Small Business

Crowdfunding: Viable Resource or Novelty?

Crowdfunding is a hot topic lately, but how does it really fit into the average entrepreneur's plans?

Written by Andrew Brown & Robert Gold

The National Crowdfunding Association of Canada (NCFA) is only a year old—but it’s been quite a year for crowdfunding in Canada. Murray McKercher, a board advisor for the young association, says the fundraising model has blossomed in Canada over the last 12 months, with major sites Indiegogo and Kickstarter targeting Canadian entrepreneurs.

While many have pointed to the spinoff benefits of a crowdfunding campaign—free R&D, for one thing— McKercher says the model really isn’t about crowdsourcing. Put simply: it’s about getting some initial capital into an entrepreneurial startup. “I do a lot of advising for startups through [various] accelerators, and getting that first $50,000 is really difficult,” says McKercher. “Crowdfunding is a vehicle to allow those young entrepreneurs to get some capital into their company.”

Right now, the model is limited to perks and rewards for investors—it’s not possible for Canadian investors to buy common stock or shares or make an actual equity investment in a crowdfunded initiative. But McKercher says the model has had great success in the UK and elsewhere, and believes it’s gaining momentum in Canada. The NCFA is working with bodies like the Ontario Securities Commission to create a an equity crowdfunding model that protects both the entrepreneur and the investor. If equity crowdfunding becomes a reality, it would bring the model to the next level, putting it on par with other viable options such as the Toronto Stock Exchange.

(UPDATE: In December 2013, Saskatchewan became the first Canadian province to allow equity crowdfunding. Crowdfunders can now sell stakes in their companies to residents of the province.)

Read: OSC Considers Changes to Exempt Market Regulatory Regime

The NCFA is also conducting research, including a national survey for which it’s seeking input. It has also compiled a directory of crowdfunding portals for Canada. There are over 65 to choose from in Canada, which may surprise those who are mostly familiar with big players such as Indiegogo. “It’s important to match the portal with your particular strategy and offering,” says McKercher.

Is this model over-hyped? Will it become a significant tool in the startup’s fundraising kit? Click on the iTunes logo to listen to this week’s PROFIT BusinessCast, featuring an interview with McKercher, and leave your feedback in the comments section below.

Available on iTunes

Originally appeared on PROFITguide.com
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