Category Archives: Equity Crowdfunding

What the European Crowdfunding Industry Recommends for Harmonized EU Rules

Crowdfund Insider | | Nov 5, 2019

Europe - What the European Crowdfunding Industry Recommends for Harmonized EU RulesLast month, Crowdfund Insider reported on comments by EC Vice President Valdis Dombrovskis, a Commissioner whose portfolio includes Financial Stability, Financial Services, and the Capital Markets Union, indicating harmonized crowdfunding rules may be forthcoming before the end of the year. In a tweet, Dombrovskis stated there is a “willingness to move forward and find compromises, hopefully still this year” (on investment crowdfunding).

Harmonization across all EU member states could dramatically help European SMEs and entrepreneurs access much-needed growth capital.  Platforms could operate across national borders with the assurance of a single set of regulations.

Currently, investment crowdfunding platforms must adhere to national, member state rules which vary dramatically across Europe. This fragmented ecosystem stands in stark contrast to what the European Union ostensibly seeks to achieve. Capital Markets Union has been a longstanding and obvious policy goal of Europe, but while simple in concept, the reality has been far more difficult to accomplish.

The most robust market for investment crowdfunding remains the UK – a country that will sometime soon exit Europe. While the UK platforms will continue to provide online capital formation across the continent, a single set of rules will help all involved. It will also foster competition between crowdfunding providers.

The leading voice for the sector of Fintech has been the European Crowdfunding Network (ECN) an association that has long advocated on behalf of a common-sense approach to regulation. Last month, the ECN published a position paper on what they expect the Commission should produce.

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Currently, there are three proposals for regulatory harmonization as the European Parliament, European Commission and the Council have each had their say.

While it appears something (at some point) will be agreed upon, the ECN has itemized its point of view that, hopefully, the Commission will abide by as the industry understands the sector of Fintech better than anyone else.

So what does the ECN seek in final rules?

The ECN has published a position paper that outlines what the industry needs to succeed. The guidance comes in a 12 point outline of key issues. Below is a summary some of the more important aspects of the ECN’s recommendations:

  • Investment crowdfunding should be capped at €8 million. “A limit below €8 million is likely to exclude many of the types of businesses that the Regulation is intended to cover, explains ECN. Currently, the €8 million amount aligns with the prospectus requirement and is the de-facto cap utilized in the UK.
  • Conflict of interest: ECN states that it is very important that CSPs [crowdfunding service providers] be able to align their interests with those of sheir investors by investing in projects and/or charging carry as part of their fee model.
  • Investor classification: ECN believes sophisticated investors must meet one of a set of criteria to be deemed sophisticated:
    • (a) EUR 100k own funds; (b) EUR 2m net turnover; (c) EUR 1m balance sheet; and (2) natural persons that meet two of the following: (a) income of EUR 60k or investment portfolio of EUR 100k; (b) has worked in financial sector, or as an executive in a sophisticated legal person, for at least a year; (c) has carried out 10 significant capital markets transactions per quarter over past four quarters

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  • Bulletin Board: This references secondary transactions. The ECN agrees that a buyer and seller should be able to transact on crowdfunded securities while stating there should not be an internal matching system.
  • Customer due diligence KYC: CSPs must apply due diligence measures including identifying the residency of an investor
  • Due diligence on issuers: ECN believes that due diligence is very important but the Parliament’s version (the only one provided) is not practical.
  • Entry Knowledge Test – consequences of failure: This has to do with risk notifications and the reality that many early stage investments have a high risk of failure. The ECN believes CSPs must warn non-sophisticated investors who fail or refuse to complete test but may still allow them to invest
  • Investment limits – There should be none.

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NCFA Jan 2018 resize - What the European Crowdfunding Industry Recommends for Harmonized EU Rules The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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OSC LaunchPad approves TokenGX (Tokenfunder) for Secondary Trading of Digital Securities

OSC Launchpad | Pat Chaukos | Oct 22, 2019

FreedomX - What the European Crowdfunding Industry Recommends for Harmonized EU Rules

TokenGX is the first company approved for pilot testing secondary trading of digital securities in Ontario and announces its disruptive FreedomX blockchain-powered marketplace.

October 23, 2019 – Toronto, Ontario – TokenGX Inc. (TokenGX) and its affiliate TokenFunder Inc. (TokenFunder) are pleased to announce that TokenGX has received approval from the Ontario Securities Commission (OSC) for pilot testing a secondary trading marketplace of digital securities.

The Ontario Securities Commission approved ground-breaking exemptive relief for TokenGX to launch and operate FreedomX, a secondary trading marketplace for security tokens issued by Issuers on the TokenFunder platform. FreedomX will be powered by TokenFunder’s leading edge blockchain technology. All participating investors will finally be able to buy and sell private market securities directly between themselves.

TokenGX Co-Founder Laura Pratt says “As part of the current Creative Destruction Lab blockchain cohort, our FreedomX platform will define the next generation of trading in Canada and unlock enormous value in the private markets. We envision a world where all assets will be tokenized and tradeable.”

TokenGX Co-Founder Alan Wunsche adds, “We are excited to receive the support of the OSC and specifically the OSC LaunchPad. The OSC LaunchPad team clearly understands the transformative potential of blockchain technologies in capital markets. Their willingness to grant exemptive relief in the private markets demonstrates a commitment to supporting innovation while putting investors first. This is an extremely important day for Canadian competitiveness in a global financial market.”

Wunsche continued, “TokenFunder’s leading edge security token issuance platform has a full investor onboarding and investing experience for retail and accredited investors. With today’s announcement, TokenFunder will now power the FreedomX secondary trading marketplace. With digital shares recorded on a public blockchain, we will not only dramatically reduce the cost of capital for Issuers compared to traditional platforms, but also provide liquidity through the secondary trading marketplace, which also includes critical ongoing management disclosures and investor relations services for our Issuers. These ongoing services will be good for both investors and issuers on the TokenFunder platform.”

For more information, the Decision Order is available at: https://www.osc.gov.on.ca/en/SecuritiesLaw_ord_20191023_tokengx.htm

Issuers interested in raising capital and marketplace liquidity are invited to apply at www.tokenfunder.com/onboarding/issuer

 

About TokenFunder and TokenGX

TokenFunder (www.tokenfunder.com) provides Canada’s leading security token issuance platform and investing experience designed for all investors. Its affiliate, TokenGX, is Canada’s first security token exempt market dealer. TokenGX provides high-potential startups, scaleups and mature businesses with proprietary technology and a clear regulatory path to execute Security Token Offerings (STOs) to raise capital and provide liquidity for their investors.

