Is Your Business a Candidate for Equity Crowdfunding?
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Is Your Business a Candidate for Equity Crowdfunding?

A year has passed since the BC Securities Commission and regulators in five other Canadian provinces approved the use of equity crowdfunding through the Start-up Crowdfunding Exemption. In that time, only a few campaigns have closed successfully – mostly through the use of clever tricks that re-label angel investments as “crowdfunding.”

Until the number of investors and investments reach critical mass, equity crowdfunding will remain more potential opportunity than actual advantage. As the cellphone, internet and PC have demonstrated, big innovations take time to be fully realized. It may be awhile until it becomes a standard business tool.

In the meantime, there are a number of businesses well-suited to use equity crowdfunding as it exists in B.C. today. For the ambitious and creative entrepreneur, becoming an equity crowdfunder may help attract publicity, define your corporate identity and gather brand ambassadors.

If you fit these three business categories, you may find that equity crowdfunding is the perfect fit for your business.

Businesses with Beloved Products

Equity crowdfunding is great for businesses with an existing product and customer base. Customers already understand your product and what makes it different. They’re the first ones to realize why your business is special and to recognize your potential for growth.

Targeting existing customers through equity crowdfunding can have lots of spin-off benefits, as well. Investors will promote your product within their network. They’re likely to share your business updates with their friends and family, and may become your most loyal customers. Equity crowdfunding lets you turn your best customers into your greatest brand ambassadors.

Businesses with Dividend Alternatives

The Canadian market is filled with investment opportunities with varying degrees of risk and return. Marketing your business as just another investment misses a big opportunity – the possibility of giving investors non-cash benefits that have real value for them.

As an example, a boutique resort that can only afford an 8 per cent annual dividend may also experience regular vacancy rates of 20 to 30 per cent. Instead of paying a cash dividend, the resort could provide a couple night’s stay to investors, a benefit that is worth very little to the hotel and a lot to the investor.

Providing product benefits can distinguish an equity crowdfunding campaign from just another investment. Investors will be attracted to the potential for perks, things that are valuable and meaningful to them that wouldn’t otherwise be available.

Pre-Product Businesses

Marketing and promoting a business before it has a finalized product can be challenging. Customers have little interest in learning about a product or app that doesn’t exist yet and media may ignore press releases about your business until it has officially launched

One solution is to use equity crowdfunding as a platform through which to market your product. You can create videos explaining your product and introducing your team. The crowdfunding campaign can act as a destination for tweets, posts, blogs and media about your product. You can also gather early feedback from potential customers and investors, and alter your development plans accordingly.

For pre-production businesses, raising money may be a secondary and optional objective. Even if you don’t raise much money, you can lay the groundwork for both a successful product launch and future financing campaigns.

Launching a campaign is relatively inexpensive, and there are several accessible tools available to help you start off, such as by listing a teaser page.

Equity crowdfunding, though in its infancy, holds great opportunities for B.C. businesses, especially those looking to engage with present and future customers. Eventually it may become standard practice for investors and small businesses, but for now it will remain the territory of pioneers, innovators, creatives and the bold.

Learn More

Are you taking advantage of Small Business BC’s wide selection of seminars for entrepreneurs and small to medium-sized business owners? Space is limited, so don’t miss your chance to register today.

And if you want specific questions answered for your business, make an appointment to meet with a Small Business BC Business Advisor or Small Business BC Business Plan Advisor now.

About Arend Hoekstra

Arend Hoekstra is Vice President of Operations at Small Starter Inc., a B.C.-based equity crowdfunding portal which operates in British Columbia, Saskatchewan, Manitoba, New Brunswick, and Nova Scotia.  Arend regularly blogs about equity crowdfunding at blog.smallstarter.ca.

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