February 16th, 2017
Start-up Crowdfunding Guide for Investors, Businesses and Funding Portals
British Columbia Securities Commission | July 2015
Start-up or early-stage businesses can raise money for their operations by selling securities (such as bonds or common shares) to investors through a start-up crowdfunding campaign. If you contribute, you are an investor and hope to earn interest or participate in future profits of that business.
These three guides assist funding portals, issuers, and investors understand the registration and prospectus exemptions that allow start-up and early stage businesses to raise capital.
- Start-up Crowdfunding Guide for Investors
- Start-up Crowdfunding Guide for Businesses
- Start-up Crowdfunding Guide for Funding Portals
You can also find other useful guides from the BCSC here.
Can anyone invest in a start-up crowdfunding campaign?
No. You must reside in a jurisdiction that allows companies to use an exemption to sell securities to investors through start-up crowdfunding. It is up to you to protect your own interests by knowing what exemption the company is using to sell you its securities. Learn more about exemptions.
Where can you find start-up crowdfunding offers?
In order to raise money through start-up crowdfunding, a company must first complete an offering document outlining its idea and make it available online through a funding portal. There are two types of funding portals:
- Funding portals that are relying on an exemption from the dealer registration exemption must not provide you with advice about your investment. In this case, you will have to assess the suitability of the investment on your own.
- Funding portals that are operated by registered dealers are obligated to determine if the investment is suitable for your situation.
What risks do these types of offers have?
Pay close attention to the risk warnings. Before you invest, the funding portal will ask you to confirm that you have read and understood the risk warnings and the offering document. These investments are risky and you could lose your entire investment.
Can you sell your investment easily?
No, you may have to hold your investment indefinitely.
What are the costs?
The offering document contains basic information about the project, including the minimum amount of money that needs to be raised for it to go ahead. The maximum a business can raise from each investor for a project is $1,500.
What are the expected types of returns?
Returns are always uncertain and depend on many factors beyond the company’s and your control. The majority of start-up and early stage companies never go public, and assuming this is the case with one you invest in, then you may never be able to sell your shares. That’s what makes it so risky and why you should only invest in it if you can afford to lose your whole investment.
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1100+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit www.ncfacanada.org.