When long-time ad agency executive Jillian Bowman needed capital to start a small business, she didn’t find an angel investor—she found a crowd. Inspired by the challenge of packing lunches for her four kids, Bowman used equity crowdfunding platform SeedUp to raise $50,000 by selling an equity in Epicured Market, an online grocery and meal-planning service for Canadians with dietary restrictions.
Bowman said the crowdfunding process was more flexible than a bank loan. She said it allowed her to raise smaller amounts while giving her the option of returning to investors if she wants more. Raising money from people she didn’t know was also a testament to their belief in her idea, she said. “It made more sense for the business,” she said. “It gave me the confidence that this business is going to work.”
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Epicured Market has just entered the pilot phase with a small number of families. While some early-stage entrepreneurs take out consumer loans or run up their credit cards to support their initial expansion, Bowman said she couldn’t afford that option with one of her children in university and another enrolling next year.
Bowman is one of a growing number of entrepreneurs using equity crowdfunding to jump-start their work, and five provinces have just made it easier for the average Joe or Jane to buy equity in a business. Unlike websites such as Kickstarter, Indiegogo and Patreon, Bowman’s backers get a stake in her business.
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Last week, Ontario said it would join five other provinces in a co-ordinated effort to loosen the rules for companies looking to raise money through online crowdfunding platforms and open up equity crowdfunding to all investors, with limits based on net worth. Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia have also implemented that policy.
Craig Asano, founder of the National Crowdfunding Association of Canada, said the new policy could help the many Canadian companies that fail at an early stage because of a lack of financing. “This is about strengthening the feeder systems of small businesses and the culture of entrepreneurship in Canada, which is linked to our innovation economy,” he said.
While the sums involved are still small, he said, equity crowdfunding is poised to grow exponentially. First-time investors can also use it as a way to get their feet wet, he added, making it attractive to millennials looking for more control and connection to their portfolio.
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Sandi Gilbert, founder and CEO of SeedUp, said equity crowdfunding is a more efficient way of matching investors with companies looking for support. “Companies can present their deal and get broad exposure to investors that have never been able to invest in those deals before because they weren’t sitting in the boardroom when the company was pitching itself,” she said.
Gilbert said crowdfunding is best suited for companies that are beyond the idea stage but far from going public, and that it can serve as a bridge while entrepreneurs seek to tap the deeper pockets of professional investors. “This is really about companies that have a good business plan and have good traction and need to take their company to the next level and can’t find that next million,” she said.
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Teri Kirk, CEO of the Funding Portal, which matches borrowers with government funding and private financing options, said crowdfunding has its place but it will only amount to a small sliver of the Canadian market.
According to figures collected by the Funding Portal, the total market for equity crowdfunding is around $70 million a year, compared to a venture capital market of roughly $2 billion and total private equity spending of around $41 billion. “Equity-based crowdfunding … is a niche market for people, really nascent corporations,” she said.
Kirk said most companies would be better off tapping government incentives for business, which add up to around $30 billion a year. “The more consumer choice the better, and there’s no doubt about it that access to innovation financing in Canada is challenging.”
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Would you consider financing your business via an equity crowdfunding campaign? What do you think of the new regulations? Let us know by commenting below.