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Regulation of Equity Crowdfunding in Canada

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Presentation given by Brian Koscak, Partner, Cassels Brock & Blackwell LLP; Co-Chair, Equity Crowdfunding Alliance of Canada; Chair, Private Capital Markets Association of Canada @SV Crowdfunding …

Presentation given by Brian Koscak, Partner, Cassels Brock & Blackwell LLP; Co-Chair, Equity Crowdfunding Alliance of Canada; Chair, Private Capital Markets Association of Canada @SV Crowdfunding Conference April 3, 2014

Published in: Business, Economy & Finance

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  • 1. REGULATION OF EQUITY CROWDFUNDING IN CANADA Silicon Valley Meets Crowdfunders Second Annual Conference and Expo Brian Koscak, Partner, Cassels Brock & Blackwell LLP Co-Chair, Equity Crowdfunding Alliance of Canada Chair, Private Capital Markets Association of Canada April 3-4, 2014 @ Palo Alto, CA
  • 2. Disclaimer The opinions expressed today are provided in my personal capacity and do not necessarily reflect the opinions of Cassels Brock & Blackwell LLP or any of its clients. Slide | 2 This presentation is for educational purposes only and should not be construed as legal advice and anyone considering raising capital or becoming a dealer or portal in Canada should consult with a lawyer specializing in Canadian securities law.
  • 3. Equity Crowdfunding in Canada 1. Equity Crowdfunding is legal in Canada under existing prospectus exemptions provided securities are sold through a registered dealer (exempt market dealer). ● Two prospectus exemptions Slide | 3 ● Two prospectus exemptions ● Accredited investor exemption ● Offering memorandum exemption
  • 4. Accredited Investor Exemption Slide | 4
  • 5. Offering Memorandum Exemption Slide | 5
  • 6. 1. SeedUps Canada ● working with an exempt market dealer Who is doing it today in Canada Slide | 6 2. Optimize Capital ● Registered as an exempt market dealer
  • 7. Proposed New Equity Crowdfunding Eco-System of Capital Raising in Canada ● March 20, 2014, various Canadian securities regulators published for comment a new eco-system of capital raising in the private capital markets. ● The proposed new world order has four main silos: Slide | 7 Start-Up Crowdfunding Exemption Equity Crowdfunding Exemption Offering Memorandum Exemption Accredited Investor Exemption (Comment period ends June 18, 2014) (Comment period ends June 18, 2014) (Comment period ends June 18, 2014) (Comment period ends May 28, 2014)
  • 8. Proposed Equity Crowdfunding Exemption Slide | 8
  • 9. Proposed Start-Up Exemption Slide | 9
  • 10. Comparison of Equity Crowdfunding Frameworks (Selling securities on the internet to the public) Offering Memorandum Exemption Equity Crowdfunding Exemption (Proposed) Start-Up Crowdfunding Exemption (Proposed) Issuer Restrictions Applicable Jurisdictions All Canada except ON ON, QB, MB, SK, QB, MB, SK, NB, NS Slide | 10 Applicable Jurisdictions All Canada except ON where it is proposed ON, QB, MB, SK, NB, NS AB – monitoring comments QB, MB, SK, NB, NS AB – monitoring comments BC – seeking comments Canadian issuers only No Yes No, but head office requirement Public and private issuers Both Both Private issuer only Prohibitions on types of issuers or industries No, except for ON/NB, investment funds and related issuers excluded No investment funds, real estate issuer, issuers that do not have a business plan or related issuers No investment funds or reporting issuers
  • 11. Comparison of Equity Crowdfunding Frameworks (Selling securities on the internet to the public) Offering Memorandum Exemption Equity Crowdfunding Exemption (Proposed) Start-Up Crowdfunding Exemption (Proposed) Distribution Details Restrictions on offered securities No, except for ON, no complex securities such Simple securities and no derivatives. Simple securities and no derivatives. Slide | 11 securities complex securities such as structured finance products or specified derivatives no derivatives. no derivatives. Issuer Caps No $1.5 Million $150,000/$300,000 Investor Caps BC Model – None AB Model - $10,000 unless an eligible investor Proposed OM Model – $10,000 unless an eligible investor then up to $30,000 (AB, SK, QB, ON, NB) $2,500/$10,000 $1,500
  • 12. Comparison of Equity Crowdfunding Frameworks (Selling securities on the internet to the public) Offering Memorandum Exemption Equity Crowdfunding Exemption (Proposed) Start-Up Crowdfunding Exemption (Proposed) Distribution Details - continued Slide | 12 Limitation on offering period No 90 days 90 days except for SK where it is 180 days Concurrent offerings Yes Yes, on same terms Yes, except for SK Restrictions on soliciting and advertising No Yes Yes Offering document requirement Yes Yes Yes
