, foreign platforms offer fragmented (by model or market) solutions that will not prove as attractive to Canadian entrepreneurs for their funding needs.
As well, the JOBS Act Title III, as it’s currently constructed, will restrict foreign issuers (e.g. Canadian) from raising funds from non-accredited investors in the US. FundRazr CEO Daryl Hatton and I are ambassadors to the National Crowdfunding Association of Canada and we highly recommend that interested parties become members to stay current with the dynamic landscape.
3. Flexible and Affordable funding
The fact is that giving up equity for funding is very expensive if done too early and at too low a valuation. The funding continuum called Powered by FundRazr will allow entrepreneurs to tap the appropriate and most affordable option, depending on their stage of development. This puts the power back into the hands of the entrepreneur, not the venture capitalist or platform.
Giving up expensive equity at a point of more favorable valuation will be a positive outcome. Current options for Rewards campaigns range from flexible to inflexible (Kickstarter and Indiegogo restrict campaigns to 60 days). Kickstarter offers only All-or-Nothing, meaning that campaigners must hit their goal to keep any funds raised, while platforms like Indiegogo and RocketHub charge a five per cent penalty for campaigns that fall short of their goal. FundRazr will provide lower rates and more flexible options for Rewards campaigns and an affordable option for securities campaigns.
4. Market validation and refinement
There has been significant media coverage on the benefit to campaigners based on the feedback received from the market and future customers. Regardless of the model, the platforms enable engagement with customers, service providers and investors, and this can provide invaluable networking and advice on the path forward.
The public nature of crowdfunding is key to why more businesses that are ready for primetime will be able to go to market faster, while helping other entrepreneurs retool when indicated. Traditional investors can still engage with startups via platforms, but first customer traction has been hugely accelerated versus the old offline, behind-closed-doors funding routes.
To provide education to entrepreneurs, FundRazr, in collaboration with Fundica and the National Crowdfunding Association of Canada, will be providing workshops that cover the regulatory landscape and best practices as part of The Funding Roadshow that will cross Canada this spring. You can register here.
Do you agree that a funding continuum will be best for entrepreneurs? Will investors participate with crowdfunded companies? Join the discussion in the comments below. We’d love to hear your thoughts.