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Background

The Ontario Securities Commission (OSC), through the OSC LaunchPad, engages with fintech businesses that have innovative products, services or applications that benefit investors.  OSC LaunchPad assists businesses in navigating regulatory requirements and offers flexible approaches for them to fulfill regulatory requirements, including time-limited registration or exemptive relief from securities law requirements to allow them to test their innovative business models.

The Filer wishes to create a blockchain-based security token(token) trading platform for the trading among investors (investors)of their tokens that were distributed under prospectus exemptions in order to facilitate capital raising for issuers and to provide liquidity for the investors.The Filer is currently participating in the Creative Destruction Lab’s (CDL) Blockchain Incubator Stream, a 10-month program in which blockchain founders are mentored by veteran entrepreneurs, investors and visionaries in artificial intelligence and blockchain. CDL is an Ontario-based incubator program with locations across Canada and the UK that provides assistance tovarious seed-stage businesses, including technology businesses with a focus on blockchain applications.

See:  TokenFunder announces Canada’s first Security Token Exempt Market Dealer

Generally, some liquidity and transferability of tokens isdesired by investors to access their funds and for issuers in the development or growth stage of their business. Liquidity is limited for offerings of tokens under a prospectus exemption as the tokens issued are subject to resale restrictions.

The OSC recognizes that to keep abreast of and facilitate innovation, an environment to conduct commercial tests of novel business models, products and services is required. The Filer is seeking exemptive relief, as described below, to conduct a time-limited pilot test in order to gather data and operational feedback in a controlled environment, to assess the appropriate regulatory requirements, and to foster capital raising by innovative businesses in Canada and some liquidity for investors.

In the context of the OSCLaunchPad, the Filer submitted its business model and subsequently filed an application to the OSC as principal regulator to be exempted from certain requirements under applicable securities legislation to pilot test its proposed business model in a sandbox environment for a time-limited period. This Decision is based on the unique facts and circumstances of the Filer and for the limited purpose of allowing the Filer to pilot test its business in a limited commercial setting. Accordingly, this Decision should not be viewed as a precedent for other filers.

Continue to the Release --> here

View the OSC Decision Order --> here

 


NCFA Jan 2018 resize - What the European Crowdfunding Industry Recommends for Harmonized EU Rules The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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NEO and Silver Maple Ventures Inc. Introduce DealSquare to Disrupt Canadian Private Markets for the Better

DealSquare | Peter-Paul Van Hoeken | Oct 22, 2019

dealsquare - What the European Crowdfunding Industry Recommends for Harmonized EU RulesLaunch of Canada’s first B2B centralized digital platform for private placements

Toronto, October 22, 2019 – NEO is pleased to introduce DealSquare, Canada’s first centralized platform to simplify private placements in Canada, by digitally connecting capital raisers to dealers and their investment advisor networks. DealSquare is a technology solution developed by NEO in partnership with Silver Maple Ventures Inc., the company behind Canada’s leading online B2C private markets investment platform, FrontFundr, DealSquare will support the entire private placement process from marketing investment opportunities and electronically managing the due diligence and subscription process, through to efficiently closing the deal.

By utilizing NEO Connect technology, exempt securities will be seamlessly integrated into client accounts and back office systems. With broader and more efficient access to private placement offerings, the costs and operational risks of raising private money will go down, ultimately expanding investment opportunities. It’s a win-win for capital raisers, dealers, investment advisors and investors.

Over the past ten years, investors have flocked to the private markets looking for superior returns and to add balance to their portfolios. However, despite the overall growth in private markets compared to public markets, asset managers and capital raisers of all sizes and stages are still limited in their ability to complete private placements without facing debilitating financial, operational and regulatory burdens.  Private placements have also traditionally relied on friends, family and business relationships, inefficiently raising money from a very small subset of the investing community.

See:  FrontFundr announces new chair of the board

DealSquare officially launched today, with three dealers immediately connected to the platform and six active private placement offerings.

“Private market investment continues to outpace the public markets; however, access to private offerings has been fragmented, marketed through word-of-mouth and transacted using archaic technology. Today, that changes,” stated Jos Schmitt, President and CEO, NEO. “Together with the team from Silver Maple Ventures, we are making access to private markets easier, more efficient and with less operational risk through DealSquare.

At NEO, our vision from day one has been to bring competition and innovation to all facets of the Canadian capital markets, including the private markets space. We are very proud to continue to deliver on our vision with the introduction of DealSquare. As of today, asset managers and capital-raising companies of all sizes can now partner with NEO to raise capital through multiple channels, whether through the public or private markets, on or off exchange.”

How DealSquare Works

Dealers connected to DealSquare can publish their approved deals to their investment advisors in an organized and centralized manner. They also have the option to open their deal rooms to other dealer networks. Due diligence teams can review all deal information in one place, then choose to approve an offering to be marketed to the advisor network. Registered advisors can download investor-ready documentation and share deal pages with their clients. Investment documents will be digitally executed on the platform, with reporting documentation instantly consolidated and organized. Upon closing, NEO Connect technology will be used to facilitate the electronic settlement of exempt securities into dealer
back office systems and client accounts.

“The private markets have been lagging the public markets with regards to access and efficiency in processing investments,” says Peter-Paul Van Hoeken, Managing Director of DealSquare. “With DealSquare, we simplify the private placement exchange and transaction between dealers and advisors in a fully digitalized and efficient online environment.

We are thrilled to partner with NEO on this opportunity. Our online capital raising and investment processing capabilities, combined with the NEO Connect technology, delivers a highly innovative and powerful private markets solution to the Canadian investment industry.”

