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Democratizing Investing: Canada’s Emerging Equity Crowdfunding Landscape

Democratizing Investing: Canada’s Emerging Equity Crowdfunding Landscape

On May 29th, the 2014 Canadian Equity Crowdfunding Conference tour made its stop in Vancouver. Launched earlier in the year by the Equity Crowdfunding Alliance of Canada (ECFA), the conference series aims to host in-depth discussions of the emerging equity crowdfunding market in Canada. The full-day Vancouver event hosted over 100 entrepreneurs, angel investors, venture capitalists, lawyers, accountants, and consultants at the Morris J. Wosk Centre for Dialogue in Vancouver.

Junxion worked alongside Peter-Paul Van Hoeken to organize the event. A former international finance executive turned equity crowdfunding entrepreneur, Peter-Paul now leads his Vancouver-based company, Silver Maple Ventures, which was recently approved as a registered exempt market dealer. Next, Van Hoeken and team will build an online equity crowdfunding portal, slated for launch this fall, to connect new and growth-stage ventures with the broader private investor community.

Brian Koscak, Partner at Cassels, Brock & Blackwell LLP Toronto and Co-Founder of the ECFA, explained, “Equity Crowdfunding is here – it is legal in Canada under certain existing prospectus exemptions (accredited investor and offering memorandum), provided securities are sold through a registered dealer.”

Among the various pending applications, companies who today are already selling securities over the Internet include SeedUps Canada and Exempt Capital Network in Calgary (both have partnered with an exempt market dealer), Optimize Capital and The Funding Portal in Toronto, (both registered as an exempt market dealer), and MaRS SVX, also based in Toronto (registered as a ‘restricted dealer’ in Ontario and Quebec).

Supporting Social Ventures

With more equity portals entering the space, we will see fragmentation of portals—many will specialize in specific areas or industries such as real estate, agriculture, mining or technology. One example that Junxion is watching closely is MaRS SVX, an online portal that focuses on connecting impact ventures (those focused on cultivating positive social and/or environmental impact) with funds and investors.

“MaRS SVX is the first online equity crowdfunding portal for impact ventures.”

Carlos Pinto Lobo, SVX’s Compliance Officer, explained Thursday that this is the first platform of its kind in the world. He is focused on building “a scalable social innovation that can operate in other provinces, states and nations,” and is currently engaging collaborators to help SVX expand beyond Ontario and Quebec. The ventures that are best suited for this platform are small to medium sized enterprises with less than $25 million in revenues that prioritize their mission, showing proven impact, and earned revenues.

Regulatory Change Ahead

In March, several securities commissions across the country proposed new (or revised) ways of raising capital in private markets to broaden access for ‘the crowd’ through four exemptions: start-up (not legal yet, except in the Province of Saskatchewan), equity-crowdfunding (not legal yet), offering memorandum (all jurisdictions except Ontario), and accredited investor.

“Securities commissions across the country propose new ways of raising capital in private markets”

Both Brian Koscak and Oscar Jofre, CEO of BoardSuite and co-founder of the ECFA Canada, emphasized the importance of creating the right landscape to facilitate equity crowdfunding, and the necessary separation from the donor-based and rewards-based models and discussions that have caused confusion among the media and public.

Democratizing Investing: Canada’s Emerging Equity Crowdfunding Landscape

Unlike the donations and rewards based models, which attract donors and contributors for altruistic reasons or a perk, equity crowdfunding attracts investors who are looking to acquire a stake in the company and make a profit. As a company, issuing equity or debt requires regulation because it deals with securities law and comes with the risk of losing the investment. In Canada, each province is governed by its own securities commission, which adds an additional layer of complexity.

ECFA exists to focus solely on the equity and debt crowdfunding model, to educate in order to bring clarity, transparency and to grow trust. “Now is the time to discuss and get it right,” Jofre said. “If we want this to work, we need to show that we are serious.”

Van Hoeken, in particular, wants to disrupt the industry and drive innovation. In response to angels’ and VCs’ wish to continue dialogue and education, he argued, “We need to get going and prove the model, even if it’s with only one successfully funded deal to start…. I want to do this with you, the angels, on board. A successfully funded deal is proof of concept.”

The B.C. Securities Commission invites comments on its proposed equity crowdfunding exemptions until June 18, 2014. For more details, see B.C. Securities Commission publishes new securities crowdfunding exemption for comment.

Additional equity crowdfunding links of interest:
Crowdfundbeat interviews Brian Koscak on Equity Crowdfunding
Where You Can Find the Proposed Canadian Equity Crowdfunding Rules and Forms
Two Equity Crowdfunding Models for Canada
Crowdfunding = Going Public

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