1. Thanks so much for joining us. Can you tell us more about Equivesto and how it got started?
Equivesto is a Toronto based equity crowdfunding platform, we operate in Ontario, BC, Nova Scotia, and Alberta. Essentially, we’re an online location where small businesses and startups can raise up to $1.5 million from their community. This is different than most of the types of investments or the portals that you’ve seen before. It’s strictly equity. And it’s a location where Canadian investors, not just accredited, can participate and invest in private companies starting at $100.
Our history is pretty long, but pretty short. We actually started this company way back in 2016/2017, but only launch a few months ago once we got our license. Equivesto was founded out of personal need. Me and my co-founder had a few startups in the past and tried to seek funding the more traditional way: going to Angels & asking friends and family. We realized it’s extremely difficult to raise the appropriate finances for your business unless you had a really strong network, or you came from privilege – it’s nearly impossible. So we started doing our research and we found that there was this other possibility out there, this entire world of something called Equity Crowdfunding. Globally, this has been happening for almost 5 to 10 years. Israel is a big example of that, the United States and UK have been doing it for quite a while too. But in Canada, well, we’re really slow to adopt here, our banking systems are old-school and government is reluctant to pass new regulation. Surprisingly, in that exact same year that we were looking into the concept, the rules changed in Canada. Equity Crowdfunding was introduced, which allowed for this type of mechanism where people in the community could start to invest, within restrictions, in private businesses. So it’s a little bit of the right place and right time. But at the same time, it took us three years to get registered in this space, so maybe not. But at least we’re finally operational!
2. We always ask the guests this question! How do you meet your co-founders?
Actually, Alex and myself, both went to the same university, same program, and we were roommates for a couple of years. We always knew that we would start a business together one day – he went down the finance path, I went down the technology path, it was inevitable to build a FinTech. So that’s where Equivesto came from.
3. At what stage startups should look into raising funds?
Capital is useful at all stages, there’s a saying that you should always be fundraising. It helps you attain your goals faster, gets you the right talent and amplifies your reach. So I think from day one, you need a funding strategy, or at least an idea of how you’re going to get that capital in order to reach the goals you want to obtain. Under capitalization is one of the main reasons that businesses fail. And, a lot of businesses kind of have this concept – If I build this thing and I release it to the public, all of a sudden, it’s going to be a million dollars on day one.
But the truth is it sometimes takes a long time to get to that point. There’s so many factors, there’s so much competition, you really just need to create that buffer in order to give your business a fair chance. So I think the most important thing you probably want to determine is the type of capital that you’re raising, different businesses need different types of capital, whether it’s equity, debt, or mezzanine, and what you’re going to be using it for is extremely important. And then how are you going to service that debt or repay those investors in the future, that’s also a really important consideration. Early stage capital is a really good indicator of future success so it’s imperative that you create that strategy from day one. Know your operating costs, know what it’s going to take to get to the next stage and don’t be afraid to take that calculated risk.
One of the biggest pieces of advice I have is, a lot of founders are quick to hold their equity so close to themselves, and they say, oh, if I gave up 10% of my company, will it really still be mine? What they don’t realize is 100% of nothing is still nothing. And sometimes, in order to achieve your goals, you need to bring in partnership. What’s amazing in the world of equity crowdfunding is these investors are also part of your community, and help motivate you to reach your goals and advocate for your business.
4. What’s the difference between traditional fundraising routes vs crowdfunding?
Traditional fundraising often works in the direction of institution to business. So whether that’s like a bank to a small business, or a VC to a startup, or an angel investor to an entrepreneur, it usually comes with this idea of an institution trying to make as much return as possible for their stakeholders. So with that comes a lot of external pressure. We’ve been finding, and you know this from working with entrepreneurs who have worked with VCs and angels groups, things like entrepreneur burnout, over-aggressive focus on sales, and premature IPOs tend to result.
Crowdfunding, on the other hand, allows the companies to be supported by their greater community. These are not people who are coming in with big checks, they are smaller individual investments. Crowdfunding doesn’t just strictly mean equity crowdfunding, there are other types that people are more familiar with, which are reward based and donation based crowdfunding. Rewards based are like Kickstarter or Indiegogo, where you’re selling a product, or pre-purchasing a product, in exchange for capital. And then for donation based, like GoFundMe, it’s simply donating towards a cause. Equity crowdfunding is really, really, different than that. It’s because, in exchange for your contribution, you’re getting a little bit of ownership in the company. So it’s a securities transaction.
These people are becoming micro investors. But because the cheque size is smaller, usually these people don’t necessarily care as much about getting that 10x return. They do care about getting some return, but other factors were involved in them making the decision to invest in you. It’s usually because they care about the things you care about. And it’s more about the cause and impact than any other types of equity capital. So, there’s an added bonus of going with equity crowdfunding, but I may bias.