See:  Why Partnerships Are the Future for Fintech

Dealer and Investment Advisor Access to DealSquare

DealSquare is available to all Canadian investment dealers. Independent investment dealer Aligned Capital Partners Inc. is one of the first three dealers to pioneer DealSquare.. Investment advisors from these firms can request access to DealSquare to open a registered account and access, analyze and transact private market deals. For more information on how to register, please visit the DealSquare website

“We recognize this innovative solution will give our advisors access to private investment deals that will add opportunity and balance to their client portfolios,” said Christopher Enright, Founding Partner, President & Managing Director, Aligned Capital Partners.“ Like Aligned Capital, NEO is focused on providing efficient services and innovative solutions that put the needs and interests of their clients at the forefront. As a strategic partner they helped forge our relationship with DealSquare and we are proud to pioneer this private market deal platform.”

Digital execution will be enabled with the full roll-out of the DealSquare platform, expected during the first half of 2020. During the pilot phase, PDF documentation and manual execution will be faciliated by the DealSquare team.

Raising Capital on DealSquare

Any Canadian private or public company – large or small - can use the platform for private placement offerings. Asset managers can also leverage DealSquare to provide investors with innovative investment opportunities. Working with a dealer to market a private placement on DealSquare will provide broader reach to secure investment interest. A streamlined, electronic investment process will make it easier and more efficient for advisors to subscribe and invest on behalf of their clients. This will lead to a reduction in the cost of raising capital, as access and interest in the private investment opportunity goes up.

See:  Debt vs. Equity Financing: Pros And Cons For Entrepreneurs

To learn more about how DealSquare connects Dealers, Advisors and Capital Raisers and how it makes it easy to find, analyze and share private market opportunities, please visit:
https://www.dealsquare.io/About

About DealSquare

DealSquare is a centralized digital platform that gives registered users the ability to efficiently find, analyze and transact private market deals. With the complete roll-out of the platform during the first half of 2020, this dealer-to-dealer platform will digitally support the private placement process: capital raisers publish their private placement opportunities; dealers complete their due diligence; and advisors electronically subscribe to a deal, with exempt securities seamlessly integrated into client accounts and back office systems utilizing NEO Connect technology. DealSquare is a joint initiative between NEO and Silver Maple Ventures to make private markets better and more efficient.
https://www.linkedin.com/company/dealsquaretech/ | https://twitter.com/dealsquaretech

About NEO
NEO or the NEO Group comprises Aequitas Innovations Inc. and its subsidiaries, a group of established fintech companies that provide capital markets infrastructure designed for and led by the industry. Our competition, innovation and advocacy enable change, for the better. NEO is currently home to two capital raising solutions, NEO Exchange, a progressive stock exchange that brings together investors and capital raisers within a fair and transparent environment, and NEO Connect, a technology platform that enables the distribution of financial assets not listed on a stock exchange. To learn more, please visit:  https://www.aequitasneo.com

 


NCFA Jan 2018 resize - What the European Crowdfunding Industry Recommends for Harmonized EU Rules The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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When fintech met crowdfunding

AltFi | Luke Lang | Oct 21, 2019

luke lang crowdcube - What the European Crowdfunding Industry Recommends for Harmonized EU RulesSomething special is happening at the intersection of retail investors and financial technology, writes Crowdcube's Luke Lang.

It became clear that fintech companies began to prize crowdfunding three years ago. Monzo crashed our servers in 2016 when it raised £1m in 96 seconds. Last December, the now-serial crowdfunding neobank raised £20m from retail investors.

The staggering thing about Monzo’s raise – and it speaks volumes about where crowdfunding and fintech have reached – is that it did not need to raise the £20m from any of us on the street. In October – i.e. just two months shy of the raise – the bank had closed an £85m round led by VC firm Accel. Raising £20m is no walk in the park. You need to build a prospectus, which is a lengthy and expensive process. Monzo’s crowdfunding raise capped all investments at £2,000, meaning the team chose to have more investors to look after.

See:  Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development?

The world’s leading fintechs are using crowdfunding to cement and enhance their relationship with their customers. The latest Unicorns report from Beauhurst, an independent analysis firm, identifies the UK’s 21 unicorn companies – those worth $1bn (around £760m) or more. Of the 21, six are fintechs, and two are digital banks: Monzo and Revolut. Both have turned to crowdfunding – at a time when they are the darlings of the tech scene and its investors – to raise capital.

Why?

To answer that, I believe we have to go back to the financial crisis. After 2008, a chasm opened up in financial markets, encouraged by a profound lack of trust. We’re well-versed with the outcomes. The banks that survived had to change their ways, and new players came onto the scene. A decade later, it is the novel relationship between these latest entrants and consumers that gives us an idea of what the future looks like: a world where any business-to-consumer company knows that sharing ownership with its customers is fundamental to long-term success. This is the cooperative movement of the twenty-first century, and it is driven by technology.

Curve, Nutmeg, Freetrade – all these leading fintech companies that want as many as possible to profit from their success. In the last 12 months, we have facilitated the raising of £67m across 21 fintechs. By giving people skin in the game, these firms are securing a base of customers, and champions. From a commercial perspective, each customer’s lifetime value is hugely enhanced. Our customers find that their shareholders are less likely to move providers, more likely to refer friends and family, and more likely to buy more products and services.

Making consumers owners and giving them a say has become integral to how these companies run. Indeed, many are now building their own platforms to manage ownership. What does this tell us about the future? Here are businesses offering equity – not for money, not because they want to list, but to build an affinity with their customers. As these relationships evolve, both sides benefit: greater engagement – better products – more customers – growth – profit – both sides capitalise.  It could be called the democracy of building business.

See:

Technology is making this shift around the consumer possible not just in finance, but across markets. While the former has emerged as the vanguard, there are other non-tech sectors that have leapfrogged traditional ownership structures and cemented their own success. Food and beverage, historically underserved by the financial world, was an early adopter of crowdfunding. BrewDog is the poster child for this – a four-time Crowdcube funded brewery. It has 120,000 investors, aka Equity Punks, who, in its words, kick-started the craft beer revolution and, presumably, enjoy its beer. The prospect gets so much more exciting when you start to think of the markets that are hardest to disrupt, build a community around, and fight injustices: insurance, mining, the coffee industry, healthcare.

We are going to see another huge change: big businesses are signalling they’re stepping up beyond paying lip-service with grandiose CSR initiatives.

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NCFA Jan 2018 resize - What the European Crowdfunding Industry Recommends for Harmonized EU Rules The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Canada Update: Alberta Updates Crowdfunding Regulations but Where Does Canada Stand in the National Harmonization of Rules? What about Fintech Development?

