A Canadian startup made history by becoming the first business in the country to successfully use a crowdfunding service to get investors and equity.
Guusto, a food and drink gifting app, raised $50,000 in equity from 18 investors via a financial technology platform called FrontFundr, which launched about six months ago. Since May, startups in Canada get an exemption under the law to allow crowdfunding investors to invest as little as $500 into a company, and Guusto is the first to reap the benefits.
“What we’ve done is taken the Dragon’s Den model and put it online and allow everyday Canadians to invest in early stage companies,” CFO of FrontFundr Sean Burke told Vancity Buzz.
Guusto managed to raise more than their target goal – 200 per cent over, in fact.
“The money raised from this equity crowdfunding campaign will go toward expanding our customer base over the next six months with the goal of breaking into the U.S. market by the first quarter of 2016,” said Skai Dalziel, co-founder of Guusto in a press release.
“It also means we have a variety of investors who care about our company. The seasoned investors have experience helping other tech businesses succeed, and the regular investors are typically people who use and love our product.”
Burke stresses this type of crowdfunding is different than what is traditionally offered on other websites like GoFundMe, since you’re buying a piece of a company.
“Rewards crowdfunding, which is the IndieGoGo, the Kickstarter, the FundRaisr, those are essentially a pre-purchase of a product,” he said.
“Equity crowdfunding, when you actually give the company money, in return, you actually get a percentage of ownership of that company.”
Essentially FrontFundr allows the average Canadian an opportunity to invest in small, brand new companies that they might not otherwise have had.
Each company goes through what Burke calls a lengthy due diligence process to establish their legitimacy. There are two categories on the website: the “prospect lounge,” which are companies looking for funding that haven’t been through the due diligence process and the ones that you can actually invest in are found in the “pitch place.”
As with any investment, however, there’s always the risk you won’t get a return, and anyone looking to contribute to an equity crowdfunding campaign needs to sign an acknowledgement of the risks.
“The majority of these companies are extremely high risk, and if you’re looking for a high return, there’s a high probability of failure,” said Burke.
Guusto is the first company FrontFundr has closed with, and the fact that it closed at such a high value means to Burke that there’s a demand for this type of grassroots investing in Canada.
For more information on FrontFundr, click here.