invested a total of $1.3 million in 15 firms and those dollars have leveraged others. As he says, “I’ve both raised and funded companies. I’ve sat on both sides of the table.” Other startups have turned to crowdfunding — another
recent innovation — for alternative financing. In 2011, Eric Migicovsky, a Vancouver inventor, relocated to Silicon Valley aſter raising US$10.3 million on a Kickstarter campaign for his pebble watch. Matterform, a Toronto firm that invented a 3-D scanner, also executed a successful crowdfunding campaign. Craig Asano, founder and executive director of the National
Crowdfunding Association of Canada, says this social-media funding technique is “a huge opportunity” for tech entrepre- neurs, especially those with low overheads, such as app devel- opers. Tech giants such as Microsoſt are now paying attention and getting involved in sponsoring crowdfunding summits and sending speakers. And in the UK, securities regulators have pressed ahead with reforms that allow equity crowdfunding — that is, offering supporters a stake in the firm instead of raising funds for preorders. Canadian regulators allow broker-dealers to provide those opportunities to clients, but the Ontario Securities Commission hasn’t yet approved regulations sur- rounding nonaccredited equity crowd- funding, forcing firms to raise capital on international crowdfunding sites that don’t face the same kinds of regula- tory constraints. Similarly, Canadian regulators have
yet to turn their attention to a derivative form of crowdfunding: “crowdlend- ing,” or marketplace funding. Tabitha Creighton, who is the founder and CEO of InvestNextDoor Inc., a marketplace funding firm in Seattle, Wash., says early-stage bootstrapping firms often need bridging loans that fit “between ‘friends and family’ and equity.” In its first year, InvestNextDoor
has opened more than 900 accounts with 600 businesses. Its noncollater- alized loans run from US$50,000 to US$250,000 and offer lenders yields in the 9% to 18% range. Creighton says her firm will launch in Canada this year. As they survey how the tech financing
picture has shiſted in a decade, venture capital insiders such as Woollatt and Arsenault find themselves pondering what will come of the virtuous cycle that has taken hold in Vancouver, Montreal, Toronto and Waterloo in the past three or four years. Certainly, the much-vaunted livability
Untitled-1 1 JUNE/JULY 2015 | CPA MAGAZINE | 55 4/29/2015 9:22:34 AM
of Canada’s urban centres will continue to attract ambitious young people to universities, while tech entrepreneurs know they can recruit talented graduates here for much less than they’d have to pay in places such as Silicon Valley. But, as Agrawal points out, most major OECD cities these days are building highly integrated entrepreneur networks. “The things we’re doing are necessary, but they’re like table stakes, just to stay in the game.” Indeed, the question that continues to hang over the whole
Canadian tech and tech-financing sector is whether Canada will be able to hold on to confident, world-beating firms such as D2L once they reach the $100-million threshold. For now, Canadian firms of that scale either go public or get snapped up by US private equity giants. “The challenge for the next 10 years is building awareness here of larger Canadian companies and allowing them to become acquirers,” Arsenault says. In Silicon Valley, a tech firm can scale and then sell itself to a US tech giant. We haven’t done that well, at least to this point. But, as he adds, “It’s still very early days.”
John Lorinc is a Toronto freelance writer
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