Equity Crowdfunding Will Come with Major Learning Curve, Canadian Report Suggests

Equity crowdfunding had always posed as a risky means for struggling startup businesses or a financial threat.

As US policymakers determine the potential outcome of equity crowdfunding, the Rotman School of Management in Toronto produced a research paper aimed at helping them approach the most positive conclusion. The paper will be included as a chapter in the up-coming volume of Boston’s National Bureau of Economic Research.

“There’s no question that there will be fraud and that some investors will lose money, but that’s true in every market,” said Ajay Agrawal, an associate professor of strategic management at the University of Toronto’s Rotman School of Management, who wrote the paper on the topic alongside Christian Catalini, a Rotman PhD student, and Avi Goldfarb, a professor of marketing. “This is a new market and we suspect there will be a steep learning curve for all participants: entrepreneurs, investors, crowdfunding platforms and regulators.”

From disaster relief to artist works, many are using non-equity crowdfunding to help grow their projects. There are currently more than 200 non-equity crowdfunding platforms. Often they allow people to utilize the Internet to garner small contributions in the form of donations or in return for a reward.

“Our objective was to put some structure around this innovation in financial markets,” said Agrawal. “It’s not often that we get a chance to speculate on the advent of a new market. It’s exciting.”

Currently only accredited investors are allowed to raise business capital using the platform. US regulators are working carefully in an effort to open the market to anyone. In 2012, the Obama administration introduced Jumpstart Our Business Startup Act, but regulations from the Securities and Exchange Commission is still pending.

In order to reduce potential risk, the paper says that entrepreneurs using equity crowdfunding will have to address costs for fraud, incompetence and creating unrealistic goals.

“It feels like we are being far more protective of people making mistakes buying small amounts of equity through crowdfunding than we are of people making mistakes buying other goods and services on the Internet that are sometimes fraudulent, of lower-quality, or overpriced,” said Agrawal.

Nokia Downsizing in Vancouver Sparks City’s Startup Ecosystem

Formerly published in Techvibes Media.
Posted by Elliot Chan on Jul 2, 2013


News of company downsizing tends to be upsetting, filling former employees with distraught. But that was not the case for the talented group Nokia dismissed during various rounds of cutbacks starting in 2009.

Wavefront, Canada’s Centre of Excellence for Wireless Commercialization and Research has partnered with Nokia to support former employees’ transition between jobs. The program will not only shorten the period of unemployment, but also create more career opportunities for ex-Nokia employees.

Wavefront’s Venture Acceleration Program, launched in December 2012, is now helping former Nokia employees with quality business models to pursue new entrepreneurial projects. Since the inauguration Wavefront has assisted nine new companies who had enrolled in the VAP program. Brad Lowe, Wavefront’s Wireless Accelerator Architect, expects more startup companies to form in the near future.

In addition to the program, Nokia also hosted a competition. The company offered a $35,000 seed funding reward for the employees who pitched the best ideas for new businesses. Automatic admission to VAP was granted to any employees with business ideas involving wireless space.

“We’ve got a bunch of highly skilled people who spent years working for a global powerhouse in mobility, and we wanted to see that those people—if they were interested—continue to build on that and start new companies that would keep those jobs in British Columbia,” said Lowe. “To Nokia’s credit, they put in place this program to try to get people into new jobs. I always joke that there’s no better place to be laid off from than Nokia.”

Adaia, smartphone marker known for its rugged design is one of the companies formed after the disbanding of Nokia’s Burnaby division. Benefiting from the help of VAP, Adaia is getting plenty of media coverage and attention for its new product, a smartphone that is both shock-proof and is capable of functioning after being submerged in 10 metres of seawater and continues working at altitude of 9,000 metres. The smartphone also comes with detailed topographical maps and is satellite enabled, which allows it to send text anywhere in the world, but not receive—essential for getting help in emergency situations.

“I was so fed up,” said onetime Nokia consultant, Heikki Sarajarvi. “I can’t be the only one who is destroying these smartphones doing completely normal things.”

Sarajarvi spoke with sailors who were prone to damaging their phones in salty, wet conditions and decided that things need to change. That was the initial spark for Adaia, a company with 16 employees, half of which were once employed by Nokia.

The high-end smartphone won’t be available until next year and won’t be cheap either, but with its durability Sarajarvi believes that buying one physically sound smartphone is better than constantly replacing fragile, inexpensive models.

Adaia is currently leading the way for post Nokia startups, with its new phone now in beta testing. Partnering up with BMW Group’s Designworks USA, Adaia is hoping to take their product to the next level and get it into the market.

“Dualism is the key characteristic of the design,” said Laurenz Schaffer, the president of the BMW Group-owned design firm. “It had to support an extreme, active lifestyle in the outdoors, as well as be appropriate to use in an executive meeting.”

Good things come from change and former Nokia employees are embracing it in hopes of making an economical impact in British Columbia.