Crowdfund Insider | | Oct 7, 2019

Canadian flag2 - What the European Crowdfunding Industry Recommends for Harmonized EU RulesLast week, the Alberta Securities Commission (ASC) adopted a “Blanket Order” for “Startup Crowdfunding Registration and Prospectus Exemptions.” In effect, the ASC was seeking to improve access to capital for smaller firms – a good thing- but the move also highlights the disparity between the provinces and a greater need for national harmonization of online capital formation rules. Financial services in Canada are all regulated at the provincial level thus there exists a degree of disparity regarding rules.

While a smaller country by population, Canada has consistently ranked high in entrepreneurship and innovation. According to a recent KPMG report, the Canadian Fintech ecosystem is thriving but, like any other country, more can be done.

Crowdfund Insider reached out to Denise Weeres, Director, New Economy at the ASC and Craig Asano, Executive Director and founder of the National Crowdfunding and Fintech Association of Canada (NCFA). The NCFA has long led the charge advocating on behalf of Canada’s emerging Fintech market and various securities crowdfunding platforms.

The New Economy Division of the ASC works closely with staff to coordinate efforts to facilitate capital-raising by new economy companies entering the capital market. The Division also strives to anticipate and act on issues and opportunities relating to emerging financial technologies (Fintech).

Our discussion with the two innovation proponents is shared below.


The ASC update to rules is in advance of national harmonization. Why update now?

Denise Weeres: It takes a while to get a national instrument in place.  We wanted to allow Alberta businesses and investors to be able to participate in this regime now.

What is the status of harmonization?

Denise Weeres: All of the CSA [Canadian Securities Administrators] jurisdictions are working cooperatively on the national instrument  – we are looking at harmonizing and exploring targeted amendments to improve upon the existing regime.

The maximum raise amount appears to be low in contrast to some other jurisdictions. Are there any expectations for this amount to be raised?

Denise Weeres: The maximum raise is consistent with the other participating CSA jurisdictions start-up crowdfunding regimes.

Start-up crowdfunding is intended for the very early-stage businesses.  It requires a very simple offering document – and significantly doesn’t require financial statements.

A funding portal that is not registered as a dealer can be used too.  The limits reflect the fact that investors likely won’t get all the information they would typically (both at the time of the offering and thereafter) and they may be using a funding portal that isn’t registered and wouldn’t get the protections associated with a registered dealer.

But start-up crowdfunding is not the only way to crowdfund in Canada.  It’s just one of a number of options available.

See:  Sep 22, 2019: NCFA Response to ASC Consultation Paper 11-701: Energizing Alberta’s Capital Market

For example, businesses can crowdfund through a registered dealer funding portal under the offering memorandum [OM] exemption where there is no limit at all on the maximum raise and much higher amounts for the amount that individual investors can invest;

  • $10K for anyone,
  • $30K for an “eligible investor” e.g., someone who had had and expects to have $75K net income or has $400K net assets
  • up to $100K for an eligible investor who also gets advice from a dealer that the investment is suitable for them and
  • no limit for accredited investors.

Under the offering memorandum exemption, the offering document has more detailed disclosure – more similar to the offering document used for U.S. crowdfunding – and like other jurisdictions, it involves a funding portal that is registered as a dealer.

In #Canada, businesses can crowdfund through a registered dealer funding portal under the offering memorandum (OM) exemption where there is no limit on the max raise & much higher amounts for the investors

Craig, how is the Canadian ecosystem evolving, in your opinion?

Craig Asano: The Fintech ecosystem in Canada is growing, albeit not fast enough!  ‘slow and steady’ compared to high competition, fast iterations and market depth of UK/US markets but Canadian tech is starting to attract the interest of US funds and international Fintech brands are taking notice too of which many are planning to include Canada in their rollout plans (ie Revolut).

New Fintech startups are launching all the time in a growing number of private and public incubators, accelerators, innovation hubs and grassroot event ecosystems that include a wide range of AI/data, Regtech (KYC, compliance automation), peer to peer debt/equity platforms, digital asset, crypto, DLT, NEO/challenger bank, Insurtech, personal finance, wealth management and alternative investing models.

Although the ecosystem is evolving the average consumer is conservative with lower Fintech awareness and adoption rates (similar to the US) than comparators in Europe and Asia.  Incumbents are strong and many Fintechs have partnered with institutions to tap capital resources, customers, data and global expansion infrastructure.  Canadian markets are smaller than the US and while it’s easy to launch it’s challenging to achieve sustainable business with significant compliance costs to operate across the country while acquiring customers not yet fully accustom to switching financial products.  There have been many successful fintech startups that are scaling from Lending Loop to Wealthsimple to Borrowell and FrontFundr who are all providing consumer-centric, simple to access, low cost, and tech-enabled financial products and services for new economy.

Open Banking is a juggernaut of an opportunity for data-driven Fintechs and consumers looking for choice, lower fees and innovative products but conversations are at a standstill until after the upcoming election.  The Ministry of Finance in Ottawa and appointed open banking advisory committee are no doubt watching the implementation challenges of PSD2 in Europe along with the progress being achieved in countries like Australia who are advancing national innovation initiatives like Open Banking ahead of Canada (and the US for what it’s worth).  Will these delays put Canada behind the eight-ball, or will we be able to catch-up quickly (leapfrog) and marry our robust tech sector with a historically strong banking system and begin to replace outdated infrastructure?

Specific to crowdfunding regulation in Canada, there’s still a long way to go to remain globally competitive in terms of caps, operating costs and the appropriate amount of regulation for the risk while making it feasible for licensed dealers and funding portals to have a sustainable practice.  The lack of harmonization and overly complex set of rules initially caused quite a backlash to the reputation of industry.

At present, there are far too few crowdfunding platforms and we need more operators to increase market volumes and reignite transactional interest among service providers, funding specialists, securities lawyers, and both retail and accredited investors.  Peer to peer lending is now proven and helping hundreds of companies’ access growth-orientated loans but needs its own set of proportionate regulation to level up further.  I look forward to next year to full harmonization which the CSA staff mentions will be out next year (ideally with the changes NCFA has been advocated for on behalf of industry for years).

Open Banking is a juggernaut of an opportunity for data-driven #Fintechs and consumers looking for choice, lower fees and innovative products 

How has NCFA’s collaboration with provincial regulators helped to move things along?

