Start‑up Crowdfunding Guide for Investors
Crowdfunding is a process through which an individual or a business can raise small amounts of money from a large number of people through the Internet. The objective is to raise sufficient funds in order to carry out a specific project. There are different types of crowdfunding, such as by donation, pre-selling of products or securities crowdfunding. This guide discusses securities crowdfunding.
2 types of crowdfunding :
Crowdfunding is often used to finance projects in various fields, such as the arts, culture and philanthropy. For example, funds can be raised to hold a cultural event, produce a motion picture or music album, or support victims of a natural disaster.
Small businesses also use crowdfunding to finance their business activities, raising funds as donations or product pre-sales. If you contribute, you are a donor.
Joan operates a coffee shop. She needs to replace the shop’s ice cream machine in time for the approaching summer. The cost of a new machine, with delivery and installation, is $13,000. She solicits for funds on a funding portal. For $100, donors will receive promotional articles and discount coupons and their name will be featured on a list of donors at the entrance to the coffee shop.
With securities crowdfunding, a business raises funds through the Internet by issuing securities (such as bonds or shares) to many people.
In Canada, issuing securities is subject to legal obligations. For example, a business seeking to raise capital by issuing securities must file a prospectus or use a prospectus exemption. These obligations, however, can be costly for start-ups, small businesses and other issuers. In some provinces, businesses are allowed to raise funds using securities crowdfunding without filing a prospectus.
In certain jurisdictions, businesses may choose between the start-up crowdfunding exemptions or the crowdfunding exemption (under Regulation 45-108 respecting Crowdfunding or “Regulation 45-108”), depending on their projects, needs, and stages in their development. The following table summarizes the main characteristics of both regimes.
||Start-up crowdfunding exemptions
||Crowdfunding exemption (Regulation 45-108)
||British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick and Nova Scotia.
||Manitoba, Ontario, Québec, New Brunswick and Nova Scotia.
|What are the “exemptions”?
||The business is not required to file a prospectus to sell securities to the public through a funding portal.
|The business is not required to file a prospectus to sell securities to the public through a funding portal.
The funding portals are required to be registered.
|How much can I invest?
||Up to $1,500
||Up to $2,500
|How much can the business raise in a 12-month period?
||Up to $250,000 twice a year
||Up to $1,500,000
|Where can I invest in securities crowdfunding?
||Funding portals that are operated by registered dealers
Non-registered funding portals (but must appear on your regulator’s list)
|Funding portals that are operated by registered dealers
Funding portals that are operated by registered restricted dealers
|Does the business need to publish financial statements?
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