Touchless payments firm Tiptap Pay wants to build 50,000 more of its point-of-sale units, and it’s turning to crowdfunding to do it. 

The Burlington, Ont.-based company is seeking to raise a $2-million Series A round from angel and retail investors through FrontFundr, a Canadian equity crowdfunding site. While it’s not the first time it’s raised capital on FrontFundr (the company used the platform in 2020), Tiptap said it went with this niche method again after struggling with traditional fundraising methods in today’s challenging market.

“Venture funds, even retail investors, they love what we’re doing, it’s just none of them are spending. They have dry powder to support their current investments, but they aren’t investing in any growth-phase companies,” Tiptap CEO and founder Chris Greenfield told The Logic.

In the face of interest rate hikes aimed at wrangling inflation under control and the threat of a recession, venture capital investors have been significantly scaling back in 2022. According to PitchBook data shared with The Logic in October, Canadian-headquartered firms raised US$1.4 billion in the third quarter, a 44 per cent decrease from the US$2.5 billion they raised a year earlier. VC funding for Canadian companies fell 69 per cent on a year-to-date basis. 

Greenfield said the decision to turn to FrontFundr was also partly influenced by its difficulty accessing government funding. The company spoke with the Business Development Bank of Canada and Economic Development Canada, and received some funding, but only after Greenfield made a personal guarantee. “Without a half a million in recurring revenue every month, without 12 months of historical EBITDA positive financials, they really make judgments like a bank and weren’t ready to do that without a personal guarantee,” he said, adding that was despite the company’s $10 million in inventory and $30 million in contracts.

“Our financial systems and vehicles for debt or lending, including government programs, aren’t really well-positioned for companies that are less than two years old,” he said. Founded in 2018, Tiptap was formally incorporated at the end of 2019 and won’t have the two years of audited financial statements it needs for traditional funding until early 2023.

As of Friday, the company’s crowdfunding campaign had raised over $1 million—or more than half of its goal—from 105 investors. Its initial fundraising deadline, at the end of October, was extended until Nov. 30.

“Things move slower than ever” now, Greenfield said. Tiptap is considering extending its campaign into December.

Tiptap makes POS units that enable people to impulse-donate to charity with a debit or credit card, or their mobile wallet. “Everybody carries that now, whereas cash and coin very few people do, and … charities are really missing out,” Greenfield said. “The convenience is definitely a factor that increases giving.”

Its units, which can be installed in locations with or without volunteers, have been used by the Salvation Army, the Canadian Mental Health Association’s Halton Region branch, the Lake Simcoe Region Conservation Authority and Canadian Tire. They’ve also been used for parking, food and beverage payments at venues and festivals.

Though still a novel mode of fundraising, equity crowdfunding has gained steam in Canada in recent years, said FrontFundr founder and CEO Peter-Paul Van Hoeken. He attributed it to growing awareness of the option and its ability to address a “funding gap” for companies that are too big to rely on family and friends alone, but are too early stage to attract VC attention. “There are lots of companies with great ideas, with a great value proposition and prospects to succeed, but are not necessarily going to become a unicorn,” he said. 

Since its launch in 2015, FrontFundr has hosted more than 110 capital raises totalling $140 million and more than 16,000 transactions, as of September. Thirty of those campaigns, and roughly a quarter of transactions, were from the past 12 to 18 months, he said. (Tiptap’s earlier round on FrontFundr that launched in 2020 brought in $866,775.)

The sector got a big boost in September 2021, when the Canadian Securities Administrators harmonized rules for equity crowdfunding came into effect. The regulators increased the amount companies are allowed to raise per year without issuing a prospectus to $1.5 million, from $500,000 previously. Van Hoeken said the platform had a “sharp increase” in companies looking to raise capital after the harmonized rules took effect.

As an exempt-market dealer, Van Hoeken said Frontfundr can “stack” the accredited investor exemption—a classification that includes institutional investors and individuals who earn $300,000 or more in pre-tax income and have financial assets of more than $1 million—which allows companies crowdfunding on its platform to raise more than the $1.5-million maximum.

The updates also increased the maximum investment individual investors can make per year from its previous level of $1,500 to $2,500, though this could go as high as $10,000 if a registered dealer advises a buyer that a particular investment is suitable. Van Hoeken said FrontFundr has opted to set that maximum at $5,000.

The platform allows for multiple closings, where startups can access some of the funds before the formal end of their campaign as long as they’ve reached the minimum fundraising amount.

FrontFundr is required by the Investment Industry Regulatory Organization of Canada (IIROC) to perform know-your-product due diligence on companies looking to fundraise on its platform, which involves assessing the company’s records, material agreements and business plan, as well as conducting background checks on officers and directors. While he said he sees making private market investments available to retail investors as a positive, Van Hoeken noted putting money in startups isn’t without risk. 

“What we’re doing there is mitigating that risk and ensuring the deal is presented as best as possible so investors can make an informed investment decision,” he said. 

Greenfield said the due diligence process for Tiptap was “pretty rigorous,” and similar to the assessments that angel and VC investors tend to conduct. 

“It’s not like GoFundMe—it’s not like you throw something up there,” he said. “This will take you five weeks to put together.”