Empowering entrepreneurs of all stripes with crowdfunding
At a time when Reddit communities seem to rule the financial markets it could be easy to forget that the capital raised via private markets…
At a time when Reddit communities seem to rule the financial markets it could be easy to forget that the capital raised via private markets is way greater than via public markets. Two times larger to be exact. And growing at twice the rate of public markets.
It is important to keep this ratio in mind as our Small and Medium Businesses need, now more than ever, financial oxygen and in parallel retail investors look for investment opportunities — and to, hopefully, make a positive impact at the same time.
We know how difficult it is for SMBs to obtain capital, may it be equity or loan. Even if a business is qualified as « a startup » (meaning experiencing high growth rate and a recent launch), this is a huge challenge. As mentioned many times over the years, It is even more difficult for visible minorities (16% of the Canadian population in 2016) and women (51% of the Canadian population every year!).
On the other hand, retails investors looking to allocate capital to private investments have mostly been left on the sidelines. Not invited to the venture capital and private equity party requiring expensive entry tickets to participate in the massive wealth creation generated by the industry over the last decades.
The changes in regulations and technology we have experienced since the early 2000’s support both SMBs and retail investors in accessing and allocating capital more easily and fairly.
Crowdfunding platforms such as FrontFundr in Canada or WeFunder in the US are enabling retail investors to allocate as little as a couple of hundreds of dollars in high quality SMBs (including stratups) via a totally digital process.
The deals presented on these platforms are very carefully reviewed before being offered to investors, with an average of 95% of deals rejected after internal due diligence.
The stigma of raising capital via crowdfunding platforms versus via venture capital is long gone. For many entrepreneurs the opportunity-cost of banging on doors for months to mostly be rejected is just too high. For women and visible minorities raising money via retail investors is just a rational choice when looking at the paltry VC capital allocation of 2.3% and 2.5% respectively for their kind.
In addition the fundraising process via crowdfunding gives SMBs the opportunity to present their offerings to potential clients while also making ambassadors out of the investors.
In recent years we have seen great success coming from crowdfunding campaigns in North-America.
The Very Good Butchers, a Canadian plant-based meat company, went public not long after its $600k fundraising campaign on FrontFundr, generating an eye-popping 50x return for investors.
Impak Finance, a fintech co-founded by an immigrant women of color raised +$1M through FrontFundr in 2016, exceeding its target by +100%. Today the company provides impact ratings to some of the largest asset managers in Europe.
Other business models support SMBs in this recovery period. CAARY a Toronto Fintech offers payment and financing solutions to SMBs based on their actual cash flow versus credit score, without personal guarantee. This is the fuel and flexibility SMB owners need at this time.
And going full circle, CAARY is raising capital through a crowdfunding campaign on FrontFundr. At the time I write these lines the campaign is largely oversubscribed after less than a month online.
There is a natural inclination too for crowdfunding platforms to collaborate with impact driven companies. The 51, a Financial Feminist investment company, collaborated with FrontFundr resulting in the listing of 3 women-led SMBs; Geenees, Joni and Paws en route.
Bottom line, new ways for SMBs to access capital by leveraging recent regulations and technology are a Godsend in these challenging times for business owners.
They are particularly helpful for women, visible minorities and impact driven companies.
This is also the chance for retail investors to benefit from investment opportunities pretty much inaccessible to them until now. And to ideally do well while doing good at the same time.
All we need now is a couple of memes, a Reddit community and a YouTube channel!
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