Canada is going crazy for crowd funding.
Entrepreneurs across the country are flocking to the fast-growing financing model to start businesses in everything from 3-D printers to craft beer.
Crowd-funding website Kickstarter has already tallied 1,400 projects from Canada since it began operating here last September, raising a total of $14-million so far.
Canada’s Eric Migicovsky raised $10.3-million in 2012 to make Pebble smartwatches, the single most successful Kickstarter project to date.
Rival site Indiegogo, which operates in almost 190 countries, says Canada is its second-largest market after the United States. Across Canada, the number of crowd-funding portals has jumped to 77 from only 17 in 2012, according to the National Crowdfunding Association of Canada.
Crowd funding refers to raising capital to fund a startup or project from the public, usually through the Internet. These ventures might range from video games and mobile apps to documentaries and books.
Typically, investors don’t receive equity or expect repayment; rather they may get “rewards” such as a product, or just make donations without expecting anything in return.
Three main factors are driving the growth of crowd funding. First, far more Canadians are connected online, giving budding entrepreneurs a global market or audience. Next, a tepid Canadian job market is spurring more self-employment, an area that comprises 15 per cent of the workforce. And dwindling venture and seed capital for startups makes crowd funding a logical alternative.
“It’s been heartening to see Canadians embrace this new method of bringing something to life,” said Justin Kazmark, spokesman for Brooklyn-based Kickstarter. “There’s an incredible number of innovative, colourful ideas coming from Canada.”
Canadian projects range from quirky to creative. Kickstarter projects include role-playing video games, waterproof toques, an inexpensive 3-D printer and high-end playing cards.
Kickstarter not only provided seed money for Peachy Printer, a $100 3D printer in development, “but also in marketing – to get our name and product seen globally,” said David Boe, the Saskatoon-based co-founder. “We are currently working with teams and people from universities, colleges and other businesses from around the world. This has definitely been one of the most important aspects of running our Kickstarter campaign.”
Innovation is not traditionally Canada’s strong suit. The Conference Board of Canada gives the country a “D” for innovation with particularly low marks for venture capital.
Business formation has been soft too. In a fall speech, Bank of Canada Governor Stephen Poloz noted there was almost no net creation of companies between 2008 and 2012.
Crowd funding is “the great equalizer,” where anyone with a good idea can access global backers and a global market, said Ayah Norris, Canadian spokeswoman for Indiegogo. She noted that nearly half of the site’s entrepreneurs are women, a higher-than-average proportion, and that this method gives entrepreneurs in more remote communities, such as in the North, a better shot at raising funds.
The benefits go beyond raising the initial capital, she said. “It’s a great way to validate the idea, see how it does in the market, gain feedback from audience, go into production with testing and do marketing,” she explained.
Indiegogo has been hosting Canadian campaigns since 2009, and says momentum has accelerated in recent years, with money raised in Canada nearly tripling between 2012 and last year.
Canadian campaigns on its site have included bamboo sunglasses and high-tech underwear. In Vancouver, a “friendly little sausage-and-beer parlour” opened last summer after it raised $15,000 on Indigogo. In Toronto, a company making a “brain-sensing” headband raised $267,000 in 2012 and went on to secure financing from other venture capital funds.
The support of those early funders “was worth far more than the money we raised, as it helped us prove to investors, advisers and partners that there is demand for a device like ours,” said Trevor Coleman, co-founder of Toronto-based InteraXon, which makes the headbands and now employs about 35 people. Without that, “there’s no way that we would be where we are today.”
On Vancouver Island, co-founder Michael Munro says they always figured they’d start their Burnt sunglasses business this way. “The idea of going to a bank and taking out a loan never entered the equation,” he said.
Their first Indiegogo campaign last year had a modest goal to raise $2,000. They garnered more than $18,000 in a few weeks, and are now part-way through their second campaign. Pledges – or in this case, hundreds of pre-orders for their sustainable shades made of wood or bamboo – have come from across Canada, as well as Australia, Greece, Israel, Africa and Asia.
Another crowdfunding site, Vancouver-based Fundrazr, has raised more than $43-million since 2010 for global projects that range from social causes to small businesses and films. “Canadians were a bit late in adopting crowd funding but are definitely catching up,” said founder Daryl Hatton.
There are risks, however. Backers could weary of financing projects, particularly those that flounder. Some projects could be fraudulent. And for fledging business owners, easy startup money is no guarantee they’ll wind up with a sustainable businesses or incomes.
Interest in developing the industry is “coming from across the board including not only industry first movers and pioneers, but government, universities, social impact organizations [which blend business and charitable models] and financial institutions,” noted Craig Asano, executive director of the Canadian association.
His rough estimate for the market in Canada is close to $100-million and that’s just “the tip of the iceberg,” he says. “Crowd-funding will continue to permeate into the mainstream.”