FrontFundr founder and CEO lays bare vision for evolution of Canada’s private capital markets
For investors wishing to participate in Canada’s crowdfunding space as well as companies favouring that channel for capital-raising, Christmas has come early with the announcement of a new partnership.
FrontFundr, Canada’s largest equity crowdfunding platform and exempt market dealer, has officially become a participating dealer on the recently launched DealSquare private-market platform. With that move, the firm says it has significantly advanced its agenda to expand access to investment opportunities in private companies.
“Since 2014, we’ve been frontrunners in connecting private companies with the Canadian investing public,” said Peter-Paul Van Hoeken, founder and CEO of Silver Maple Ventures Inc., the company behind FrontFundr and DealSquare. “We worked with securities regulators in Canada to get approval for a fully online model of transacting business, which was certainly unknown here at the time when everything was paper-based and meetings on KYC and suitability had to happen face-to-face.”
According to Van Hoeken, there’s a deep-rooted understanding even among investment-industry professionals that investment in private firms is available only to accredited investors. But that paradigm has been turned on its head by platforms like FrontFundr, which have allowed investments in private companies for as little as $100. And while private-market investing is a normally onerous process, he said every step — KYC, ID verification, completing one’s subscription documentation, funds transfer — can now be done online in as little as 15 minutes.
“We currently operate from coast to coast in Canada, which has been important in connecting companies with retail investors directly,” he said. “But certainly, there are many accredited investors that typically work with investment advisors. Through our latest partnership, FrontFundr’s client capital raisers now have the opportunity to access that network of advisors and clients by co-listing on DealSquare.”
With large amounts of assets at their disposal, accredited investors who are connected via their advisors to the DealSquare platform could in theory satisfy the capital-raising targets of co-listed companies very easily. Does that mean smaller investors who use FrontFundr could be effectively blocked or limited from participating in early-stage company investment? Van Hoeken acknowledged the possibility, but said it could be mitigated by introducing caps or specific allocations to ensure that both affluent and retail investors can benefit from promising opportunities.
Through the eyes of an investor, the appeal of private equity investment is certainly clear. Across the world, capital raised by companies in private-equity space has been growing by as much as twice the rate of financing raised in the public markets, implying a deeper pool of opportunities. There have been also studies to show that returns from private equity have led those in the private markets by 3 to 4%.
From a capital-raising perspective, Van Hoeken cited research by his own firm suggesting that at least $2.5 billion per annum could be unlocked for investment in the private market if just 1.5% of investable assets held by the public were diverted toward the private space.
“To put that in perspective, the National Angel Capital Organization in Canada (NACO) reported that they invested around $180 million in early-stage companies last year,” he said. “Meanwhile, the Canadian Venture Capital Association reported venture-capital investments of $3.7 billion in 2018.”
Given that growth in opportunity, FrontFundr will press on with its campaign to transform the capital markets in Canada. That includes better access to private markets for accredited and non-accredited investors, simplifying the investment process by leveraging technology, and making sure that private-market investment opportunities grow into a fully recognized and mature asset category.
“Currently, if you want to diversify your portfolio, the typical investor can turn to ETFs, bonds, REITs, and savings accounts,” Van Hoeken said. “Why shouldn’t investors, regardless of how much they’re making, have private-market investments in their portfolio as well? That’s the question we’ve asked from the very beginning.”