By Brian Koscak - On May 29, 2014, I attended and spoke at a full-day conference held by the Equity Crowdfunding Alliance of Canada (the ECFA) in Vancouver, British Columbia. I was interviewed by Sydney Armani, Founder of Crowdfundbeat during the conference to discuss ECFA’s cross country tour on equity crowdfunding including highlights from the Vancouver event. Special thanks to Peter-Paul Van Hoeken who was the Chair and key organizer of the Vancouver conference and to ECFA Co-Chair Oscar Jofre, President of BoardSuite.
As Sandi Gilbert, founder of SeedUps Canada, stated at the Calgary ECFA conference, “Equity crowdfunding is about owners not donors.” This concept applied equally at the Vancouver ECFA conference which featured:
- presentations by various portals, such as InvestX, SeedUps Canada, Silver Maple Ventures and MaRS VX;
- discussions involving, pre, during and post funding; and
- a panel discussion by angel investors who shared their views on equity crowdfunding.
Three interesting observations that I took away from the Vancouver ECFA conference are discussed below.
1. Some individuals were incorrectly equating equity crowdfunding solely with the proposed start-up crowdfunding exemption.
- As explained in my presentation, there are other ways to do equity crowdfunding in Canada and the start-up crowdfunding exemption is at the low unregulated end of the capital raising ecosystem. For example, the start-up crowdfunding exemption is presently legal in Saskatchewan and under consideration by other provinces including New Brunswick and Quebec.
- Additionally, in Canada a registered exempt market dealer (EMD) can raise capital on the internet under existing prospectus exemptions, such as the accredited investor exemption and the offering memorandum exemption (which is available in all jurisdictions in Canada except Ontario, where it is under review).
- EMDs, such as SeedUps Canada, Optimize Capital and The Funding Portal are raising capital under existing prospectus exemptions, with many other portals in the process of getting registered with various securities commissions.
- It should be noted that the British Columbia Securities Commission has publicly stated that equity crowdfunding has been legal in British Columbia for years under the offering memorandum exemption when capital is raised through an EMD.
2. Many individuals were concerned that the proposed start-up exemption includes an unregistered funding portal
- There was concern that an unregistered funding portal would increase the likelihood of fraud since the portal would have no or little liability.
- This is in contrast to the requirement to have a registered funding portal under the proposed Equity or Integrated Crowdfunding Exemption presently being considered by Ontario, Quebec and other provinces.
3. Some attendees, including those from the angel community, incorrectly believed that equity crowdfunding would provide them with an exit or liquidity event.
- Equity crowdfunding is not the universal panacea for liquidity or exits for angels and other investors.
- In Canada, securities acquired under a prospectus exemption are subject to resale rules and are generally illiquid for non-reporting issuers. It is not clear why certain angel investors believed equity crowdfunding would provide them with the type of liquidity and the exits they presently do not have under existing Canadian securities law.
- At the Vancouver event, I suggested that the Canadian Securities Administrators should consider resale rules involving equity crowdfunding as Phase II to its equity crowdfunding proposals. Otherwise, developing a specific equity crowdfunding framework would be bogged down in regulatory discussions for quite some time and may in fact never see the light of day.
- Moreover, liquidity in the private markets is an industry issue generally rather than a specific equity crowdfunding issue.
Other ECFA Conferences
The ECFA previously held conferences in Toronto, Calgary and Vancouver and will be holding a full day conference on June 3, 2014 in Ottawa and June 10, 2014 in Montreal where I will also be presenting. You can obtain more information here about the date, location and other particulars for these ECFA conferences.
Enjoy the interview and special thanks to Mr. Armani who is one of the leading experts in equity crowdfunding in the United States and around the world.
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This blog is not intended to create, and does not create an attorney-client relationship. You should not act or rely on information on this blog post without first seeking the advice of a lawyer. This material is intended for general information purposes only and does not constitute legal advice. For legal issues that arise, the reader should consult legal counsel.
Brian Koscak is a Partner at Cassels Brock & Blackwell LLP located in Toronto, Ontario and Chair of the Private Capital Markets Association of Canada (formerly, the Exempt Market Dealers Association of Canada). Brian is also a member of the Ontario Securities Commission’s Exempt Market Advisory Committee and Co-Chair of the Equity Crowdfunding Alliance of Canada. Brian can be reached by phone at 416-860-2955, by e-mail at firstname.lastname@example.org or on twitter @briankoscak. Brian also regularly writes about Canadian securities law matters on his personal blog at www.briankoscak.com.