Craig Asano: We’ve developed a mutually beneficial relationship with regulators from the start which has been informative for both parties.  NCFA bridges the gap between stakeholder wants and needs and helps regulators better understand emerging innovations that are essential for Canada to remain competitive and current with the times.  The association polls its wide network of industry practitioners and aggregates feedback to regulators through comment letters, committee participation and bespoke submissions and calls.

We work with other agencies and encourage regulators to recognize a competitive perspective in their difficult role of regulating fair and efficient capital markets while protecting investors.  NCFA also gathers a significant amount of global market intel and research on how other jurisdictions are performing and shares with market participants and regulators alike in effort to bridge gaps and help stakeholders understand varied perspectives.  Regulators are regularly invited to NCFAs annual conferences where they participate to provide updates on emerging regulatory initiatives, challenges and concerns while providing education and resources for industry, companies and investors.

NCFA is appreciative of the challenge facing regulators and positions itself as an educational resource and network for the various provincial commissions to rely on at anytime.  While we advocate for specific asks on behalf of industry, we do so in ‘Canadian style’ which is a collaborative effort.

NCFA bridges the gap between stakeholder wants and needs and helps regulators better understand emerging innovations that are essential for Canada to remain competitive and current with the times #Fintech

What are your expectations for 2020?

Craig Asano: I expect to see more growth and investor appetite while regulators continue to reduce the burden which is overly burdensome now.  This means small wins for the industry but doubtful for large scale national initiatives like Open Banking to reach implementation by 2020.

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NCFA Jan 2018 resize - What the European Crowdfunding Industry Recommends for Harmonized EU Rules The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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NextSeed Merges with Collaboration Capital to Form Fintech Investment Bank

Crowdfund Insider | | Sep 25, 2019

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Investment crowdfunding platform NextSeed has merged with Collaboration Capital in a move to create a leading “technology-driven impact investment firm open to everyone.” In effect, the NextSeed merger with Collaboration creates a Fintech forward digital investment bank.

NextSeed, a FINRA regulated funding portal that recently received its broker-dealer license, has long been a leader in providing debt-based capital to small businesses while providing access to an interesting asset class to smaller investors. Collaboration Capital is an SEC-registered investment advisor. According to the company’s LinkedIn page, Collaboration is an advisor to “forward-looking families” focusing on the ESG and impact investing sector.

The strategic merger expects to further expand the combine companies mission to “democratize finance.”

Both companies are based in Houston, Texas. NextSeed CEO and co-founder Youngro Lee will remain the CEO of NextSeed while becoming the CEO of the combined entity.

See:  Prominent Group of Fintech Leaders Send Letter to SEC Chair Jay Clayton Demanding an Increase in Regulation Crowdfunding to $20 Million

Lee, who previously specialized in international private equity at global law firms Cleary Gottlieb and Kirkland & Ellis, currently serves on the SEC Small Business Capital Formation Advisory Committee and also serves as the founding President of the Association of Online Investment
Platforms (AOIP).

Christopher Knapp, the founder and CEO of Collaboration, will remain as CEO of the firm.

Knapp previously co-founded and served as CEO of Chilton Capital Management after a long career at Brown Brothers Harriman & Co. He launched Collaboration Capital to build a new type of investment firm focused on impact/ESG investing for its clients.

Collaboration seeks to leverage traditional fundamental securities analysis that incorporates select ESG considerations to reduce the overall risk to investment portfolios, while developing portfolios consisting of companies that exhibit sustainable business practices.

According to a note from Nextseed, the combined firm also plans to launch a new asset management division to focus on:

  1. proprietary public ESG (environmental, social, governance) investment strategies developed by Collaboration Capital
    and
  2. city-focused private investment funds concentrating in community-driven real estate, startups
    and growth-oriented small businesses in select US metro areas.

While NextSeed has always catered to both accredited and non-accredited investors, the addition of the broker-dealer license has helped the platform to expand in other areas of the private markets.

See:  What does the future of banking look like, according to the experts?

Lee commented on the merger news stating he has spent the last few years tirelessly building the technology and infrastructure to empower small, local investments at scale while navigating the complex regulatory requirements to ensure compliance.

“Our mission at NextSeed has been to connect businesses and individuals to build vibrant communities,” said Lee. “Now, by combining with a respected investment adviser such as Collaboration Capital that also believes in the power of the capital markets to affect positive change, we are beyond excited to create an entirely new type of investment firm that is strategically positioned to serve the investors and entrepreneurs of the future.”

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NCFA Jan 2018 resize - What the European Crowdfunding Industry Recommends for Harmonized EU Rules The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Sep 22, 2019: NCFA Response to ASC Consultation Paper 11-701: Energizing Alberta’s Capital Market

NCFA Canada | Sep 22, 2019

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NCFA is pleased that the Alberta government is undertaking this important initiative to the  benefit of all Albertans.  We acknowledge the substantial background information provided by 11-701.  This submission responds to the brainstorming headings pp. 24 – 31 and seeks to fill knowledge gaps with recent consultation data (mainly obtained in Edmonton) and pays specific attention to equity (investment) crowdfunding and peer lending in Alberta.

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Key Takeaways

The NCFA recommends that the ASC undertake the following:

  • Review and publish a report that evaluates the effectiveness of Alberta’s investment crowdfunding and peer lending requirements compared to other jurisdictions in Canada and international competitors such as the UK, US and Australia, including a comparison of the relative cost of capital to other available financing options;
  • ASC to take a more active role as a resource for both early stage companies and investors including data collection, market analysis, and information sharing to ensure more fair and efficient capital market formation in Alberta;
  • Engage Innovate Edmonton and Platform Calgary following the detailed third-party study by Startup Genome to obtain detailed ecosystem benchmarking data for follow-on analysis of Alberta’s funding gaps;
  • Support the development of a tax relief program for investors to increase the volume of start-up risk capital allocated to non-traditional sectors (eg. financial technology) similar to the effective programs in the UK: SEIS[1] and EIS[2];
  • Work with other jurisdictions to harmonize the crowdfunding regime across Canada (CSA Staff Notice 45-324) with the goal of eliminating unjustified regulatory burden at the same time. We favour BC’s regime;
  • Modify existing requirements so that they are principles based and outcomes focused to enable businesses to comply in the way that best suits their operations – detailed or prescriptive controls should only be imposed when clearly justified;
  • Implement burden reduction amendments for crowdfunding (45-108):
    • Increase the 12 month issuer cap to $5 million or higher;
    • Increase the 12 month investor caps to $10k and allow accredited investors to fully participate;
  • Allow advertising and general solicitation on social media for all crowdfunding;
  • Allow fintech solutions to streamline KYC and suitability tests;
  • Startup crowdfunding business exemption (45-109) – remove lifetime cap of $1 million; or increase lifetime cap to minimum $5 million.

