5 Reasons Why Crowdfunding is so HOT in Canada

1. Technology Advancements and Social Media

Today we collaborate and share online documents stored in the clouds and host virtual meetings and webinars with hundreds of global participants at the click of a few buttons.  The advancements in technology, networks, security and online communications combined with the rise of social media have reached a tipping point.  Usage and awareness have increased immensely in wired countries with high adoption rates of smart and mobile devices, new apps and platforms appear weekly and are changing the way the world communicates, interacts, shops and soon invests.

People are increasingly reaching out connecting with online communities that share similar interests to exchange ideas, solve problems and interact with one another for social benefits such as the number of ‘friends, likes and connections’.  According to ComScore’s 2012 Canada Digital Future in Focus study, Canada leads the world in online engagement in terms of average hours, pages and total visits per visitor.  Canadian visitors topped highly wired countries including the US, UK, and South Korean spending on average 45 hours per month online with the majority of time spent on social media and entertainment site like twitter, linkedIn and Tumblr.

2. Disintermediation

Disintermediation is about cutting out the middlemen and bringing buyers-sellers, creators-supporters and projects-communities together directly with one another.  People want easy, transparent solutions, not complicated ones.  Traditional business models have built up too many layers of management and middlemen making transactions slow, costly and sometimes less than transparent.

E-bay is a good ecommerce example that enables buyers-sellers to connect directly with one another reducing the need for traditional wholesalers, distributors and brokers that usually exist in a traditional retail model.  Users benefit from a cost effective, efficient and enhanced shopping experience where users can rank and review products for the benefit of others, ask questions, buy online via a secure check-out process in a 24/7 online store that never turns out the lights.

3.  SMBs face high challenges when raising start-up capital

There’s a funding gap that exists to raise small amounts of capital (i.e. up to $1m).  Take a look at an example.  A Canadian small business (by definition <100 employees) seeks $500k early stage funding to develop an innovative product (based on their successful prototype) and market a polished product to the public via online and retail networks.

The entrepreneur asks friends and family networks (F&F) for support and raises $50-$100k but from here it’s an uphill battle without a clear funding roadmap and a difficult landscape to navigate for first time start-ups.  Incubation and accelerator programs are difficult to get accepted into and have a limited amount of program funding available for entrepreneurs to tap into.  Traditional bank start-up loans are drying up or the loan amount is too small with larger lines of credit being available for operational businesses with more defined revenue streams and customer prospecting channels.  Projects funded by VCs have been on a steady decline for years.  In 2000, $5.9 billion was invested in 1007 Canadian startups, according to Thomson Reuters, compared to just $1.1 billion in 2010 that was raised by 357 Canadian firms representing an -80% decline of in a ten year period (source).

SMBs are the ‘backbone’ of the Canadian economy.  Small businesses create jobs and significantly contribute to Canada’s GDP, exports, tax base and represent role models for future youth entrepreneurs.  48.3% of the entire Canadian workforce is employed by small business, or put differently; almost one person in every two is directly reliant on the success of a small business for their livelihood.  In 2009, small business represented 28% of Canada’s total GDP and also accounted for 25% of Canada’s total export value.  Small businesses also play an important role as a feeder system to a much larger business and financial eco-system.  Successful smaller companies eventually move up the ladder, acquire other businesses or assets, and grow into larger public companies

4.  Crowdfunding Effect   “Paradigm Shift”

Entrepreneurs are starting to realize that there is a new source of capital in crowdfunding markets on the horizon that can fill the gap of their funding needs in an efficient (average fundraising period is around 30 days) and cost effective manner.  In addition to receiving the much needed early seed capital from supporters they will also benefit from the ‘crowd intelligence’ of their backers who can provide invaluable research, feedback and validation of their ideas.  These fans have an invested interest and will want to see the project succeed.  They will become top marketing evangelists promoting the business or project through their social media channels making key introductions along the way.

For many investors the light bulb has just turned on.  People are suddenly realizing that they can participate and contribute to a project financially or otherwise and make a difference to the outcome.  Web 3.0 is where social media meets finance in a personalized, dynamic, mashed-up and user engaged project-stream.

“Crowdfunding touches a nerve at the core of what makes people tick and how they view and engage and invest their livelihood, time and resources towards causes and projects that they can directly be involved with and share the journey with its creators”, said Craig Asano.

5.  Global Momentum for Equity Crowdfunding

Crowdfunding has gained a tremendous amount of momentum in North America and Europe.  Since the JOBs Act was signed into law in the US on April 5, 2012 making it legal for entrepreneurs to raise up to $1 million of early stage equity-based financing (expected to be in full throttle by mid-2013) there has been an groundswell of activity and buzz surrounding crowdfunding in the media, entrepreneurs, investors, regulators, academics and the general public.  While non-equity forms of crowdfunding are currently thriving all over the world, equity-based crowdfunding models are currently legally permitted in Australia, UK, Netherlands, France, Belgium, Germany and now the US will soon be added to that list.

Why not Canada?  Canada needs to develop and implement ‘made in canada’ solutions that support all forms of crowdfunding or risks losing its best entrepreneurs overseas who will seek funding elsewhere creating a negative ripple effect on jobs, the Canadian economy and the entrepreneurial dream.

The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada crowdfunding hub providing education, advocacy and networking opportunities in the rapidly evolving crowdfunding industry.  NCFA Canada is a community-based, membership-driven entity that was formed at the grass roots level to fill a national need in the market place.   Join our growing network of industry stakeholders, fundraisers and investors.  Increase your organization’s profile and gain access to a dynamic group of industry front runners.  Learn more eBrochure | Prezi or contact us at casano@ncfacanada.org.