New financial regulation opens the door for Canada to become a world leader in equity crowdfunding

John Hills
June 23, 2021
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Yesterday the Canadian Securities Administrators (CSA) adopted harmonized rules for securities crowdfunding with the introduction of National Instrument 45-110 Start-up Crowdfunding Registration and Prospectus Exemptions. The release of this legislation marks an important and ground breaking step for Canada’s ever-growing and increasingly popular equity crowdfunding industry. By improving access and opportunities for all Canadians, accredited and retail investors alike, to invest in promising startups and growth companies, the new rule will help to open up the country’s private capital markets at this crucial time. This, in turn, benefits the businesses raising money, the people investing in them, and also stimulates the wider economy through innovation and job creation.

Though equity crowdfunding has existed in Canada in some form or another since 2015 it has, up until now, been largely regulated on a provincial level, and lacked the consistent, continuous approach on a national level that has helped this funding model flourish elsewhere. In the UK, for example, 2020 was a record-breaking year for equity crowdfunding, as it helped raise over CDN $570 million for 433 businesses, with more growth forecast for 2021. 45-110 is designed to bring similar benefits to Canada’s funding landscape, and comes not long after a similar regulation was implemented by the SEC in the US.

45-110 introduces a number of key changes and updates to equity crowdfunding rules, all designed to help facilitate and encourage the use of equity crowdfunding as an alternative funding model. The main ones include:

  • An increase in the amount of money a company is able to raise within a 12 month period from $500,000 to $1.5 million.
  • An increase in the amount of money an individual can invest, from $1,500 to $2,500 to a maximum of $10,000 if deemed suitable by a registered dealer.
  • An allowance for associations (commonly known as co-operatives) to engage their members as investors.

For companies, the benefit of these changes is clear, as within one campaign an entrepreneur is now able to raise enough money to grow their business toward the next stage of development without the need for continual visits to the capital markets - which can be both costly and time consuming (typically ranging from six to nine months). Instead, they can now place their energies where they are needed most, building a business, and by extension, value for their investors. For those wanting to invest in growth companies, 45-110 enables people of all stripes to support promising ventures from every sector and to invest in opportunities that are often only available to high net worth individuals.

“This is a watershed moment for Canadian investment crowdfunding,” says Peter-Paul Van Hoeken, Founder and CEO of FrontFundr, Canada’s leading online private markets investment platform. “We have seen the immense value and impact that harmonized crowdfunding rules have had in the US and the UK, and so we are really excited to work with Canadian companies and investors to help create the same sort of environment over here.”

You can learn more about the new regulation from the Canadian Securities Administrators, and if you are interested in exploring investment opportunities as an investor, or raising funds as a business owner, you can visit our website to learn more about the process.

This communication is for informational purposes only and does not constitute an offer to sell or the solicitation to buy any securities.

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John Hills