Four ways currently exist to conduct equity crowdfunding in Canada: 1) Accredited Investor Exemption for wealthy individuals; 2) Offering Memorandum Exemption allowing public offerings through a registered dealer; 3) A proposed Equity Crowdfunding Exemption for small businesses using a registered portal; and 4) A proposed Start-Up Crowdfunding Exemption for startups using an unregistered portal. Canadian securities regulators are seeking comments on the proposed new exemptions to expand crowdfunding opportunities within certain investment limits and investor protection measures.
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.
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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
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● Two prospectus exemptions
● Accredited investor exemption
● Offering memorandum exemption
6. 1. SeedUps Canada
● working with an exempt market dealer
Who is doing it today in Canada
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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:
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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)
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
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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.
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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
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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
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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
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● 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
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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.
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
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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