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Let the people pay

Crowdfunding a popular way to raise money

Hey there, time traveller!
This article was published 28/6/2013 (1516 days ago), so information in it may no longer be current.

The vet bills were mounting for Roxanne Persowich, and so too was the stress.

The Winnipeg-based massage therapist had missed several days of work, travelled thousands of kilometres to see a specialist and spent thousands of dollars earlier this year to find out what was wrong with her dog, Roco.

Roxanne Persowich, with her now healthy dog, Roco, used crowdfunding website to raise enough money for his expensive veterinary treatment.


Roxanne Persowich, with her now healthy dog, Roco, used crowdfunding website to raise enough money for his expensive veterinary treatment.

Suffering from non-stop nosebleeds over a number of weeks, the eight-year-old border collie cross had undergone numerous tests with no results.

Persowich was increasingly frustrated, and fearful.

"I didn't see an end to it. That was what was scary," she says. "The bills were just getting higher and higher."

Already dipping into her line of credit, she worried about how much longer she could keep funding Roco's medical care.

Amid the turmoil, a friend set Persowich up an account on, a crowdfunding website where people who need money -- no matter the reason -- can seek funds from donors.

Soon friends, family, clients and even strangers were donating to help save her best friend.

"There was this big weight lifted off my shoulders," says Persowich, adding the site raised about half the $6,000 in vet costs.

"When the crowdfunding had started, it was amazing how much it relieved the panic."

Persowich's story with crowdfunding is literally one of millions around the globe. An offshoot of the social-media revolution, it's changing how we raise money for a variety of causes and has quickly grown into multi-billion-dollar industry.

And crowdfunding is not just people raising money for their pet causes.

It has become a vital source of cash for artists, inventors and entrepreneurs with good ideas only lacking the capital to get them off the ground.

"Crowdfunding allows anyone to raise money online from anyone -- for just about any idea, product, project or cause," says Brad Damphousse, CEO of the San Diego-based GoFundMe.

"It also enables people to vote with their dollar for the things that matter to them most."

GoFundMe is one of a number of popular crowdfunding sites that have sprung up in the last decade. Like most, it charges a fee -- five per cent of donations -- to users who are raising funds. Since its launch in 2008, GoFundMe has helped 325,000 campaigns raise more than $80 million from more than 1.2 million donors.

Yet this is relatively small change in the total crowdfunding universe, which in 2012 raised about $2.7 billion, up from about $1.5 billion the year before, states a report by industry consulting and research firm Massolution.

Dr. Kevin Berg Kartaszewicz-Grell, research director at Massolution, says artists and musicians were the first to take up crowdfunding, launching ArtistShare in the U.S. more than a decade ago.

Since then, it has expanded to just about every kind of fundraising imaginable. Kickstarter, for example, is one of the largest sites, providing a fundraising platform for artists, inventors, start-up companies and other organizations.

Among the fledgling companies currently raising money on Kickstarter is Food Huggers, a would-be manufacturer of silicone seals for cut fruits and vegetables. The San Francisco-based company is trying to raise $26,000 to manufacture its product for market and, in exchange, donors will receive the product once it's manufactured.

Kartaszewicz-Grell says a number of companies have been successful in raising funds this way, including Waka Waka -- a manufacturer of solar-powered LED lights and chargers for the developing world.

"At one time, if you went on Kickstarter, you could have bought the lamp or you could have bought it and donated as well."

He says Waka Waka was successful not only because its product was in demand, its business plan also resonated with Kickstarter's donor community. Waka Waka wasn't just selling its product and raising funds to expand its business, it was seeking funds to provide the lights and chargers for free to communities that didn't have reliable sources of electricity -- which is pitch-perfect for Kickstarter's donors whose main intent is funding idealistic projects.

Prior to its Kickstarter campaign, Waka Waka successfully pursued a different crowdfunding avenue, using a Netherlands-based site called Symbid, which launched in 2011, where startup companies raise capital by selling equity stakes in their business similar to an initial public offering on an exchange, he says.

The light manufacturer raised more than $100,000 from investors and was one of Symbid's first success stories.

Yet investor-focused crowdfunding is relatively small compared to crowdfunding's other permutations. Kartaszewicz-Grell says that may soon change once equity crowdfunding is officially legal in the U.S.

Although the JOBS (Jumpstart Our Business Startups) Act, which contains provisions for startups to sell equity stakes through crowdfunding, was made law last year, the exact rules are still being worked out by the U.S. Securities and Exchange Commission (SEC).

In Manitoba, equity-based crowdfunding is already legal, says Chris Besko, deputy director of legal counsel at the Manitoba Securities Commission. Yet no Manitoba-based company has ever used it to raise capital.

"It is more of a buzzword right now than a fully realized concept," he says.

The fact is, Canada -- not just Manitoba -- is a small and sparse market for venture capital compared to the U.S, so it would be challenging to raise thousands of dollars, let alone millions.

Furthermore, Canadian investors already have a platform to put their money at risk -- the TSX Venture Exchange (TSV), he says.

Buying shares of a small mining firm with no revenues on the TSV is risky enough. Investing in a startup through crowdfunding would be even chancier, especially given that it would not be subject to the same rigorous financial reporting as a publicly traded company.

"These investments are going to be very risky simply because they're looking for start-up capital," Besko says. "Usually, the only way you're going to make any money is if they get big enough to have any kind of public offering that you can sell your shares into."

Canadian startups and investors also don't have a venue to engage equity crowdfunding at this time. A U.K.-based company -- Crowdcube -- announced in May it is launching a Canadian site, but it is still trying to generate interest.

Yet while equity crowdfunding is virtually non-existent in Canada, donation crowdfunding platforms -- like GoFundMe and even a Vancouver-based site called FundRazr -- are catching on with Canadians.

The successful crowdfunding campaign on the U.S. site Indiegogo, which raised more than $200,000 in a few days to buy the video of Toronto Mayor Rob Ford allegedly smoking crack cocaine, speaks to just how embedded it has already become in our culture.

And in Persowich's case, crowdfunding has undoubtedly proven helpful. Her dog is healthy again, in no small part to due financial help from strangers, friends and family.

"It was fantastic," she says about the crowdfunding support. "I don't have any kids -- he's my kid, and I didn't want to give up on him."



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