By Peter-Paul Van Hoeken, Founder and CEO, FrontFundr
It was a pleasure to be back at the Annual Summit of the National Angel Capital Organization (NACO) earlier this month.
I attended the same summit three years ago in Banff. At that time, all I had was an idea, which was to build an online funding & investment platform connecting young companies with the wider investor community in Canada. I was curious to learn how the angel community looks at the phenomenon of equity crowdfunding. There was a session on the topic, where it became very clear. Most angels in the room were not interested and several simply dismissed the whole idea. There were concerns on everything from fraud, to entrepreneurs not fulfilling their promises, to the fact that the crowds won’t understand the fine art of angel investing.
While may be legitimate risks of equity crowdfunding, they can be addressed and mitigated. Equity crowdfunding is a valuable additional source of early stage capital formation in Canada. All investments carry risk, and this is no different. In addition, regulators across the globe recognized the importance of setting the rules of the game for equity crowdfunding to mitigate risks that investors could face.
Knowing their first reaction, you can hardly expect angels, who have been typically the designated investors in startup funding, to be the early adopters of equity crowdfunding.
Or maybe angels are the agents of change. At this year’s angel summit a number of angels approached us, keen to learn more about our platform FrontFundr and how we could potentially work together. This is exactly what needs to happen. From the very beginning, I have always been a strong advocate of realizing the opportunities for partnership between the angel community and equity crowdfunding. Yes, they do go well together. In fact, they need each other.
Firstly, the available capital pool for early stage (and growth) investing in Canada is too small. NACO states in its 2015 Report on Angel Investing Activity in Canada that $130 million was invested in 2015 and says that that big increase of 48% compared to 2014 can be largely attributed to follow-on investments. The report highlights the importance of creating new angel groups to increase the available pool for funding new companies. Equity crowdfunding can also help increase that capital pool for early stage investing.
Secondly, angels can help equity crowdfunding. Through their experience, angels can help by bringing screened companies to platforms to act as lead investors. Other accredited and non-accredited investors can tag along and invest alongside more experienced angel investors.
Equity crowdfunding can and is poised to play a significant role in increasing the available capital pool for early stage investing. The evidence is already there in other advanced equity crowdfunding markets such as the U.K.
U.K.-based research firm Beauhurst states in its 2015 report ‘The Deal’ that across the three stages (seed, venture and growth) of investing, equity crowdfunding is now the second most active funder type after private equity firms, ‘far ahead of angel networks and private investment vehicles’. In the seed stage, equity crowdfunding is already funding more deals than the other funder types. The most successful platforms in the U.K. are doing well because they bring angels together with new accredited and non-accredited investors.
Equity crowdfunding is not a competing alternative to angel investors, it is a valuable and much needed addition to the funding mix. New investors, many of them inexperienced in early stage investing, that come to the table through online platforms can leverage the experience of angel investors by investing alongside them. The benefit of equity crowdfunding for angels is that it helps increase the available capital pool. I see nothing but upside to all market participants: angels, new accredited and non-accredited investors, and equity crowdfunding platforms.
FrontFundr is the leader in online investing in private companies in Canada and now we’re drinking our own whiskey. We put FrontFundr on FrontFundr, raising capital for ourselves. We are inviting all Canadians, including angel investors, to Join the Investor Revolution by investing in FrontFundr.* We need angel investors to come aboard, and help make it happen.
A forward-thinking attendant at the NACO Annual Summit said to me, “Anyone that invests in startups is an angel, no matter how much she or he invests.” Maybe he’s right, but we’re not quite there yet. Angels and equity crowdfunding go hand-in-hand. Let’s do it together.
Peter-Paul Van Hoeken is founder and CEO of FrontFundr, an online funding and investment platform operating across Canada. He is a member of the national Board of Directors of the Private Capital Markets Association of Canada (PCMA).
*FrontFundr is currently raising capital (the “Offering”) using the Offering Memorandum (prospectus) exemption. FrontFundr is a registered dealer and pursuant to securities legislation performs a suitability assessment on all investments conducted through its online platform, including investments made in FrontFundr itself. As FrontFundr is raising capital for itself and pursuant to securities legislation, FrontFundr may be considered to be a Connected Issuer and such case may be considered a Material Conflict of Interest in this Offering.