Crowdfunding hit the mainstream in Canada in 2014 with a record campaign for wireless speaker The Core by Mass Fidelity raising $1.3 million to lead the way.
This raise was 60 per cent higher than the $817,000 raised for the top 2013 campaign for the magnetic Polar Pen/stylus in 2013. Donation campaigns supported many more causes and individuals than ever before. Equity and Lending models both gained traction with the promise of much more funding access to come.
What will the New Year hold for alternative finance and crowdfunding in Canada? Here is a quick look back at 2014 and some fearless crystal ball gazing from advisors and ambassadors of the National Crowdfunding Association (NCFA) of Canada as we look to the coming year. For more on predictions for the past year, visit the post, see how well I predicted Crowdfunding in Canada for 2014.
What was your favourite Canadian campaign of 2014?
This question generated a mix of responses spanning entrepreneurs to causes from the top grossing campaigns of the year including the VanHawks Valor smartbike ($820,000) on Kickstarter and the Plexidrone photography drone ($1.2 million) on Indiegogo to several campaigns for the family of fallen soldier Nathan Cirillo ($400,000 plus), the first cross-border equity campaign for WAFU dressings and mayo to a new Opera for schools adaptation with an anti-bullying rallying cry, Stickboy for Vancouver Opera, by Black Press 4 Good.
Suzanne Paschal (@suzannepash) of Indie Ink Publishing called the Mass Fidelity campaign effort “a super-smart campaign focused on all the ways they could help potential customers buy this product before it went to market, as well as have a say in product design. They got great market research, and kept in contact with their contributors – used stretch goals to follow through on what their customers said they wanted to see.”
What was your favourite international campaign of 2014?
Two of the most-covered Kickstarter campaigns also captured the attention of the experts: The Coolest Cooler and Potato Salad. Sunny Shao (@explicitivity), NCFA advisor pointed out, “Coolest Cooler was such a simple yet innovative concept and Potato Salad because it was just so dumb yet got everyone talking about crowdfunding.” I have to admit I’m waiting for the delivery of my cooler in 2015 myself and the communications to backers have been excellent.
Other favourites included the relaunch of Reading Rainbow, which aims to continue to promote literacy for digital natives and the disadvantaged.
Its Kickstarter campaign was “well executed in all respects and found a way to connect to a whole new audience,” says Shahab Khan (@shahabkan).
Daryl Hatton (@darylhatton), CEO of platform FundRazr suggested science project American Gut. “This is a great example of an innovative application of crowdfunding technology to help fund scientific research.”
Bruno Rakotozafy of Seeding Factory (@seedingfactory) offered up French platform Wiseed’s campaign, Rachetonslaeroportdetoulouse, for citizen ownership as a testament to crowdfunding’s impact.
What stood out to you/was significant about Canadian crowdfunding in 2014?
The themes included the greater focus on equity crowdfunding and that crowdfunding had hit the mainstream in 2014:
“The most significant thing about crowdfunding in Canada in 2014 is that it entered the mainstream with a significant component of the population starting or participating in crowdfunding campaigns,” Hatton says.
Gil Michel-Garcia of WAFU (@WafuBrand) pointed to Title II of the JOBs Act and Rule 506 (c) of Reg D: “which for the first time allowed both US and non-US companies to publicize their securities offerings on the Internet.”
Rakotozafy suggested the establishment of “the first Canadian Crowdfunding Summit” to be held March 2015 as a significant milestone.
Other comments included the emergence of NCFA, greatly increased media coverage, new venture funding models and increased interest from the financial sector. Several comments pointed to the progression of legislation in various provinces but that homogeneity was unlikely from the securities regulators.
Which model of crowdfunding will grow the fastest in Canada next year?
The experts predicted a lending model for crowdfunding would see the fastest growth, based on its current small base and success in other markets. A rewards-based model (similar to Kickstarter campaigns) will be close behind, and equity taking longer to establish itself.
Lynn Blanchard of Creekstone Consulting commented, “Regulation will remain a barrier for equity based Crowdfunding however reward based Crowdfunding will continue to grow and mature as another arrow in the entrepreneur’s capital raising quiver. More attention and awareness is building about Crowdfunding in Canada which will eventually lead to a broadened adoption cycle.”
“2015 will bring the finalization of Canadian equity crowdfunding regulations and the final implementation of the regulations for Title III of the JOBS Act by the US SEC,” said Michel-Garcia.
Hatton adds: “The lending sector is likely to grow the fastest as a percentage next year given it is starting from a very small base but is a huge market and proven model in the US and the UK.”
