Business in Vancouver | Tyler Orton | Oct 5, 2015

Securities exemptions allow small companies to issue shares without filing a prospectus

Peter-Paul Van Hoeken uses words like “diverse” and “colourful” when describing Canada’s system of securities regulations.

Instead of one agency overseeing the rules managing the buying and selling of shares, the country has a patchwork of regulators operating in different provinces.

So when the Dutch expatriate began working on a platform that would allow startups to raise money through crowdfunding, he spent two years figuring out how to fall in line with all of Canada’s different rules.

“Everybody at that time was in the dark about the whole crowdfunding thing, including the regulators,” said Van Hoeken, the founder and CEO of fundraising portal FrontFundr.

But in mid-September the Vancouver-based company facilitated B.C.’s first round of equity fundraising for a startup after regulators introduced new rules earlier this year.

While traditional crowdfunding involves soliciting donations to raise money for projects like films or devices, equity crowdfunding involves startups selling its shares directly to investors. Up until May, only traders regulated by the BC Securities Commission (BCSC) were allowed to sell shares. But new exemptions adopted by B.C., Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia now allow companies to sell shares through an approved funding portal such as FrontFundr.

“When the rule came out in May, that was two weeks prior to our launch,” Van Hoeken said. “It was almost like impeccable timing.”

See:

• FrontFundr expands nationwide to provide investors and companies access to a new capital market

• Equity Crowdfunding FAQs in Canada

• 2015 Canadian Crowdfunding Directory

FrontFundr had been working to fall within all the existing regulations until it found itself in a position where many of the roadblocks were removed in six provinces.

Guusto, the first B.C. startup to benefit from equity crowdfunding, raised $44,000 in its first at-bat.

Co-founder Joe Facciolo said that, considering how difficult it is for some companies to raise money outside major tech centres like San Francisco or financial hubs like Toronto, the payoff potential for startups is considerable.

“The pool of resources in Canada from angel investors is pretty limited, so we believe this mechanism helps to deepen this pool.”

Facciolo added that he’s planning another round of equity crowdfunding soon.

But there are limits as far as what startups can raise through the new equity crowdfunding rules.

No single campaign is permitted to raise more than $250,000, and individual investors are capped at making $1,500 investments, according to BCSC rules. Startups can complete only two crowdfunding distributions a year, and those campaigns can’t run simultaneously.

The issuer has to prepare an offering document, but the startup is exempt from issuing a prospectus. Such a document provides investors with financial statements and detailed information about a company to give investors a strong understanding of what they’re putting their money into.

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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 ncfacanada.org.