FrontFundr has revolutionized the private capital markets by democratizing venture capital investment opportunities for all Canadians. Previously, these investment opportunities were restricted to a select group of the Canadian population, known as accredited investors, who make up only 4% of Canadians1,2. While FrontFundr unlocks the private capital markets to Canadian investors, it does not necessarily unlock this opportunity to all companies.
Only 9% of companies that reach out to FrontFundr are approved to list on the FrontFundr platform. As an Exempt Market Dealer, we have an obligation to conduct the ‘Know Your Product’ (KYP) process and part of that process is Due Diligence. Due Diligence first starts with a pre-screen fit and red-flag analysis, then we take a deeper dive into operations and the investment opportunity, and once we have a thorough understanding of the company and investment opportunity, we move to the Investment Review Committee meeting. The Investment Review Committee meeting consists of internal and external capital raising experts and is meant to flush out the opportunities and risks before a company is approved to go live on the FrontFundr platform.
The FrontFundr due diligence process is dynamic and mutually beneficial as we assess a company’s business risks and the investment opportunity. We perform an analysis of the organization, corporate structure, the people behind the company, problem/inefficiency being addressed, achieved and set milestones, traction, addressable market, competition, financials, investor materials, and terms of the offering. At the end of due diligence, companies will have experienced answering complex questions that are important to investors, such as how companies will utilize investor funds to hit milestones tied to core growth drivers. A key objective of due diligence is to provide companies with the resources to be prepared for investors.
We utilize the experience we have gained over 40 successful deals to prepare companies for investors and prevent any common capital raising mistakes. This knowledge is intended to equip companies with the skills to succeed in their current FrontFundr round and any future capital raises.
The FrontFundr due diligence process is an extensive engagement that requires significant time, for both the companies and us. In our experience, the engagement takes 45 days on average. While this may lead to fewer companies being listed on FrontFundr, it results in a curated list of investment opportunities that we take pride in. We do due diligence because it is important to us that investors have access to screened investment opportunities and that companies are placed beside other vetted businesses on our platform.
Completing the due diligence process does not guarantee any preservation of or any return on an investment, that companies will have a successful campaign, nor that companies will have no outstanding issues or problems that will arise in the future. FrontFundr’s selection process does not suggest higher-quality investment opportunities or certainty of positive investor returns. Investors may lose the entire amount of your investment. For investments in startups, total loss of capital is a potential outcome, which is why most investors choose to mitigate risk with portfolio diversification. FrontFundr does not provide opinions on investment opportunities or actively promote investment opportunities. We recommend each investor to conduct their own independent due diligence and understand the risks involved before making an investment decision.
1 The most common categories of accredited investors are:
- an individual who, either alone or with a spouse, beneficially owns financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $1 000 000;
- an individual whose net income before taxes exceeded $200 000 in each of the 2 most recent calendar years, or whose net income before taxes combined with that of a spouse exceeded $300 000 in each of the 2 most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year; or
- an individual who, either alone or with a spouse, has net assets of at least $5 000 000.
For a full list of accredited investor categories, please review the National Instrument 45-106: https://www.bcsc.bc.ca/Securities_Law/Policies/Policy4/PDF/45-106__NI___October_5__2018/