OCE Blog Post |  February 19, 2013

OCE has weighed in on crowdfunding, a new way to solicit investments for innovative ideas and projects through social media that is gaining momentum in the United States and the UK.

Responding to a call for submission from the Ontario Securities Commission (OSC), OCE recommends allowing crowdfunding as long as a limit is imposed on how much can be invested and certain other basic consumer protections are put into place.

The deadline for public responses to the OSC’s December discussion paper on allowing an exemption to investment regulations for crowdfunding was Feb. 12.

Currently companies that raise money from the public must develop a formal prospectus for review by securities regulators or restrict sales to wealthy or “sophisticated” investors.

Some excerpts from OCE’s submission:

On retaining companies
“The introduction of crowdfunding in Ontario would help retain companies in the province. In fact, the ideal scenario would be for all the Canadian provinces to come together to arrive at a national crowdfunding system so that an individual doesn’t have to reside in Ontario in order to invest in an Ontario company. This would help give the initiative the scale it would need in Canada to be successful.”

On building an innovation economy
“While the introduction of crowdfunding can play a role in helping some entrepreneurs raise capital, it will not address the primary reasons that start-ups often fail. This has more to do with a lack of networks and relationships, the lack of experience and ability to properly define the customer need and a lack of business judgement. Ontario’s success in building an innovation economy depends on ensuring start-ups get the advice and training they require to develop a competitive business.”

On limiting amount of investment
“Generally speaking, OCE recommends avoiding an overly bureaucratic and cumbersome approach that would deter participation. The most effective measure for limiting investor exposure would be to set a limit on the amount an individual can invest as a means of minimizing exposure to risk.”

On frenzy investing
“It might also be worth considering a technical solution that would halt investments and allow for a cooling off period should a product or company generate an investment frenzy that leads some to make hasty investment decisions. This, too, could be managed through an escrow arrangement.”

On official paperwork
“It would be overly burdensome, time consuming and costly to require investees to provide audited financial statements and unnecessary given other measures that have been recommended here to limit exposure for investors.”

Source:  OCE Blog Post

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