Crowdfunding in Canada: Will Kickstarter Kick Indiegogo?
More Choices for Canadian Small Business Funding
Crowdfunding in Canada is still in its taming the Wild West phase; you have a lot of crowdfunding companies who would love to colonize the space hurling themselves at the regulatory barbwire.
And now Kickstarter has joined the fray with six-shooters blazing.
During a four-day visit to Toronto during Kickstarter’s Canadian launch in September 2013, co-founder Yancey Strickler said that Kickstarter had long wanted to move into Canada but was kept away due to financial regulations.
Now they’re finally here and out to kick some you-know-what. In an interview with the Canadian Press, Strickler admitted that the Canadian crowdfunding scene is currently dominated by Indiegogo, but he is confident Kickstarter will prevail.
Kickstarter claims it has raised more than six times as much money as Indiegogo has, while 40 projects have generated more than $1 million in pledges, versus only four for Indiegogo.
Have a look at this comparison before you get too excited about Kickstarter’s arrival.
- Neither Kickstarter or Indiegogo offers equity financing.
In Canada, all crowdfunding platforms are limited by the fact they can’t offer equity crowdfunding. In other words, you can’t offer people any form of ownership in your business in exchange for their investment.
The “culprit” is Canada’s securities laws. Under current regulations, there are very few circumstances where a company seeking investment wouldn’t have to issue a detailed prospectus, just like that used in a traditional initial public offering (IPO). Hard to imagine doing this when your new business is just at the idea stage, isn’t it?
And the crowdfunding portals themselves would fall within Canada's dealer and investment adviser registration rules and incur the potential liability associated with such registration. (This situation may change; thanks to developments in the US and lobbying by groups in Canada, some Canadian jurisdictions are taking a look at amending their securities regulations to allow for equity crowdfunding.)
But as it is, both Kickstarter and Indiegogo operate under a donation model, where the big motivators are the rewards contributors get and the altruistic satisfaction of (hopefully) seeing the project they’ve supported get off the ground.
- Indiegogo offers more funding choices.
You can, for instance, choose to set up your Indiegogo campaign as Flexible Funding, where you get to keep all the funds you raise even if you don’t meet your funding goal, or as Fixed Funding, where all the contributions to your campaign get returned to the contributors if you don’t meet your goal. (Indiegogo charges less of a platform fee for Flexible Funding campaigns that meet their goal, only 4% versus a 9% platform fee for Fixed Funding campaigns that don’t meet their goal).
Kickstarter takes the all or nothing approach. As the creator of a Kickstarter campaign, you have to set both a funding goal and a deadline, and if your project doesn’t attract enough contributors by the deadline, no money changes hands.
- Crowdfunding campaigns are more limited on Kickstarter.
Kickstarter is curated. While anyone can start any crowdfunding campaign on Indiegogo, Kickstarter projects are reviewed by staff and must conform to Kickstarter’s guidelines.
That means, among other things, that everything on Kickstarter has to be a “project”, something that results in a tangible product, and that the project has to fit into one of Kickstarter’s categories (Art, Comics, Dance, Design, Fashion, Film, Food, Games, Music, Photography, Publishing, Technology, and Theater).
And certain types of businesses are also shut out; Kickstarter cannot be used to fund e-commerce, business, and social networking websites or apps , or to fund software projects not run by the developers themselves.
Indiegogo, on the other hand, is “available to anyone to raise money for anything”.
- Fees are similar for both crowdfunding platforms.
If a project is successfully funded, Kickstarter applies a 5% fee to the funds collected and processing fees, which for Canadian projects are 3% + $0.20 CAD per pledge. There are no fees if funding is unsuccessful.
When your campaign raises funds, Indiegogo charges a 9.0% fee on the funds you raise. If you reach your goal, you get 5.0% back, for an overall fee of 4.0%. There is also a 3% third party fee for credit card processing plus a $25 wire fee for non-US campaigns.
The Bottom Line
One apple is much like another, although just browsing through projects up for funding, Indiegogo seems to have more of an international flavour.
If you don’t need much money, have a project or a business that fits into either of these crowdfunding platform’s requirements, and would enjoy actively campaigning (creating perks for contributors), using either Kickstarter or Indiegogo could be worth a shot.
If it’s serious pinstriped money you’re after, especially for businesses that aren’t arts, food or tech related, amp up your business plan and head for your local banks or credit union. How to Get a Small Business Loan explains the documents you need and how to prepare yourself to have a better chance of getting the funding you want.