Equity crowdfunding is an evolving way for Canadian start-ups and early-stage issuers to raise capital. In this article, we discuss the uses of the Crowdfunding Exemption and the recent changes to the exemption that are relevant for companies in Canada looking to utilize it.
At a Glance:
With equity crowdfunding, a Canadian business can raise capital through online platforms by issuing securities to individual investors who do not normally have access to pre-IPO investment opportunities.
Recent changes have been made to the Crowdfunding Exemption, where business can increase the capital raised and individuals can invest more money into projects.
What is Equity Crowdfunding?
Equity crowdfunding is a tool used by businesses in which they can raise funds from a large number of individuals through online portals. The reasoning behind equity crowdfunding is to raise capital for companies looking to expand project operations or to scale their businesses. This tool is often utilized by start-ups or early-stage issuers to access capital efficiently.
The benefit of using the Equity Crowdfunding Exemption is that it allows a start-up or early-stage issuer to raise relatively small amounts of capital by distributing securities to investors without filing a prospectus, often saving time and costs. A business looking to raise capital through equity crowdfunding must first complete an offering document outlining the idea, then posting the offering document on a funding portal’s website.
Equity Crowdfunding Portals
Equity funding portals are online resources where companies can post their crowdfunding projects, allowing individual investors to invest capital. The funding portal is accountable for the following:
Clarifying the risks of investing to potential investors;
Holding all investor funds in trust until the start-up raises the minimum funding target; &
Returning funds to investors if the start-up does not reach its target raise.
An example of an equity crowdfunding portal is Vested.ca, which allows investors easy access to participate in start-up campaigns and sanctions private companies to improve their reach to more investors through Crowdfunding Exemptions.
Our GoPublic.AI Acquisition Corp. with Letter of Intent to acquire Forrest Innovations Ltd. with the intent of listing on a major Canadian stock exchange this year was fully funded by 155 investors in under 36 hours. This process was conducted using the Vested.ca platform. Learn more.
Recent Changes to the Crowdfunding Exemption
The Canadian Securities Administrators made recent amendments to improve the effectiveness of start-up crowdfunding as a capital-raising instrument.
The changes include the following:
Increasing the maximum total amount that an issuer can raise under the crowdfunding prospectus exemption in a 12-month period to $1.5 million (from the current $500,000).
Increasing the maximum investment, a purchaser can make in an offering to $2,500 (from the current $1,500), with a higher limit of $10,000 if a registered dealer advises that the investment is suitable for the purchaser.
Eliminating barriers preventing federal and provincial organizations or associations from using the start-up crowdfunding prospectus exemption.
Requiring funding portals relying on the registration exemption to certify on a semi-annual basis that they have sufficient financial resources to continue operations for the following six months.
Requiring issuers to have operations other than the acquisition of an unspecified business before using the start-up crowdfunding prospectus exemption.
* For more information regarding the changes made, along with any additional information revolving around the Equity Crowdfunding Exemption, please visit The Canadian Securities Administrators website.
If you have any questions in regard to how companies can utilize the Crowdfunding Exemption, or how to gain access to these crowdfunding opportunities as an investor, please reach out to Our Team who will be glad to assist.