January 2014 Equity Crowdfunding Conference in Canada – Free Webinar

dreamstime_xs_28025528On January 15, 2014, the Rotman School of Management at the University of Toronto held a half day conference on Equity Crowdfunding in Canada. The conference was about the evolution of Equity Crowdfunding in the Canadian capital markets.

Here is the link to the event calendar where you can access the webinar.  It is under “2014” and the event is titled “Panel Discussion on Crowdfunding: An Evolution in the Canadian Capital Markets?

Presentations were made by five individuals, each of which is very briefly discussed below (not in order of presentation).

Douglas S. Ellenoff, Partner, Ellenoff Grossman & Schole LLP

Below is a picture of Douglas Ellenoff at the event.  Doug is a Partner at Ellenoff Grossman & Schole LLP, who is a leading US Attorney and expert on equity Crowdfunding.

photo 2

Doug provided an update on the US equity Crowdfunding rules and the US’s new approach to capital raising. Doug stated,

… just because we have done something one way for the last 80 years does not mean it is the only way to do it …

Doug was referring to the openness of US securities regulators in creating new ways of raising capital on the internet. Doug discussed different types of business models for funding portals including AngelList and Circle-Up in the US, ASSOB in Australia and Seedrs and Funding Circle in the UK. Doug distinguished between Title II and Title III portals under the JOBS Act and the need for investors to take responsibility to learn about how equity Crowdfunding works and that they can lose all their money.

photo 1

Doug made an interesting comment about the US industry’s concern that Title III under the JOBS Act (the equity Crowdfunding law) will impose liability on portals for offerings posted on their web site.  Under Title III, portals cannot ‘curate’ deals (i.e., pick ones they like) since that would be considered investment ‘advising’ under US securities law which portals are prohibitted from doing under the Title III. Instead US portals will be required to post all deals on their site based on ‘objective criteria’ except those that may involve fraud. US portals are concerned that imposing liability when forced to post all deals on their platform based on ‘objective criteria’, absent fraud, is unfair to portals notwithstanding the prohibition on advising.

Jim Turner – Vice Chair, Ontario Securities Commission

Below is a picture of Jim Turner, the Vice Chair at the Ontario Securities Commission (the OSC) at the event.  Mr. Turner is leading the OSC’s review of equity Crowdfunding.

photo 4

Mr. Turner advised the audience that the OSC is currently reviewing a number of new ways to raise capital in Ontario (i.e., creating new prospectus exemptions) that includes an equity Crowdfunding framework. He stated the OSC expects to publish its equity Crowdfunding framework for public comment before the end of March 2014 for a 90 day comment period.

photo 3

Mr. Turner said  the OSC has been looking at equity Crowdfunding for about two years and undertaken extensive consultations. He believes equity Crowdfunding may be one of the ways Ontario can address its funding gap for entrepreneurs.

Kevin Laws, COO, AngelList

Mr. Laws provided an excellent presentation on AngelList’s story as a leading US equity Crowdfunding portal for accredited investors only.

Mr. Laws discussed the no-action letter AngelList received in 2013 from the United Stated Securities and Exchange Commission that allows AngelList to undertake its business model, including those involving angel syndicates.

Ajay Agrawal, Peter Munk Professor of Entrepreneurship & Associate Professor of Strategic Management, Rotman School of Management

Professor Agrawal discussed the evolution of Crowdfunding in Canada from Rotman’s first academic non-equity Crowdfunding study in 2007 that focussed on music to the massive success of Kickstarter.

Professor Agrawal stated that:

 “.. non-equity Crowdfunding went from an “economic sideshow to something meaningful...”

However, Professor Agrawal clarified that equity Crowdfunding is still an economic sideshow and the level and frequency of investment is still small. People are still speculating on its relevance and whether we are on the precipice of great things to come.

Professor Agrawal analyzed the Pebble Watch campaign (which raised capital using a non-equity Crowdfunding portal (Kickstarter)) and the Thelmic campaign (which did not use a non-equity Crowdfunding portal, rather an on-line pre-order tool absent the crowd) and analyzed their success and differences.

Avi Goldfarb, Professor of Marketing, Rotman School of Management

Professor Goldfarb’s discussion included the wants and needs of the three players in the equity Crowdfunding eco-system:

  1. Entrepreneurs who seek a lower cost of capital and pre-sale validation;
  2. Investors who want access to early stage investment opportunities and new products outside of their locality; including globally.  He said investors want to feel part of a larger community and being part of something new; and
  3. Platforms who want lots of activity on their sites that lead to successful deals.

Professor Goldfarb also discussed what might go wrong with equity Crowdfunding including, the risk that:

  1. LosInvestment losses – investors will probably lose all their money by investing in early stage companies;
  2. Theft of IP – entrepreneurs may have their intellectual property stolen;
  3. Executiion failure/incompetence – entrepreneur may fail to execute through incompetence (e.g., late deliver of pre-paid product, no delivery of product and entrepreneur mismanagement of costs and execution); and
  4. Fraud – the risk of fraud and difficulty of due diligence when an investor does not meet the entrepreneur and follow-on monitoring issues.

Professor Goldfarb commented that:

Crowdfunding may result in “herding behaviour” where “funding follows funding.

Some early investors may undertake due diligence or may have more family and friends than others and the resulting funding  creates the herd mentality as more people invest. This does not necessary mean that the best project or opportunity gets funded. Accordingly, he says that funding traction may be misleading and not necessarily true business validation.

Ben Grynol, Co-Founder, Top & Derby

Mr. Grynol is the co-founder of Top & Derby and discussed the success of his non-equity Crowdfunding campaign on Indiegogo involving his design and build of a walking cane.  Although this is a non-equity Crowdfunding campaign, there are lessons for those involving equity Crowdfunding.

Mr. Grynol said the ingredients for a successful non-equity Crowdfunding campaign are:

  1. Marketing strategy
  2. Professional presence
  3. Financial modelling

In discussing whether to “GOGO or KICK IT”,  Mr. Grynol provided the information below when comparing whether to post a campaign on either of the world’s two largest non-equity Crowdfunding platforms.



Global presence CAN/USA/UK/AUS/NZ
@ 15 million  visitors per month @ 40 million  visitors per month
@9% success rate @44% success rate

Mr. Grynol said Indiegogo allowed him to validate that there was a demand for his walking canes. He said Top & Derby raised approximately $22,000 in 30 days which resulted in 300 orders that were shipped to customers. He said the campaign was exposed in:

  • 40 media sources
  • 110 cities
  • 9 countries

Some of Mr. Grynol’s recommendations included establishing partnerships, getting quotes for products and services, setting realistic funding goals (better to have a smaller goal and achieve it, then a higher goal and fail) and setting an accurate time-line for production and shipping.

I hope you enjoy the webinar.

*   *   *


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 Exempt Market Dealers Association of Canada. Brian is also a member of the Ontario Securities Commission’s Exempt Market Advisory Committee. Brian can be reached by phone at 416-860-2955, by e-mail at bkoscak@casselsbrock.com or on twitter @briankoscak. Brian also regularly writes about Canadian securities law matters on his personal blog at www.briankoscak.com.


Speak Your Mind