See:  [Survey Deadline Sep 20, 2019]: ASC consults on Energizing Alberta’s Capital Market

Benefits to Alberta will include:

  • Increased capital investment in the province and increased economic growth;
  • Increased investment options for investors that support small businesses across Alberta;
  • Reduced pressure on Albertan startups to raise capital from outside Alberta and Canada;
  • Crowdfunding sources remain in Canada;
  • More capital and improved access to capital specifically for small businesses, rural businesses, economically challenged sectors, and under-served groups (eg. women and Indigenous business owners);
  • More liquidity and transparency in the markets;
  • Improved probability of retaining high growth companies in Alberta; and
  • Accelerated commercialization of new products and services.

Crowdfunding helps to drive innovation, economic activity and job growth. It fills a critical early stage funding gap (‘valley of death’), enables more productive investment in venture markets, and strengthens early stage capital markets. Crowdlending also provides support to more mature companies looking to access capital that may fall outside the parameters of bank lending. And last, but not least, it helps to democratize investment by giving smaller investors direct access to the capital markets.

“Regulation may be the largest constraint to capital markets Fintech development in Canada, as we have not set out many of the same principles as in the U.S. and U.K.”[3]

This is not the time for Alberta to hold back.

Thank you for the opportunity to contribute comments.  NCFA would be happy to expand on any of the points raised in this submission.  We look forward to future developments.

See:  ‘We don’t have enough money’: Tech leaders debate constraints at Vancouver Startup Week

1.    Background and Context

Contrary to the intent of the crowdfunding exemption, Alberta’s crowdfunding requirements hinder access to capital for SMEs across many sectors. These requirements have restricted innovative opportunities for retail investors and our members feel the impact of this directly. The potential of opening up regulation is to significantly increase job creation and economic development, as experience in other jurisdictions shows. Alberta’s 417,000 small businesses would also benefit from the increased access to capital that crowdlending offers.  Canada has fallen behind international competitors like the UK and the US. Crowdfunding now provides the largest investment at the seed stage in the UK and peer-to-peer platforms now provide 15% of all new bank lending to small businesses.

2. Fintech and Crowdfunding are Being Held Back in Canada

Canada’s crowdfunding and fintech “ecosystem” should be competitive, be in line with global trends, and enable early stage entrepreneurs to access smaller amounts of capital at a reasonable cost. Unfortunately, it is not and does not. There is a ‘funding gap’ as smaller companies find it very challenging to raise debt or equity financing in Canada.

There is a 'valley of death' for start-ups at around the $250,000 level. Venture capital funding has increased, but VC dollars are mostly going to expanding firms. Angels are a lot less active than in the US and their investment amounts are lower. Banks generally steer clear of start-ups. This means fewer innovative start-ups, fewer opportunities for investors, lower economic growth and productivity and fewer jobs.

“Regulation may be the largest constraint to Fintech development in Canada, as we have not set out many of the same principles as in the U.S. and U.K.”[5]  The NCFA has conducted numerous stakeholder consultations which overwhelmingly tell us that regulatory requirements are overly prescriptive, complex and burdensome, disproportionately raising the costs of doing business for start-ups. Entrepreneurs are reluctant to start up in Canada due to high costs (relative to a small financing), along with concerns about ongoing regulatory burdens such as over-reaching and complex reporting requirements and compliance reviews.

Investors are inhibited by restrictions like caps on investment. Many talented entrepreneurs and investors move to (or invest in) overseas jurisdictions that better understand (and support) innovation and the economic potential of start-ups and SMEs.  If the NCFA recommendations were to be implemented, the experience of other jurisdictions makes clear that more capital would be raised, especially for under-serviced sectors (e.g. women and minority groups, including First Nations, and rural communities). Investors would have increased confidence and more freedom to invest as they choose – any increase in investor downside risks are anticipated to be low.

3. Alberta

The call for comments by the ASC is a leap towards positive change in the Albertan capital markets and crowdfunding landscape. While the in-depth background material supplied by the ASC in 11-701 clearly lays out the challenges for Albertan companies, there are updated consultative engagements with the entrepreneur communities in Edmonton and Calgary. These updated reports will be a useful addition to the ASC’s decision-making processes. They also provide excellent contacts for ASC’s engagement with Alberta’s major centers.

See:  ASC advances new capital-raising initiatives for start-up businesses

(a) Startup Genome Reports

In Edmonton, starting in May 2018, community meetings under the banner of the “Edmonton Innovation Ecosystem Community” engaged members of the innovation community.[6] To date, there have been 11 community consultations with key innovators on a near-monthly basis. The impetus for the first gatherings followed consultation with 50 entrepreneurs in Edmonton to gather their feedback on ecosystem performance. The EEDC engaged Startup Genome to begin measurement of the ecosystem performance. The Edmonton Report brought two key measurement instruments to the ecosystem, Global Market Reach (GMR) and Global Connectedness (GC).

startup genome edmonton report - What the European Crowdfunding Industry Recommends for Harmonized EU Rules

Startup Genome Edmonton Ecosystem Assessment, May 2018

We ask that the ASC review the results of EEDC’s more detailed analysis of the ecosystem as part of their assessment of 11-701 responses. Notably, Edmonton lags behind its Canadian peers in attracting resources from within the country.  In addition, Edmonton ranked below what the report calls the Globalization Phase Average in Early Stage Funding per Startup, based on data from Crunchbase and Deal Room. The key actionable insights from this early analysis are that Edmonton should focus on increasing early stage funding by (1) widening the funnel and increasing startups with seed funding; (2) supporting the formation of more sources of capital (ie. Angel groups); and increasing access to Series A capital.  Calgary has also engaged Startup Genome for ecosystem benchmarking[7].

