FrontFundr Blog

Investment, Crowdfunding, Private Equity,

Creating a new capital market

We’ve said it before and now the data proves it: the private markets are home to the greatest opportunities for investment growth. US data shows that private equity had an average annual return of 11.67% over the past 10 yearsfor late stage growth companies[1]. That’s comparable to 6.9% per annum for the S&P 500. 

 

Unfortunately for most of us, the private markets have traditionally been difficult to access. That changed in 2015, when FrontFundr began curating offerings with lower minimum investments and making them available to a wider investor community; while providing companies with better access to capital. As Canada’s number one online investment platform for the private markets, we’ve continued to lead the way since then and are more passionate than ever about giving everyday Canadians an opportunity to diversify their portfolios. 

 

Responding to a changing landscape

Evidence of a strengthened private market is part of a changing investment landscape. The number of publicly listed companies in the US declined by 50% since the peak in 1996. There has been a 73% reduction in IPOs per year in the period from 2001 to 2016 (108) compared to the period from 1990 to 2000 (406). For companies that do go public, the median time to IPO from initial VC investment has increased from three years in 2000 to approximately ten years today.[2]It’s a trend that is also being seen in Canada.

In general, private equity firms are keeping high growth companies private and injecting additional capital, making significant returns before entering the IPO stage at a much higher value. For early and growth stage companies, staying private longer means attracting capital from a wider range of funding sources, remaining patient for better deals and growing their value prior to any initial public offering. 

FrontFundr has continued to see increasing interest from later stage companies seeking larger raises in conjunction with VC funding. FrontFundr’s latest online marketplace, SMV Capital Markets, is home to some of these more expansive offerings. Using the robust platform developed for FrontFundr, SMV Capital Markets enables qualified investors the ability to review offerings, ask questions and invest, all from their computer, tablet, or phone. Through this new product, we can support more companies and continue to grow the new capital market.

Investment crowdfunding sets companies up for success on Canada’s Junior Exchanges

When companies are ready to go public, Canada’s well-established junior exchanges, like the TSX-V (Toronto Venture Stock Exchange) and CSE (Canadian Stock Exchange), are a natural next step. Companies that have raised capital on FrontFundr or SMV Capital Markets (we’ll call them graduates) are especially well prepared to list on a junior exchange. 

Firstly, by completing FrontFundr’s due diligence process prior to listing on our platform (and adapting to the high level of transparency required for a successful investment crowdfunding campaign), our graduates are well prepared for the high degree scrutiny and disclosure required for a public listing. 

Secondly, because investment crowdfunding can’t be successful without a crowd. Through FrontFundr, these graduate companies often create a much wider group of shareholders, which may assist in reaching minimum shareholder requirements for inclusion on a public exchange. As a result, companies coming through FrontFundr have gained greater corporate governance experience and are familiar with the process of managing a wider pool of shareholders through growing attention to their investor relations activities. 

In the face of a changing funding landscape, FrontFundr is helping companies access more capital, allowing them to stay private and grow for a longer period of time. Private markets are growing in value and we are making that value accessible to everyone. This is the new capital market - integral, dynamic and most importantly, accessible. 

 


[1]Cambridge and Associates, Private Investment Benchmarks, Q3 2018 Final Report.

[2]University of Florida (Professor Jay Ritter, Cordell Professor of Finance, 2016),Initial Public Offerings,National Venture Capital Association    


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