If you were to ask most startup founders what the number one reason their business failed, the resounding answer would be undercapitalization. Capital is the lifeblood of a business and without it companies are unable to execute on strategic plans, meet competition, bring in new talent, market to customers, or invest in growth & technology. The biggest luxury capital provides is time – time necessary for startups to assess and pivot in an everchanging market.
Canada is notorious for underfunding startups compared to our US and UK counterparts. Investing at a later stage and with less capital, which can be detrimental to Canadian founders in a globally competitive market. One would argue, this could be due to the financially conservative nature of the Canadian people, but the larger problem stems down to simple economics – supply and demand. In Canada, we have an extraordinary level of entrepreneurial talent without enough traditional investment supply to sustain it.
In the startup lifecycle, a critical moment is when founders seek their first external round of capital. This moment is generally when friends, family, and bootstrapping have been exhausted and capital injection is necessary to get to the next stage. These new investors are often unknow to the founders and take on some of the highest levels of risk. These early-stage investors are often called Angels and are a crucial part of the funding ecosystem.
Historically, Angel Investing, the act of providing capital to a business in exchange for debt, equity, or other form of security, was reserved for the wealthy. In fact, the term Angel Investor is commonly mistake for Accredited Investor, which has meaning in securities law. In Canada, Accredited Investors are people who earn over $200,000 or have $1M in net financial assets.
Up until recently, startup investing was limited to friends and family (which has tighter requirements than most people are aware) and Accredited Investors. Thanks to improvements in regulation, pressure from founders and the public, and global precedence – Equity crowdfunding, a new type of fundraising that allows private companies to raise money from the general public by issuing small portions of ownership to a large group of investors, was introduced.
Like all new financial products in Canada, Equity Crowdfunding only hit our soil in 2016, years behind the US and UK which have processed billions in funding this way. The newest iteration of the rules was recently updated in September 2021, allowing Canadian companies to raise up to $1.5M through registered funding portals.
One of those funding portals is Equivesto – a licensed Exempt Market Dealer and Equity Crowdfunding portal that enables everyday Canadians to invest in vetted startups, small businesses, and real estate opportunities starting at $100 CAD. To date, Equivesto has helped run dozens of funding campaigns, raising millions from thousands of investors. Their mission is to close the equity gap to private capital, allowing many more people to participate in the higher risk, but higher return private investment market. Through their portal, smaller investors can participate in venture deals which had traditionally required high minimum investments and limited to those who are considered wealthy.
“We intend to fix the supply side of Angel Investing. Founders are no longer limited to the small pool of traditional accredited angels and can now activate members of their community (customers, fans, followers, and extended community) to invest in their early-stage and growth funding rounds,” said Ryan Correia, Co-founder & Managing Director. “With investments starting at $100, more people can now consider themselves Angel Investors and help fuel the next generation of homegrown startups and small businesses.”
Using technology, Equivesto simplifies the complicated and compliance heavy private investment process. They create a safe and secure location for companies to present an investment offering where participants can trust that investors, founders, and their companies are vetted prior to being allowed to transact. Offerings are presented clearly and checked for material fact by the portal to ensure investors have all the information they need to make a sound investment decision. Equivesto also provides founders the guidance and training on how to prepare for an Equity Crowdfunding campaign, structure their offering, and activate their community.
“Community rounds are the future,” said Correia. “As more businesses are building with the public as stakeholders, shareholding becomes the obvious next evolution of how to align values with reward… I look forward to when a community raise becomes a common stage in the funding roadmap, just like an Angel round, Venture Capital round, or IPO, something I see on the horizon.”