  • 13. Comparison of Equity Crowdfunding Frameworks (Selling securities on the internet to the public) Offering Memorandum Exemption Equity Crowdfunding Exemption (Proposed) Start-Up Crowdfunding Exemption (Proposed) Investor Protection Measures Slide | 13 Financial information requirement Yes Yes Yes Audited financial statement requirement Yes except for local Orders where amounts raised are less than $500,000 Yes, if amounts raised exceed $500,000 No Cooling Off Period Yes Yes No, however under review
  • 14. Comparison of Equity Crowdfunding Frameworks (Selling securities on the internet to the public) Offering Memorandum Exemption Equity Crowdfunding Exemption (Proposed) Start-Up Exemption (Proposed) Investor Protection Measures - Continued Slide | 14 Investor Protection Measures - Continued Resale restrictions Yes Yes Yes Ongoing disclosure requirement No Proposed (AB, QB, ON, SK, and NB) Yes No
  • 15. Comparison of Equity Crowdfunding Frameworks (Selling securities on the internet to the public) Offering Memorandum Exemption Equity Crowdfunding Exemption (Proposed) Start-Up Exemption (Proposed) Regulation of Portal Intermediary required N/A Yes Yes Slide | 15 Intermediary required N/A Yes Yes Intermediary required to be registered N/A* * Yes, if the issuer/intermediary is in the “business of trading” securities Yes No Prohibited portal activities N/A Yes Yes Background checks by portal on individuals involved with issuer N/A Yes Yes
  • 16. 1. Accredited Investor Exemption ● Wealthy individuals ● If on-line through a registered exempt market dealer 2. Offering Memorandum Exemption Summary: Four Ways to do Equity Crowdfunding in Canada Slide | 16 ● The public/crowd ● If on-line through a registered exempt market dealer 3. Proposed Equity Crowdfunding Exemption (for small and medium sized enterprises or SMEs) ● Registered portal (i.e., restricted dealer, MaRS VX) 4. Proposed Start-Up Crowdfunding (for start-ups) ● Unregistered portal
  • 17. Cross-Border Equity Crowdfunding Opportunities ●U.S. broker-dealer working with a registered exempt market dealer in Canada ●Selling to accredited investors in the U.S. and Canada ●Selling to accredited investors in the U.S. and Canada and/or the public/crowd in Canada under the Offering Memorandum Slide | 17 the public/crowd in Canada under the Offering Memorandum Exemption ●U.S. portal working with exempt market dealer or restricted dealer in Canada ●Note – U.S. portals/broker dealers need to comply with Canadian securities law when selling securities to Canadian investors.
  • 18. Questions Slide | 18
  • 19. Speaker Bios Brian Koscak, B.A.(Hon), M.A., CIP, LLB., J.D. and LL.M is a Partner at the law firm of Cassels Brock & Blackwell LLP located in Toronto, Ontario and practices in the area of corporate and securities law. Brian is the Chair of the Private Capital Markets Association of Canada (formerly, the Exempt Market Dealers Association of Canada), a national not- for-profit organization representing exempt market dealers, issuers and compliance professionals across Canada. Brian is also the Chair of the Equity Crowdfunding Alliance of Canada, an alliance of funding portals, issuers, professionals and vendors who seek to Slide | 19 of Canada, an alliance of funding portals, issuers, professionals and vendors who seek to promote and advocate for equity crowdfunding in Canada. Brian is a member of the Ontario Securities Commission’s Exempt Market Advisory Committee which is considering new ways to raise capital in Ontario’s private capital markets, including equity crowdfunding. Brian is actively involved in developing a viable crowdfunding framework for Canada. He has been mentioned in the media numerous times, spoken at numerous crowdfunding events and conferences and represents various exempt market dealers and portals involving their equity crowdfunding businesses. 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
  • 20. Cassels Brock & Blackwell LLP Suite 2100, Scotia Plaza Suite 2200, HSBC Building 40 King Street West 885 West Georgia Street Toronto, ON Canada M5H 3C2 Vancouver, BC Canada V6C 3E8 Tel: 416 869 5300 Tel: 604 691 6100 Fax: 416 350 8877 Fax: 604 691 6120 10383661 v.1 © 2011–2013 CASSELS BROCK & BLACKWELL LLP. ALL RIGHTS RESERVED. This document and the information in it is for illustration only and does not constitute legal advice. The information is subject to changes in the law and the interpretation thereof. This document is not a substitute for legal or other professional advice. Users should consult legal counsel for advice regarding the matters discussed herein.