What's Next for Equity Crowdfunding in Canada?

Interest in the novel financing model is growing. Here's what an industry insider thinks 2017 will hold

Written by Robert Gold

Regulatory changes at the beginning of 2016 opened equity crowdfunding up to more Canadian companies and retail investors. In the months since, a number of startups and growing ventures have sold small stakes to the public via online portals, though restrictions on interprovincial dealings mean they’ve largely used existing exemptions rather than the new rules.

Though the volumes remain low, there are plenty of positives for equity crowdfunding proponents claims Oscar Jofre, president and CEO of KoreConX Corp., an online tool that helps businesses through the process of obtaining capital and communicating with shareholders. He cites success stories like that of Vancouver-based RentMoola, which amassed a reported $5 million in a March campaign. “It is taking time to pick up, but it is moving forward,” he says.

Certain sectors have already embraced equity crowdfunding, among them the growing crop of cannabis companies. Jofre names drone manufacture, wealth management, and construction as other industries whose members are likely to raise capital from the public in the near future.

He also predicts an increase in the number of online marketplaces looking to enable these kinds of transactions. “We’re going to [see] foreign platforms entering the Canadian market,” he says. “Now that everybody knows how big our private market really is—[it’s] virtually untapped, nobody really owns it, it’s fragmented—we’re going to see entrants coming in.”

These platforms are coming from countries with more developed equity crowdfunding markets. In the U.K., Jofre points out, there are “over 20 different alternative finance models,” including ones that allow companies to raise money in exchange for a royalty or against a recurring revenue stream. “We’re going to see very different models that are going to offer different alternatives, because not every company is looking [to sell] equity,” he notes.

Equity crowdfunding has also growing in popularity across the border, where it was enabled by the Jumpstart Our Business Startups (JOBS) Act. “We’re seeing a lot of mainstream adoption, especially in the U.S.,” says Darcy Brooks, director of marketing and communication at KoreConX. “Big players like Indiegogo who are stepping into the game.”

Still, there’s a need for more education about equity crowdfunding. “Many companies don’t think that this is something that applies to them, or will work for the size of rounds or type of rounds [they want to raise],” says Brooks. She sees that information gap beginning to close in 2017, in part because of the increased competition among platforms to host company’s fundraising campaigns. “Large players internationally are coming into Canada, which will force the industry to react and get a little bit more proactive about that education.”

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Originally appeared on PROFITguide.com