(b) Innovation Compass

Another work product from the EIEC meetings in Edmonton was the Innovation Compass report[8]. Due to perceived low numbers of early entrepreneur engagement, EEDC engaged ZGM Marketing to complete a third-party interview process with Edmonton Entrepreneurs to make recommendations that reflect the voice of Edmonton entrepreneurs. Engagement began in December 2018 and the final report was published June 20, 2019. The report provided community validated recommendations and directions for supporting the city’s tech innovation ecosystem. Among 14 recommendations and directions, the top recommendation was:

“Encourage pools of private investors from all sectors to move off the sidelines and start investing in local tech entrepreneurs.”

innovation compass edmonto recommendations - What the European Crowdfunding Industry Recommends for Harmonized EU Rules

Highest priority recommendation from Edmonton innovation ecosystem community members in the YEG Innovation Compass Report.

(c) Edmonton Advisory Council on Startups (EACOS)

During the early meetings of the EIEC, it was recognized that a body completely separate from EEDC that reflected the voice of Edmonton entrepreneurs was needed. The Edmonton Advisory Council on Startups was formed with members representing all stages of entrepreneurship to ensure diversity. EACOS is comprised of 13 individuals representing students, seed, startups and scale-up stage companies, and investors. EACOS has published three position papers[9] aimed at increasing the size, throughput, energy, and success of the Edmonton startup community.   EACOS has identified a number of community priorities and access to capital is top of mind. EACOS has recommended:

“Intensified efforts to engage local investors into investing into local technology companies. Investors who have built capital through traditional means, like real estate and energy, need to be effectively engaged, educated, and presented with the portfolio opportunities of technology investments.”

4. Comparison: British Columbia

BC and some other jurisdictions have less burdensome crowdfunding requirements[10] that allow small firms to raise up to $250,000 per offering (twice a year), with participation from other provinces. While still not ideal, these less burdensome exemptions have proven to be much more effective than MI 45-108 in Ontario.

For background on exemptions in Canada see: https://www.bcsc.bc.ca/Securities_Law/Policies/PolicyBCN/PDF/BCN_2018-01__February_14__2018/. (This BCSC Notice expresses well many of the points we raise in this submission)

5. Canada’s Uncompetitive Position

Canada has fallen behind international comparators such as the UK. In the UK,  crowdfunding platforms were involved in 24% of all equity deals in 2017, but with 30% of seed stage deals in 2017.[11]

To see the advantages of a uniform, cross-border, and flexible crowdfunding regime, one need look no further than Regulation D in the US. The following are quotes from the recent Crowdfunding Capital Advisers Report.[12]

“2018 saw triple digit growth in unique offerings, proceeds and investors. More importantly, start-ups are successfully using Regulation Crowdfunding to raise meaningful capital in a relatively short period of time and at costs that are less than a typical Regulation D offering.

“Unlike venture capital, where less than 6.5 percent of start-ups successfully raise funds, the success rate in Regulation Crowdfunding hovers around an impressive 60 percent. A key data point for industry followers is that the average raise ($270,996) helps start-ups hurdle the “valley of death” they often face after expending their internal or personal capital.

“Regulation Crowdfunding is proving to be a jobs engine (creating on average 2.9 jobs per issuer), economic generator (pumping over $289 million of revenues into local economies)... There is still a lot of room for growth with Regulation Crowdfunding offerings as they equate to only 1.2 percent of all Regulation D offerings and only 4 percent of all capital raised under Reg D.

“The fact that the velocity of capital into funded offerings continues to be steady without signs of abnormal activity or irrational investor behaviour is a healthy indicator. Meanwhile, the rapid increase in the number of offerings and investors proves there is continued appetite for Regulation Crowdfunding from both issuers seeking capital as well as investors looking to diversify. This is true across the [US].

“Regulation Crowdfunding is also proving efficient. If we compare the average days to close (113) in 2018 and average raise ($250,635) of a successful Regulation Crowdfunding campaign to a traditional Regulation D offering, Regulation Crowdfunding most likely represents the most efficient, cost effective way to raise capital for start-ups and SMEs.”

The type of (published) data collection and analysis provided by the above report is rare in Canada, which is another serious impediment to decision making in this area. To back its recommendations, NCFA (and others) must rely largely on anecdotal evidence from its members.

6. Canada’s Competition Bureau

As the Competition Bureau has pointed out[13], a more flexible approach to regulation and better government support would provide significant economic benefits by freeing entrepreneurship. It would also help to keep our entrepreneurs in Canada (along with the related jobs), boost GDP (especially by improving productivity), and encourage the commercialization of new products and services generally.  It is well-documented that overly complex, prescriptive regulation is a much higher burden for smaller firms and so is inherently anti-competitive.  For a disappointing progress report on the Bureau’s recommendations of Dec 2017.  See: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04392.html

7. ASC Brainstorming Ideas and Comments

(a) Information resource for Alberta start-ups and early stage businesses on capital raising options

  • Raising capital shouldn’t be a ‘black box’. Companies and investors would benefit if the ASC could:
    • provide a roadmap to the various financing options including use of exemptions, what typical companies (and investors) that qualify look like, average time to market, related costs and effort, and capital flows;
    • publish sample templates of the expected quality of good offering documents;
    • work with industry to develop a transparent resource database that is widely available.
  • Dovetailing with EACOS recommendations on entrepreneur preparedness, more information on successive financings would benefit the Alberta tech ecosystem. The ASC could consider hosting this data in an anonymized format so that Alberta startups could learn about their local comparables.

(b) Information resource for investors in Alberta

Some market participants have suggested there might be a role for the ASC in increasing investor understanding respecting the exempt market and considerations when investing in start-up and early stage businesses

  • The ASC assuming an educational role could only be beneficial to Albertan investors, especially those that are seeking to diversify outside of real estate or oil and gas. An equity crowdfunding or peer lending platform operating in Alberta could then easily point to this resource as a third party unbiased educational resource for investors.
  • In addition to local investors, ASC could work with economic development agencies to provide education on exempt market trends and developments to international investors and funds with a new focus on emerging technology as a means to diversify the Alberta economy.
  • Highlighting a range of companies by sector and capital raised in private markets would help investors understand high growth SME opportunities.

