A Dummies Guide to Crowdfunding in Canada

Let’s assume you know what Crowdfunding is… or do you? Alright, let’s assume you have a vague idea so let’s clarify it: Crowdfunding is simply presenting a project or idea publically and having the public (or crowd) give money to that idea (if they like it, of course).

Deciding whether or not to crowdfund is another topic in itself, but assuming you already have decided to crowdfund and are looking at your options, here are some tips and advice that can help point you in the right direction.

Why Go Canadian

Based on statistics, the major American owned crowdfunding sites have only a 10-40% success rate when it comes to campaigns reaching their goal. Often times this is because only the successful campaigns are placed on the front pages and many sites remove campaigns that didn’t reach their funding goal from public visibility as soon as the campaign is finished.

So when choosing your crowdfunding portal consider that using a major American site which posts thousands of campaigns, most of which never get seen, may not be your best option. Instead, posting a Canadian project on a Canadian site, which has smaller numbers of projects that are seen locally and potentially even promoted locally by the site, may be a better option.

Basic Types of Crowdfunding

Before choosing your portal, figure out what type of crowdfunding you are interested in. There are probably more types than you were aware of and generally different portals cater to different types.

Equity/Lending Model

In equity crowdfunding an investor either buys shares of a company or receives a share of the revenue or profit from a product. In the lending model, the campaigner receives loans from investors.

Rules for equity based crowdfunding vary between provinces/territories. Examples of Canadian equity based portals are Front Fundr and Crowdfund Suite.

The equity based model in our opinion is best suited for a company which is fairly stable but now ready for growth. When considering this crowdfunding model, think about whether you are ready and willing to sell either pieces of your ownership or your profit.

Donation/Rewards Model

In this type of model, people give money to a project without expecting anything in return. However, generally speaking the donation model includes ‘rewards’. Crowdfunding campaigns tend to do better, the better their rewards, and the best rewards are generally related to the company’s product.

In the Donation/Rewards Model there are two basic campaign structures. The first is the All-Or-Nothing structure, such as Alberta BoostR where if a campaigner does not reach their funding goal, the campaigner receives nothing.

The Second is the Keep-All structure, as in PinUp Campaigns. When a campaigner runs a keep-all campaign, the donors are immediately charged and the campaigner keeps all donations regardless of whether they reach the goal or not.

Is donation/rewards based crowdfunding for you and which structure should you choose?

Generally speaking, donation based crowdfunding works best when raising funds for one new product or one specific idea that the campaigner can get potential funders excited about, rather than just asking for money for a whole business.

All-or nothing crowdfunding works best for projects that cannot come to fruition without the absolute minimum goal being reached. For example, if an organization needs a minimum of $10,000 to rent space for a time-sensitive event but only raises $8,000 there is no point in it keeping this money as the event obviously won’t happen.

Keep-all crowdfunding works well for pre-sales of new products in order to gain an audience and generally any campaign which can create rewards that can be delivered to funders regardless of whether the crowdfunding goal is reached.

Creative Projects versus Non-Profits and Charities

Although both creative projects and non-profits/charities can often use the same portals, many portals are beginning to distinguish which types of campaigns they work with. For example, Trend Trunk deals specifically with causes, while PinUp Campaigns is for creative projects only.

We hope this blog helped to get your feet in the crowdfunding door! For a full directory of Canadian Crowdfunding portals can be found at the National Crowdfunding Association of Canada website.

Written By: PinUp Campaigns Team