Navigating Equity Crowdfunding: Differences Between Raising Funds in the USA vs. Canada

Equity crowdfunding has opened doors for startups and small businesses to raise capital from a broad range of investors. However, the landscape for equity crowdfunding can vary significantly between the USA and Canada, especially for those looking to leverage platforms like FrontFundr or considering listing in both countriesLet's delve into the key differences and what they mean for entrepreneurs aiming to maximize their fundraising potential.

Round 1: Investor Demographics: Who's Backing Your Campaign?

USA: Diverse and Deep Pockets

The US investor base for equity crowdfunding is diverse, ranging from seasoned angel investors to everyday people eager to support startups. The larger population - nearly 9x the size of Canada - and higher average income levels - USD$74.5K in USA vs CA$68K in Canada -mean a potentially larger pool of investors with significant capital to invest. American investors are often more accustomed to risk-taking and may be more willing to back innovative or unproven ideas.

Canada: Community-Oriented Investors

In Canada, investors tend to be community-oriented, often looking to support local businesses and projects. 32% of Canadians ranked social causes, such as health and safety, human rights and communities as most important. This strong sense of community can be advantageous for Canadian startups, as investors are typically more loyal and supportive. The Canadian investor base may be smaller, but they are highly engaged and interested in contributing to the local economy.

Round 2: Regulatory Frameworks: A Tale of Two Countries

USA: The JOBS Act Revolution

In the United States, the JOBS Act, passed in 2012, is the cornerstone of equity crowdfunding. It introduced several provisions, each with its own set of rules:

• Title II (Regulation D): Allows public advertising of fundraising campaigns but limits investment to accredited investors.
• Title III (Regulation Crowdfunding or CF): Opens the doors to non-accredited investors, with investment limits based on income or net worth.
• Title IV (Regulation A+): Permits companies to raise up to $75 million from both accredited and non-accredited investors, with more relaxed reporting compared to a traditional IPO.

These provisions offer flexibility but require careful navigation to ensure compliance.

Canada: Harmonizing Through NI 45-110

In Canada, the regulatory landscape was fragmented until the introduction of National Instrument 45-110 in 2021. This regulation harmonized crowdfunding rules across provinces, allowing companies to raise up to CAD $1.5 million annually from non-accredited investors. Before NI 45-110, companies had to navigate a patchwork of provincial regulations, which needed to be more convenient and limited the reach of crowdfunding campaigns.

Round 3: Investor Caps: Protecting Investors

USA: Tiered Limits

In the USA, investor caps under Regulation Crowdfunding are designed to protect less-experienced investors:

• Non-accredited investors can invest up to the greater of $2,200 or 5% of their annual income or net worth if either is less than $107,000.
• If their annual income or net worth exceeds $107,000, they can invest up to 10% of their annual income or net worth, but not more than $107,000.

Canada: Straightforward Limits

Under NI 45-110, Canada has straightforward caps:

• Non-accredited investors can invest up to CAD $2,500 per offering. This limit is increased to $10,000, provided that FrontFundr has deemed the investment to be suitable.
• Accredited investors face no restrictions, allowing them more flexibility in their investments.

These caps are meant to safeguard investors from overextending their finances.

Complementary Listings: Expanding Horizons

For companies considering listing on both US and Canadian platforms, there are several key considerations:

1. Regulatory Compliance: Ensure your campaign meets the regulatory requirements of both countries. This may involve working with legal advisors familiar with cross-border crowdfunding.
2. Market Strategy: Tailor your campaign to appeal to both US and Canadian investors. Highlighting the unique aspects of your business that resonate with each market can enhance your campaign’s appeal. Remember that this means you can’t just copy a marketing strategy that worked well in the US and expect it to work the same way in Canada. It’s important to understand the new audience - the new demographics and trends - in order to successfully capture this market.
3. Currency Considerations: Be mindful of currency differences and how they impact your fundraising goals. Clearly communicate the currency in which you are raising funds to avoid confusion among investors.

Equity crowdfunding offers immense opportunities, but the approach varies between the USA and Canada. By understanding these differences and strategically planning your campaign, you can effectively raise funds and bring your innovative ideas to life. Whether you’re focusing on one market or aiming to list in both countries, the key is to be informed, prepared, and adaptable. This way, you can navigate the complexities of equity crowdfunding and achieve your funding goals.

Reach out to us at FrontFundr if you are interested in discussing more about cross border deals.