December 5th, 2012

Defining Crowdfunding

December 5th, 2012

On July 16th, 2012 the Centre for Social Innovation, in partnership with Cdling, hosted an event with guest speaker Sherwood Neiss, a key driver behind the crowdfunding regulatory changes in the USA, and several other experts to explore the potential of crowdfunding, crowdfinancing, crowdequity and other crowd-based investment strategies.

While Neiss’ incredible story of “how 3 guys changed the rules of the game in 460 days” on crowdfunding in the USA was the highlight of the event, it was Tonya Surman, E.D of CSI Toronto that appealed most to the NGO/Not-for-profit angle on social enterprise. “The number one asset of nonprofits is our constituency. We can bring that constituency to crowdfunding,” stated Surman as she articulated the rationale for the paradigm-shift in the way Canadians think about sustainable funding.

It was apparent from the reaction of the audience that a conversation around the nomenclature of crowd language needed to be clarified before continuing. In the United States, the difference between crowdfunding and crowdfinancing (or social financing) is not readily distinguished. However, there is a very real distinction between the two in Canada. Crowdfinancing, as stated from CATAAlliance is “the solicitation of small equity investment from non-accredited investors.” Crowdfunding, or perhaps better referred to as crowd donations, is the giving away of dollars to support a particular cause or development. Right now there is nothing in Canadian legislation to prevent crowdfunding platforms from accepting donations from everyday citizens, and there does not appear to be any dominate crowdfunding platforms available in Canadian currency yet. A Q&A posed on Quora, “What crowdfunding sites are available for Canadian businesses?” can be found here.

Surman spoke to how Canadians need to challenge their current regulatory bodies. The government is questioning their role and questioning their financial realities. They want to reduce their costs and are providing less funds for social, economic, cultural and environmental projects. This is a very serious threat to our world and one of the questions we have to ask ourselves is, how will we make progress from this? What are new solutions that recognize the changing landscape with respects to the role of government. “Crowdfunding speaks to the wisdom of crowds in the way we position our collective interests and the way we want to co-create the world we live in” said Surman. “The nonprofit sector has constituency. We are the most connected to audiences that care about the issues.”

Sherwood Presentation

A question from the audience on the difference between Community Bonds (CB) and crowdfinancing sparked a conversation around scalability. Essentially, Community Bonds are a debt instrument that enables nonprofits and charities to access capital by leveraging their networks and turning these networks into investors that are treated as RRSP-eligible mortgage-backed investments. Surman highlighted that CBs are not scalable as crowdfinancing platforms have the potential to be. The challenge is that the Ontario Securities Commission exists to protect investors, and they take that job very seriously. The next step is to find the balance for the everyday citizens to be able to invest and get a fair return, while still considering the interests of accredited investors.

However, as Neiss mentioned in his keynote, crowdfinancing is essentially taking what the venture capitalists do in the boardroom and giving it to the community. Instead of saying: if you build it, hopefully, they will come; crowdfinancing changes the dialogue to: if you want to build it, go to the crowd and ask them if you should. Once people have an vested interest in something that they are a part of, they will go back to it, and this is the future of best business practices. “We are on the cusp of seeing this in USA,” said Neiss, “and hopefully Canada is next.”

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