5. So maybe talk about the investor side on your platform, how does that work? like to take a look at the companies or be able to invest?
So there is a little bit of a veil. We do not expose the details of a company’s deal unless you’re deemed suitable for an investment. But in general this is a platform meant to be accessible to most people out there. Right now we’re operable in Ontario, BC, Alberta and Nova Scotia. So investors have to be from those regions, they have to be above the age of 18, so the age of majority, and also deemed suitable. We have a compliance team that reviews a form that you have to fill out. It’s not extensively long. It’s about three to five minutes – similar things that you would put into setting up a WealthSimple account or Bank account. We just got to make sure you know what you are doing, because these are really high risk investments. It’s a startup and it can go both ways, right? It can flop or it can be a big success. And so we are just making sure that people have the financial capacity and understanding in order to take on these risks. Your risk is also very carefully managed by limiting the investment amounts. The government has a bunch of rules on the limits on how much people can invest. So for most regular investors, you can only put up to $2,500 per deal, $10,000 per year. There’s a lot of restrictions in Canada, we’re trying to grow that one day, but right now the bar is set low to protect everyone involved.
6. How does the process with Equivesto look briefly look like? What elements do you look for?
For startups who are interested in raising with us, it just starts with a conversation. There’s an apply section of our site, but before you even get there, it’s really about knowing how much capital you need and what you need it for. After you answer those two questions, and you see equity as a solid option, there’s a whole library of information that we’ve put on our site to help companies determine whether equity crowdfunding is right for them. It’s there to help you self assess, maybe debt might be more reasonable, or you have a product that you want to build, so maybe a Kickstarter campaign might make more sense. It’s about understanding the options and choosing the right one for your business.
Once you’ve decided on Equivesto simply click Apply Now where you will find a short form, high level application, which pretty much asks: how much you want to raise, is it between $25,000 and 1.5 million, are you incorporated in Canada, do have a community or impactful mission. If you meet all those qualifications, then one of our dealing representatives will start to talk to you and explain to you the Equivesto process. Then comes the not so fun part, which is the due diligence side of things.
If you are deemed a good fit by our dealing representatives and you wish to continue there’s a $2,500 non-refundable application fee. This fee will help cover the due diligence and compliance checks we need to approve you to list with us. There will be a longer form which will go into detail about the business and ownership structure. After being approved, it’s now time to structure your deal and your campaign.
What’s different with us than most VCs or Angels is, Angels and VCs tend to come to you with a valuation or number. Since we work on both sides, we want to create the best number possible for the investors and for the company. With your input we work out a really fair number, where we all feel this is what the going rate for something that’s in the same space and position right now. Something that will help you obtain your goals without diluting your ownership too much.
Finally, after structuring the deal comes creating the campaign page, which is my favorite part. I’m usually part of that team, and I get to do the fun stuff, which is helping create the campaign page and the go-to-market strategy. Because, as you know, this is still crowdfunding, and it’s about getting as many members of the community involved, bringing those people in, and making them feel like an integral part of your team. Communicating that is difficult for most founders, so we really sit down with the startups and help them work out these strategies. Equity Crowdfunding is a very new concept to most, and bringing in a few hundred investors is a difficult feat. Once that’s done, it’s about clicking launch and running a 30 to 90 day campaign. And if everything goes right, then you’ve got your funding and some.
7. What do you look for in the application or anything on the application or anything that might help them kind of stand out?
Not necessarily, because we firstly want to be industry and founder agnostic. I think one of the biggest issues with a lot of the traditional capital is they put their own personal bias into their decision making process. As everyone is aware, these firms operate with a very tight knit board and surely it’s their prerogative what they invest in, it’s their money. What often happens with only a few decision makers is their own preconceived notions about what types of businesses can succeed and won’t succeed affects who gets funded. What we’re trying to do is not be the judge of that. As long as a company can pass the verification process and it’s a sound enough idea and stage, we’ll let the community make judgement. A greater number of people can decide what companies should succeed and shouldn’t succeed based on their vote, which is essentially their dollar – This is called Democratized Investment. And it’s a really excellent way of doing things because it also provides validation to the founders that these hundred people, these thousand people, actually believe in me. It becomes a growing cycle, the snowball starts to roll and it helps propel a lot of great businesses forward.