“This is a tough one between lending and rewards. I know most people might say equity, but I think the struggles with regulations and the need for the business infrastructure and ecosystem to develop will hold that growth off until 2016,” writes Paschal. “Lending is already in place and is growing in awareness, so I believe it may be the fastest to grow. Increased education and support tools for rewards may make it the fastest to grow in terms of success rates, though.”
What are the 2 biggest issue facing the Crowdfunding sector next year?
The two biggest issues had wide agreement: 1) awareness/education/lack of market data and, 2) bureaucracy and regulations. Market maturity will help address the first issue. Let’s hope the regulators can strike the right balance to support the growth of venture capital and personal alternative finance while maintaining reasonable levels of investor, entrepreneur and creditor protection.
Fearless Predictions for Canadian Crowdfunding in 2015
The experts predict the emergence of new support services to increase funding outcomes, better educational resources, new models, platform concentration/consolidation and progress, albeit slower than anticipated, for equity crowdfunding regulations and infrastructure. Here are their fearless predictions:
Rakotozafy: “I hope the booming crowdfunding scene will experience a concentration wave in 2015. It’ll prove some actors are becoming big enough to secure the business and guarantee a sound growth. “
1. The equity crowdfunding market will continue to emerge but much more slowly than everyone wants. This is because the confluence of lack of market awareness, the difficulties of getting the model “right” and the wariness of the regulators in their goals of prevention of fraud will continue to great major friction in achieving adoption.
2. There will continue to be consolidation in the crowdfunding market with many small market entrants closing their doors.
3. Crowdfunding and cause marketing will continue to strengthen their relationship inviting much larger corporations to participate in the game and reaching many more consumers. This will shift the funding of many causes from “donations only” to a “give to get” model that rewards commercial behavior while supporting philanthropic activities.
Blanchard: “Education will begin to focus on “how to launch a winning CF campaign” with tools and seminars dedicating to improving the odds of a campaign’s success. This means that education will expand from general awareness to more nuts and bolts implementation.”
1. “Support services for campaign development & implementation will proliferate dramatically in Canada as both established marketing services and start-up entrepreneurs see the opportunity to serve an emerging market of funders…
2. Provincial securities regulators will continue to struggle to … create an appropriate equity crowdfunding business environment in their relative markets. Saskatchewan will continue to be a maverick and go with its own first-out-of-the-gate model.
3. A first-of-its-kind book about the crowdfunding industry will emerge late in 2015 that will not only create a unique picture of the industry and its impact on Canada, but will challenge the way non-fiction books are created and published.”
Khan: “Will become standard approach in marketing effort and test bed for startups developing MVP. Will be viable alternative to VC/Angel funding with larger rewards targeting that segment of investors. Will be officially recognized as equity investment alternative.”
Shao: “More equity crowdfunding attention – Crowdfunding due diligence and fraud prevention – More charities and non-profits adopt crowdfunding.”
Michel-Garcia: “2015 will see the first simultaneous cross border equity crowdfunding offering in Canada under the new regulations and in the United States under Rule 506(c) (Title II of the JOBS Act).”
Anything else you would like to share with those interested in crowdfunding in Canada?
Khan: “This is now a viable alternative to allow startups to test and get feedback on their minimum viable product. It has matured and is now a decision point in their early stages.”
Paschal: “One of the most important tasks and responsibilities facing the industry, and those who want to see it grow, is the development and encouragement of qualified education resources to help increase that low percentage campaign success rate… If you’re doing it right, crowdfunding isn’t just about funding. In fact, in some instances, the money you raise might be the smallest benefit at the end of the day. That’s an incredibly important educational message.”
Blanchard: “… Entrepreneurs wishing to get involved in Crowdfunding have to ask this one basic question. Is my company or organization making a valuable contribution to society? … there will be a trend toward a deeper education of entrepreneurs in the “art of the start” … We will see a shift away from “post a page and they will come” to more digitally based education mechanisms … This means the quality of the organizations wishing to launch campaigns will increase in 2015 ….”
Michel-Garcia: “The rise of equity crowdfunding is going to be transformational event for Canadian small companies, because it will allow them to turn customers and social media followers into shareholders.”
Shao: “More cross-border collaboration in crowdfunding data, research, and support.”
Hatton: “Canadian consumers, startups and established businesses need to start or continue to support our local market entrants by using their products. If we insist on simply using and promoting platforms developed elsewhere in spite of the quality of domestic competitors we will lose our ability to compete and control this market with the resulting loss of innovation and jobs in Canada.”
There you have it. A look into the crystal ball at the year ahead from the Advisers and Ambassadors at the National Crowdfunding Association of Canada. Please leave a comment with your thoughts on what is ahead for 2015 alternative finance below. For more 2015 predictions by ITBusiness.ca bloggers visit our Technology Predictions post here.