The Crowdfunding Advantage

By: Fatema Fatakdawala

In the past, if you were an entrepreneur, your only recourse to raise money was to convince an angel or a VC or if you were lucky enough to have two years’ worth of financial statements (Right!), get a loan from a bank.

Times have changed, and the effects of internet’s fragmentation and ‘democracy’ has opened that financing oligopoly to the masses.We have now shifted to global online marketplaces where lots of people can buy smaller chunks of the pie and you can earn your first customer without paying any “middle man”. a.k.a the wonderful world of crowdfunding. It’s an affordable win-win-win situation for entrepreneurs, investors and customers. Typically, an entrepreneur or artist would ask to raise money and in return for smaller chunks promise either the first dibs at the product, or tokens of appreciation and recognition. It is not uncommon for projects to raise hundreds of thousands of dollars based on $25 – $50 individual contributions.

In Canada, such crowd funding platforms have raised $1.5 billion by funding one million campaigns in 2011. And that’s not all; these numbers have already doubled in 2012 and continue to grow as we enter 2013 with the largest player being Kick-starter.

Another big platform for crowd funding is Indiegogo where RIC’s featured client for the month of November, Fast Rack is currently running a campaign to raise $35,000. Click here to watch their video and check them out – they have only 18 days left!

The new U.S. JOBS (Jumpstart Our Business Startups) legislation was passed in April to allow non-accredited investors to buy-in equity stakes in startups without the businesses going through the costly process of preparing a prospectus for a public listing. This new law has created a segway for new equity based crowd funding sites like San Francisco based CircleUp to make the whole investment process more efficient and a lot easier to access.

As for the situation in Canada, at present, equity-based crowdfunding is not allowed. However, you’ll be happy to know that Ontario’s Minister of Economic Development and Innovation, Brad Duguid announced a week ago that the provincial government would look at ways to move forward with changes to security laws to allow for equity-based crowd funding. I don’t know about you but I am super eager for this new legislation to be passed, as it will help entrepreneurs grow faster than ever before!

A recent Venture Beat article argues that this change will be disruptive to local angel groups but it should not affect VCs. Read more about Crowdfunding in Ontario in this blogpost by our October 2012 Growing Your Business speaker Adam Spence from MaRS Centre for Impact Investing.

Fatema joins the RIC team as the Communications Officer responsible for marketing, social media, event and web management. She is a graduate student pursuing her final year in the Master of Biotechnology program at the University of Toronto Mississauga.

The RIC blog is designed as a showcase for entrepreneurs and innovation. Our guest bloggers provide a wealth of information based on their personal & professional experiences. Visit Altitude Accelerator for more information on how RIC can accelerate your ideas to market.

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