8. What companies and industry would be suited for Equivesto?
Our client base is really, really, diverse. We just closed our first round, which was a Junior Gold Mining company. Shows how varied our clients can be, anything from startups to small businesses. They’re from BC, but their potential mine is in Ontario. It was a great relationship from the start. They’re from the industry and had a very strong base of knowledge and experience. Best of all, they loved the concept of equity crowdfunding, which is getting the community involved and getting people access to these types of, normally private equity, deals. Regular people would never get this type of access, unless they were rich or networked. They raised their round at a massive pace – I think, in less than 20 days, they were able to close their round with over 160% funded.
And then two other companies we have on our site. One’s a sustainable Coffee Company. They make these single serve packages which can be used for much more than Coffee. They’re extremely focused on creating zero impact with their product, as well as being really great tasting coffee. That’s the biggest issue, there’s usually this balance between things being green and tasting good.
And then the last one is a marketplace application that helps locals find trusted contractors. So if you want a plumber, if you want somebody to mow your lawn, if you want somebody to just do a quick task you can go on this app and book a service. They are going after managing the entire value chain: from the wholesaler distribution, to the items used, to delivery of the product, to the implementation, they want to create a one stop location where you can go and manage all home and business services.
We’re new at this and definitely learning too. The Canadian appetite is very different from any other market, we are much more conservative with our money. And so we’re slowly learning about how to cater our language and help people understand better. If you look at markets like the US in the UK, investors are very quick to buy. They see a pretty video and a little bit of marketing and they are sold, even though it’s a security purchase. It’s very different in Canada, people are smart and they want to do their due diligence. So we’re trying to provide as much information as possible so that people can have confidence in making those types of decisions and feel like a VC, feel like a Dragon. That’s the experience we want to put out there. Presenting all that information in a concise way which can be easily understood, providing our knowledge and access to us when you have a question.
We have a few more companies that are coming up really soon. One is an eSports company. They are a few months into operations and right now the biggest part of their company is managing eSports tournaments. They help eSports businesses, gamers, live streamers, and viewers manage their Esports world. They have some big partners in the space and I’m excited to see them launch their Equity Crowdfunding rounds with us.
8. How has the landscape of fundraising changed vs precovid era?
Definitely, pre COVID, we were on up. I think Angel and Institutional investment was at an all-time high and a lot of capital was readily available.
Unfortunately, the second something like this happens, any sort of downturn, Angels start to look internally. They will focus their capital on their portfolio companies and spend their dollars on making sure that their assets (investments) survive. So that means they’re taking that from somewhere, and sadly that’s usually from their new business budget.
The unfortunate fact is, there aren’t many options for startups these days. And, like I mentioned before, under capitalization is the number one reason why businesses fail. If you don’t have much capital in reserve, you’re trying to bootstrap your company, and then you hit a roadblock, OR you need to be working full time somewhere else to sustain your lifestyle during COVID because you can’t afford to pay yourself a salary, your startup’s growth will suffer. And so yes, a lot of early stage businesses are getting into a very, very, very difficult situation. But Equity Crowdfunding and the community investment industry as a whole is growing immensely. I’ve been seeing it on the debt side too, with companies like Lending Loop.
What’s very surprising is small businesses and startups are turning to their community for this type of support, because they’re not finding it from the government. They’re not finding it from these larger investors. And it’s working, we’ve been having a mass influx of people who have signed up on our site, over 600 investors so far, and we’ve only been launched for a little over a month or two. It’s definitely a growing space, but like I mentioned before, the decision making process for an investor in Canada is much longer. So it’s really about getting these companies well practiced and rehearsed to answer those types of questions, and presenting their campaigns in a way that a Canadian investor would want to see it.
9. What’s the next exciting development for Equivesto?
For us, it’s really about getting that user base up and telling as many people about this as possible. This is still a very, very new thing and most people we talk to say things like, “of course I’ve heard of crowdfunding, I go on Kickstarter all the time”. Separating that thought process that this is Equity Crowdfunding and it is actually a securities purchase is a big goal for us. Now people know about the public markets, the stock exchange, the TSX, and they go and buy these shares and think it’s the exact same as Equivesto. But Equivesto operates in the private space, and, interestingly enough, it is one of the most untapped sectors of the market. The fact is the Private Markets is where the majority of the wealth has been made in the world. Many people have simply not had the access or the ability to participate in this type of opportunity in the past and they’re afraid to because of lack of education in this space. We’ve been somewhat taught about the public markets, but we’re never taught about the private markets, unless you’re privileged or you’re from those networks.
So for us, it’s about educating as much as possible. We have a whole series of videos we’ll be launching soon and an entire Learning Center that we’ve built, to help educate people about the private markets, catered towards both investors and companies. You can go on there, read the information, digest, ask questions, and maybe consider using Equivesto. That’s pretty much it for us – it’s about becoming that community player, educating as many people as possible, and trying to grow our user reach!
10. For our audience that want to learn more, where can they go?