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Crowdfunding proponents blame regulators for slow growth

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The Globe and Mail | Brenda Bouw | December 12, 2016

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Canada’s crowdfunding industry is “punching below its weight” compared to international markets, says a new industry report, which blames in part the country’s varied regulations for the alternative investing model.

While the crowdfunding market is growing, it’s “noticeably smaller” compared to the U.S. and the U.K. and expanding at a slower rate, says the inaugural industry report being released on Tuesday by the National Crowdfunding Association of Canada (NCFA).

It shows Canadian crowdfunding volume reached $133-million in 2015 and is expected to grow to $190-million in 2016, “confirming that it is a genuine source of seed and growth capital for companies seeking funding.”

Still, the report says the industry is behind and growing “much slower than Canada’s leading international comparators.”

The report, titled 2016 Alternative Finance Crowdfunding in Canada, cites studies pegging the U.S. industry at $47.3-billion Canadian and the U.K. industry at $5.3-billion Canadian.

It’s the first major report on the crowdfunding industry in Canada, highlighting the state of the alternative finance model and looking at the various types of crowdfunding, including donations/rewards, equity and debt.

It’s the equity crowdfunding market – when investors buy a stake in a private company in hopes of receiving a financial return – that’s being closely watched after new rules were put in place by various provinces about a year ago.

The new regulations are intended to control the market as it opens up to everyday investors. Before the rules were made, only accredited investors, such as institutions and high-net-worth individuals, were able to get in on the ground floor of a young company.

Investors and startups argue the new equity crowdfunding regulations increase access to capital for entrepreneurs, while at the same time giving investors more options. Regulators say the rules are in place to protect investors from putting too much money into young, high-risk companies.

See:  Join us at 3rd Annual Canadian Crowdfinance Summit & Expo (March 1-2, 2017)

The report says equity crowdfunding is expected to grow by about 275 per cent this year to $30-million, up from $8-million in 2015. While that’s impressive growth, it’s still lagging compared to international jurisdictions. In the U.K., for example, equity crowdfunding deals reached about £332-million (around $553-million Canadian) in 2015, up from £84 million in 2014.

“We have fragmented, non-uniform and probably non-competitive crowdfunding regulations,” says Craig Asano, NCFA of Canada’s founder and executive director.

Canada has been slower to adopt online alternative finance models, has a smaller population and fewer investors. However, the report says it’s the country multi-provincial regulatory environment that’s stagnating growth.

Some provinces across Canada have different sets of crowdfunding regulations with limits on how much individual companies can raise each year and a cap on annual investments for individuals. In some provinces, the regulations overlap. In others, such as B.C. and Ontario, different rules apply.

The report calls on policymakers to “remove unnecessary burdens and harmonize confusing regulations” that will enable funding portals to grow and profit. It also wants a more level playing field between portals, citing the Ontario Securities Commission’s recent decision to provide Silicon Valley funding giant AngelList special exemptions from registration requirements. It also says more education and awareness is needed for companies and investors to help grow the sector.

Without changes, Mr. Asano said some investors and companies will continue to raise and spend capital outside of Canada where rules are considered more favourable.

“This isn’t just a regulatory issue, but a Canadian innovation and economic development problem,” Mr. Asano says.

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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 1500+ 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 at

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