Crowdfunding
Equity Crowdfunding in North America
Since roughly 2009, crowdfunding in North America has grown steadily. The continent, however, is a large place, with clear discrepancies in regulatory approaches between Canada and the United States. The result is that these variances have led to U.S. crowdfunding becoming a runaway market, relative to Canada.
What is it?
As the name implies, crowdfunding is a means of raising capital from a large pool of investors/donators, rather than select venture capitalists.
Crowdfunding started off simple enough – give a wider audience the chance to help young companies out of the gate. However, when first capturing the attention of many, securities laws prohibited issuers from compensating non-accredited investors/participants with equity in their companies; Meaning that participants weren’t really investors at all, but simply contributing to the growth of a company with the promise of potentially getting a product one day.
Fast forward to 2012, and a group of companies surrounding the industry successfully worked with regulatory bodies in the U.S. to amend existing laws. These efforts eventually resulted in the formation of, what is known as, the ‘Jumpstart Our Businesses Act’ (JOBs Act).
JOBs Act
What the JOBs Act did was open the gates for the general public to gain exposure to true investment opportunities. Until it was enacted, securities were only able to be sold and distributed to accredited investors.
The goal of this was primarily to help young companies, as one of the largest obstacles a start-up will face is attaining funding (regardless of potential) for the development of their products and services.
Previously, to attain said funding, regulators required that a detailed prospectus be filed and approved for the sale of any asset deemed a security. This is a cost prohibitive, and time consuming, undertaking – meaning it is most likely not feasible for a small start-up. While this undertaking may be inconsequential for a company raising millions upon millions of dollars, start-ups looking for modest amounts may find it a steeper hill to climb.
Naturally, this new act came with restrictions. In an effort to maintain appropriate levels of investor protection, safeguards were put into place. The following are only a few examples of these:
- Capital generation events must be moderated by registered broker/dealers
- Net-worth based investment limits
- Generation caps on crowdfunding hosts
While this may sound restrictive, what this did was open the doors, ushering in a time where investment opportunities were no longer restricted to those that were already wealthy.
Lagging Behind
That brings us to the United States’ northern counterpart – Canada. While crowdfunding exists in Canada, the flexibility and freedom for issuers/investors is simply not the same as it is in the U.S – despite being years removed from the advent of modern crowdfunding.
The main issue is the fact that there is no nationwide ‘rulebook', similar to the JOBs Act, in Canada. Each of the various provinces and territories may vary slightly in the structuring of their regulations, making it difficult to comply with all at once.
This segregation among Canadian regulators, means that issuers are often limited in their investor pool, as they are not necessarily eligible to host their offering in all regions – somewhat defeating the purpose of crowdfunding to begin with.
However, with the moves taken by the U.S. government over the past decade widely viewed as a success, the Canadian government has indeed taken notice. It was announced in early 2019 that they would be reviewing their policies; the goal of which is to eliminate the current segregation among regulators, by creating their own variant of the JOBs Act.
With the Supreme Court of Canada opening the door to the potential national securities regulator in 2018, and plans to develop a national crowdfunding rulebook announced in 2019, the great white north looks primed to play catch-up.
Popular Platforms
With all of this talk about crowdfunding, many in the U.S. may be wondering where access to such investment opportunities are offered. In an effort to answer these questions, securities.io’s very own, Antoine Tardif, recently penned an opinion article discussing his favourite portals offering equity based opportunities.
Top 5 Equity Crowdfunding Websites
For those in Canada interested in equity crowdfunding, the following are a few of the more notable portals active today.
In Other News
Always striving to adapt and improve with the times, the Securities and Exchange Commission (SEC) has recently announced a proposal which would see access to more traditional investment opportunities become even easier for investors.
This proposal is based upon the restructuring of what defines an accredited investor. With the vast majority of investment opportunities restricted to those fitting the bill, broadening the definition, to reflect the modern world, will ideally democratize investing to an extent.
SEC Proposes Amendment to Criteria Surrounding ‘Accredited Investors’