(c) Expanding the accredited investor exemption to include educated, experienced investors

What are the right combinations of education and experience? For the educational component, should we consider courses such as those offered through the CVCA Canadian Private Capital Investment School or the NACO Academy for those investing in private markets?

  • The accredited investor exemption if expanded to include educated and experienced investors would unlock latent capital in Alberta while increasing opportunities for qualifying investors and allow for greater portfolio diversification.
  • Any expansion of the accredited investor definition should aim to ensure that investors understand the risks involved with investing in private market securities such as reduced disclosure and lack of liquidity and provide education on the evolving trends of online financing such as peer lending, investment crowdfunding, and digital assets.
  • Education should be tendered and open to all private capital market training bodies, associations, licensed exempt market dealers, and investor-orientated groups and structured to be flexible and allow a wide range of participation to enable:
    • the right balance of training expertise and collaboration;
    • wide program accessibility;
    • current and relevant training content updated on an annual or periodic basis;
    • range of “textbook” and experiential training delivery;
    • certification and listing for public verification on an ASC database; and
    • capture of investor risk acknowledgement such as ability to withstand loss
  • The certificate of training could then be used by equity crowdfunding and lending exempt market dealers and portals to validate investor training in a streamlined manner (rather than have investors go through the same process with various dealers and portals time and time again).

Given that the policy rationale for the accredited investor exemption is ‘ability to withstand loss’, would it be appropriate to impose some limit on the amount that can be invested by an educated/experienced investor that is not otherwise an accredited investor e.g., the greater of $30,000 and 5% of their investment portfolio?

  • Accredited investor and qualifying experienced-educated investors should be allowed to fully participate without caps in investment crowdfunding and peer lending offerings.
  • Accredited investors should be encouraged to invest in or along-side a Start-up Business Exemption campaign. The participation of accredited investors at higher levels will provide non-accredited investors with added value as the investment group will perform greater due diligence than investors only investing the minimum threshold amount in a Start-Up Business Exemption offering.

(d) Addressing the compliance challenges associated with confirming accredited investor status

The central party could then confirm, through a unique investor identifier, to any business or dealer to whom the investor provided the unique identifier, that based on the information provided, the investor qualifies as an accredited investor, without the need for the investor to reveal all of their personal information.

  • This is a logical and reasonable solution that mirrors recreational licensing and even academic author identification systems (see Orcid ID).
  • Unique IDs could be used as part of a background check which will help reduce the number of days required to verify ID prior to being permitted to participate on equity crowdfunding or peer lending platforms.
  • There are numerous ‘regtech’ solutions now in the market that can be assessed by the ASC for potential use and deployment.
  • Any investor verification system should be neutral to avoid a single group monopolizing a provincial (or national)system.

(e) Registration exemption for finders

We are interested in feedback on a dealer registration exemption for sales to investors that are accredited investors who also meet certain education and/or experience criteria. We are interested in how such an exemption could be tailored to adequately protect investors but help address the issues associated with smaller financings that are not being serviced by registered dealers.

  • We agree that a registration exemption for qualified ‘finders’ would help expand the pool of investors and supply more capital to early stage companies.
  • Finders should be required to notify the ASC of their identity or could be required to associate with registered dealers or engaged by investment platforms.
  • Finders not associated with registered dealers could be required to report periodically on their investor prospecting activity using technology to streamline communications. This would not only provide employment opportunities for finders but also minimize unreported finder type activity that occurs anyway while increasing the transparency in the exempt market for smaller financings.

(f) Reducing compliance costs for registered dealers when dealing with accredited investors

This applies across the piece in the crowdfunding sector. Each requirement should be cost justified by regulators.

(g) Addressing other registered dealer compliance burdens

For crowdfunding related burden reduction examples we encourage the ASC to review NCFAs submission to the Ontario Securities Commission of March 1, 2019 – burden reduction.[14]

(h) Facilitating angel investment funds

Should we consider adviser registration exemptions where accredited investors have a limited amount of capital at risk?

  • Yes, especially if accredited investor status is expanded to include well educated and experienced investors. In this scenario, with small amounts of capital deployed and a demonstrated ability to withstand a specified loss, barriers to obtaining capital from multiple crowd sources would be reduced.

(i) Facilitating the development of a retail, publicly-traded fund focused on innovative businesses

  • We feel this is best answered by VCs and institutions.

(k) Facilitating a semi-public market that allows secondary retail trading by non-public companies

  • The illiquid nature of exempt market securities is often cited as a major concern of prospective investors so anything that assists secondary trading is welcomed.
  • A secondary market for exempt securities would also benefit early employees of start-up companies by allowing them to liquidate holdings pre-IPO and thus help early stage companies to offer creative compensation packages and attract a wider range of employees to help them grow.[15]
  • A semi-public market should be open to all types of exempt securities from crowdfunding to security tokens to allow fair and efficient markets to form.

(m) Fostering crowdlending and peer-to-peer lending

  • Peer-to-peer (P2P) lending is providing SMEs with financing in many jurisdictions, including the US, the UK, New Zealand and Australia, at rates which are considerably lower than those offered by competitors.
  • The popularity of P2P lending in the UK has increased exponentially in recent years, with nearly £10 billion being transferred through such platforms in the past ten years and approximately £1.2bn having been transferred through P2P platforms in the second quarter of 2019 alone.
  • The current securities regulatory regime in Canada imposes costs and burdens that create significant impediments to the success of any P2P platform and by extension the availability of financing to Canadian SMEs.
  • The current regime in Canada is not suited to allowing companies to raise debt financing as it treats them as issuers. The regulatory requirements for becoming an issuer are simply too burdensome for small loan sizes (for example a $50,000 loan).
  • The sheer magnitude of P2P lending and its positive impact on the economies of  advanced jurisdictions elsewhere suggests that it would be beneficial for Canadian SMEs if the regulators in Canada were to adopt a regime specific to P2P lending. A regime modeled on those successfully implemented in jurisdictions, like the UK, where P2P lending has been proven to provide much needed funding to SMEs while ensuring an appropriate level of protection for investors.

About the NCFA

The National Crowdfunding and Fintech Association of Canada (the Association) represents over 2,000 fintech SMEs and individual members that support financial and capital market innovation, small businesses and technology. We are pleased that the Alberta government is undertaking this important initiative to the benefit of all Albertans.  Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

 

Download the Submission in PDF format --> Now


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