A pen company with employees who don’t use their own pen to write notes might raise eyebrows from investors wary of product quality.
So when FrontFundr launched its equity crowdfunding portal in early 2015, the startup always planned to use its own service to raise money from investors to fund growth.
“We wanted to first [validate] it with an actual client rather than using ourselves as a first customer,” CEO Peter-Paul Van Hoeken told Business In Vancouver two days after the Vancouver company closed a funding round on December 21 that raised $650,000 dollars from more than 200 investors.
After working with nine companies — helping some raise as much as $2 million — Van Hoeken said it was obvious by this past autumn that FrontFundr “had enough to show and tell.”
Traditional crowdfunding involves soliciting donations to raise money for projects that would deliver a product or service to a contributor, such as a device or a film.
Equity crowdfunding allows startups to sell its shares directly to investors to raise capital and fund growth.
Until last year, only traders regulated by the B.C. Securities Commission were allowed to sell shares in the province.
That was until new exemptions adopted by different provincial regulators across Canada permitted companies to sell shares through an approved funding portal such as FrontFundr.
FrontFundr’s pre-money valuation is at $4.1 million.
Its minimum target for the funding round was $500,000 with a cap at $1 million that amounted to about 20% equity, according to Van Hoeken.
The $650,000 raised means 200 investors using the portal now hold about 13% equity in the company.
One investor had enough confidence in the company and technology to contribute $120,000, Van Hoeken said.
FrontFundr will now use part of the capital raised to roll out its portal in the U.S.
While the exact timing has not been settled, the plan is to navigate through the regulations and allow U.S. investors to use the FrontFundr platform to invest in Canadian startups.
Further down the road, U.S. startups would be able to use the platform to raise money from investors across North America.
“The U.S. has similar challenges in terms of crowdfunding rules,” Van Hoeken said.
In Canada, FrontFundr has to navigate different regulators in each of the provinces instead of a single federal agency. Some of the rules are harmonized among provincial regulators while some are not.
The U.S. system governed by the Securities and Exchange Commission is more centralized than Canada’s, but different states still have different regulations.
“It’s a bit onerous as well,” Van Hoeken said.
“But it is kind of harmonized and we’ll see companies using it across the U.S.”
@reporton
