Contributed by Saskatoon Regional Economic Development Agency (SREDA)
Crowdfunding is relatively new in the business world; however, with the increasing opportunities through technology and social media, it is becoming the newest way for organizations to raise funds for a project or venture. The sharing of information to finance a new concept has changed the way we do business, especially for small businesses, artists, philanthropists, and entrepreneurs when using crowdfunding. Eric Migicorsky, the creator of Pebble Watch shared that “Crowdfunding represents a fundamental change in the way that technologies, products, and entrepreneurs are evaluated.”
Saskatchewan made history near the end of 2013 by becoming the first province in Canada to allow equity crowdfunding. Small businesses and start-ups in Saskatchewan were given permission to sell securities from their companies to residents of the province through the Saskatchewan Equity Crowdfunding Exemption by the Financial and Consumer Affair Authority (FCAA). The minister responsible for FCAA recently stated, “Our government’s goal is to make sure that Saskatchewan continues to be one of the best places in Canada to start and grow a small business through competitive taxes, a continued reduction of red tape, measures to address the province’s labour shortage, and now through an additional source of funding.”
For more information on crowdfunding in Saskatchewan look here.
There are a couple types of crowdfunding:
1) Lending based crowdfunding is where the public can loan funds to the entrepreneur who will repay them with interest. This type of crowdfunding is best for entrepreneurs who do not want to give up equity in their venture or project.
2) Equity based crowdfunding is the most successful model thus far. By investing, people receive a portion of shares in the company.
3) Donation or reward is the final model. This is based on the generosity of the contributors, or for a reward in exchange for the contribution.
The crowdfunding industry is rapidly growing. Over the last few years crowdfunding has exploded, making many projects possible. In 2011 $1.5 billion US was contributed through crowdfunding, and in 2013 a total of $5.1 billion US was raised. It is being predicted that in 2014, nearly $10 billion US will be raised with crowdfunding across the globe. (Micheal Kaufman, Crowdfunding-The New Way to Raise Capital).
One company that has been incredibly successful in generating a crowdfunding platform is Kickstarter. In 2013 three million people pledged $480 million to Kickstarter projects. This works out to every minute, $913 was pledged in 2013. The contributions to these projects on Kickstarter are truly global with people from 214 countries being represented. Almost 20,000 projects were successfully funded within the 12-month period. Some great projects that were funded include Pebble Watch, Oculus Rift and many social campaigns. Check out more successful projects from 2013 here.
However, since crowdfunding is so new, many people and businesses are unaware how it works, so let’s break it down:
Crowdfunding is a new social movement that takes away the hassle of banks, loans, and credit. What happens is that people post their concept or project with the financial goal on a funding portal website, and the “crowd”, or everyday people, can make monetary contributions online to help the organization raise financing and receive something in return. If the crowd believes in the project or venture, they have the opportunity to invest or donate to the campaign. It is the newest way for small businesses to access capital without having to take out loans to finance the project or venture.
Learn more about the Saskatchewan Equity Crowdfunding steps here.
Moving forward with the equity crowdfunding program is a great step for Saskatchewan as an early adopter in addressing the funding gap in commercializing research and development. When you compare the $89 million that the National Angel Capital Organization in Canada raised in 2013 to the $5.1 billion that Kickstarter raised, the benefit is quite substantial. Start-up capital is expensive with investors and banks due to the high risk. Crowdfunding is another option that is potentially a less expensive tool to raise capital that may allow the entrepreneur to hit some milestones before giving away larger chunks of equity.
There is a huge opportunity in Saskatchewan to launch equity crowdfunding portals right now. With the Saskatchewan Equity Crowdfunding program, only Saskatchewan residents can issue these types of shares and invest in the companies. If you’re looking to set up a crowdfunding portal or to raise capital through equity crowdfunding, the Saskatoon Region is your place!
About the Saskatoon Regional Economic Development Authority
Started in 1992, the Saskatoon Regional Economic Development Authority (SREDA) Inc. was one of the first independent economic development agencies to be started in Canada. Today, it is one of the most successful. SREDA works with the City of Saskatoon, the province of Saskatchewan, the surrounding rural communities and more than 200 private sector investors to build and grow the region's economy. Contact us at firstname.lastname@example.org for more information and local opportunities!