Capital markets webinars

Convergence between equity crowdfunding and traditional finance - pt 2

For the second part of our conversation with Alexander Morsink from Equivesto, we talked about some of the future trends Alex expects to see in the equity crowdfunding space.




Katipult: Thank you for joining us again for the second part of our conversation with Alexander Morsink from Equivesto, about some of the recent trends in Equity Crowdfunding.

If you haven’t already, you may want to check out part one, where we talked in some detail about the specifics of exemptions that support equity crowdfunding and how technology adoption is changing the landscape significantly.

Welcome back, Alex. In our previous conversation, we discussed the fact that you have seen bigger and bigger deals coming through your platforms in recent months. I was wondering if you could expand on the benefits for issuers from using your platform to raise capital. For example, what are the two or three benefits that issuers get from using Equivesto?

Alexander Morsink: The main thing they benefit from is an Exempt Market Dealer with serious technology experience and a platform underpinning it. So the work that goes into signing all of the subscription agreements, actually closing the investors, doing the verification of the accredited investor or the investor status of the investor, and being able to capture all that information and prepare it in a usable data format is all done with the help of technology.

Typically in the past, you collected Right Signature templates or DocuSign forms and went through the paperwork that's been filled out to try to figure out where the information is. You may have had sub-agreements or sub-docs to sign manually and physically, and you spent time trying to confirm all the information and confirm what category the investor is in.

Now all of that is presented in an Excel file to you at the end, with all the details neatly summarized.

From the investor's perspective, we offer everything in one single transaction location. So, instead of “I need to go over here to sign the documents and then I have to go to the bank to wire it. And, then I have to make sure I get a hold of that paperwork and save it somewhere”,  Equivesto provides that secure location where they're signing up. They're also getting their identity verified automatically online. So, they're able to transact and sign the documents digitally in five minutes from their house, but it's also possible for them to come in and review their portfolio over time.

The platform can assist in the payment of distributions if desired. And we also support and work alongside trust companies like Olympia Trust or Western Pacific Trust if an issuer is looking to allow TFSA or RRSP investing. Then, using the platform, we're helping them complete those forms and submit them to the necessary trust company. So it smooths out the entire transaction process from the perspective of the investor and also the issuer.

Katipult: So, is there a cost-benefit for issuers going down that route?

Alexander Morsink: Certainly, it's providing that level of documentation, so hopefully, their legal costs are coming down considerably, and it's simply streamlining it. So less of their internal time is spent reviewing this documentation.

As much as I'd love to say, “Oh, using a platform like Equivesto running on Katipult means that you don't have to spend any time on capital raising, and it's a set-and-forget type situation.” That isn't the reality. Capital raising will always be time intensive and takes that dedication from the management team. So there will still be time needed, but you're not jettisoning that by working with a platform like ours, but we will hopefully make it easier.

Katipult: Not quite the magic money tree, then?

Alexander Morsink: No, not yet!

Katipult:  If we think about more recent events, what kind of impact have you seen from the likes of the Silicon Valley Bank collapse?  

Alexander Morsink: Even though it happened several weeks ago, the impacts are still being felt, and we will be discovering more and more effects as time passes. I think it also depends on the types and categories in the issuers' industries. For example, Silicon Valley Bank did have a large number of customers in Canada. Still, most of how it was actually deploying its funds were in loans and providing additional capital cushion to a lot of startups.

Silicon Valley Bank is also where a large number of VCs and startups held their funds as depositors. In terms of the impact, the lack of lending from Silicon Valley Bank is one factor. Of course, the concern about holding funds in one location is another impact from the VC and the startup's perspective. So it has initially shaken some confidence in some institutions in the space.

But we're also seeing many people use that as a wake-up call to consider more options about how they're deploying capital and where it's being held. So it was obviously a negative impact on the industry that something like that happened. So we will continue to see the ramifications for several months and potentially years to come.

Katipult:  And as we come towards the end of this conversation, are there any other trends that you think may the impact sector in the coming years that people should be aware of or be thinking about?

Alexander Morsink: We talked about it a little bit, but it's the increased diversification of the types of investments leveraging online investment platforms. I know we use the term equity crowdfunding to talk about this, but because we're seeing that sort of merging in the middle of more traditional venture capital and private equities space and grassroots level equity crowdfunding in these online investment portals.

We will start seeing a more comprehensive array of private investment products that can be purchased through a portal. And we'll see a more comprehensive array of the types of investors transacting through the portal. So we'll have on one side a retail investor investing $100 in an equity crowdfunding campaign to a local restaurant that they want to be a part owner of,  and on the other side, we may see venture capital firms and family offices investing five or ten million dollars into larger hedge funds, private equity funds and other series A or B capital raises for startups or real estate through the same underlying technology platform.

Katipult: And is that maturity of the space going to shake off any connotation of crowdfunding being essentially Kickstarter?

Alexander Morsink: When you think about the mechanics where Kickstarter and equity crowdfunding are similar, it’s the idea that you're allowing the broader community to invest in an offering. From a marketing perspective, if you're going out to notify people about your offering and want to involve your broader community and allow them to participate, using similar marketing techniques to get the word out is helpful. Still, I think that's really where the similarities end.

Equity crowdfunding still uses the word crowdfunding but is a private securities purchase; it's very much operating in the exempt market using the same rules, regulations and structure as private financing of a much larger $100 million deal. And so we'll start to see a lot of the sort of mentality around “Oh, equity crowdfunding is something over here, ”as now saying this is just another type of prospectus-exempt offering. This is another private issuance, and it's still going through all of the securities law and compliance that any more significant transaction would, too.

Katipult:  Well, thanks, Alex, it's been great. Where should people go to learn a little bit more about Equivesto and equity crowdfunding in general?

Alexander Morsink:  Our website is the best place for information, We also have a very robust learning center at with lots more videos like this, educational material and lots more information there. Finally, I'm sure you should check out Katipult’s website, as you also have lots of information available there.

Katipult:  That's great. Thank you so much for your time, Alex. Thank you.

Alexander Morsink:  Thanks, Barry.