In the business world, it takes money to make money. The burn of a company—how much it costs to rent office space, pay salaries, and power servers—can run into the thousands every day, and the majority of organizations don’t start seeing a profit for three years. In the startup industry, the toughest part of business can be finding the cash to stay afloat.
For founders not willing to take out a huge personal loan, financial support comes from investment channels—most likely venture capitalist funds or accredited investors. A great concept in theory, it’s proven to be a sticking point for the country’s business ecosystem. Canadian VCs are notoriously sluggish to put money into early stage companies—those which carry the greatest risk, but also the largest rewards—leaving many promising startups to wither on the vine.
In 2015, Canada introduced crowdfunding for businesses. Operating much like Kickstarter or Indiegogo, the new legislation allows companies to raise small amounts of capital from everyday people. Residents of B.C., for example, are able to invest up to $1500 each into private companies (those which don’t trade on a stock exchange), and, in return, get a stake in the business. Organizations are allowed to raise $250,000 per campaign, with a maximum of two campaigns per year.
In order to deal with the new laws, various companies sprung up to handle business crowdfunding. Vancouver company FrontFundr has emerged as a leader. One of the few web portals specifically designed to handle investments from individuals, it’s helped companies find capital from local Canadians.
Pushing the Lower Mainland to the forefront of investment technology, FrontFundr yesterday made an important statement.
“We are pleased to announce that FrontFundr has taken part in raising a combined $10 million in capital for Canadian companies,” said Peter-Paul van Hoeken, FrontFundr’s CEO. “We have enabled over 18 Canadian companies to obtain the funding they need to grow while creating communities of supporters and advocates for each company’s products and services.”
Crowdfunding has begun to embed itself in the startup economy. Not only does it hedge risk—allowing a company to gain market validation without giving up too much equity—but it also serves as a marketing tool, and validates the concept. For that reason, many companies are turning to the platforms as an alternative source of investment.
“We are thrilled to see the growth of FrontFundr and congratulate them on reaching the $10 million milestone,” said Craig Asano, founder and CEO of the National Crowdfunding and Fintech Association. “It clearly demonstrates the availability and potential of investment crowdfunding capital to support the growth of Canadian businesses.”
Companies who have been funded by the business include local giants RentMoola, Persephone Brewing Company, and HitchPlanet.
Follow Kate Wilson on Twitter @KateWilsonSays