Equity Crowdfunding: What is Happening

Equity Crowdfunding: What is Happening

by Alixe CormickVenture Law Corporation

Greater Saskatoon Chamber of Commerce and NCFA Canada – May 28, 2014 – Leading the Way: Saskatchewan’s Emerging Equity Crowdfunding Environment

Disclaimer

• Information purposes only: The materials and information contained in this presentation are intended to provide information (not advice) about equity crowdfunding and related matters. You should not act on this information presented without first consulting with an attorney.

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• No Warranties: The information provided in this presentation is provided “as is”. We make no warranties, representations, or claims of any kind concerning the information presented is complete. We are not responsible for any errors or omissions in the content of this presentation or for damages arising from the use of the information provided under any circumstances.

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Outline of Discussion

• Equity Crowdfunding – What is it and why is it taking Off• What is happening now in equity crowdfunding.

• Worldwide overview• Equity crowdfunding in United States• Equity crowdfunding in Canada

• The problem the Saskatchewan and Start-Up Crowdfunding Exemption solves in Canada


Equity Crowdfunding – What is it and Why is it Taking

OffWhat is equity crowdfunding• Equity crowdfunding is the offering of unregistered securities

through a registered funding portal to raise small amounts of money from a large pool of non-accredited and/or accredited investors. These securities may be common shares, non-convertible preferred shares, convertible preferred shares, non-convertible debt securities, convertible debt securities, limited partnership units, trust units, or flow-through shares.

• Other terms used to describe equity crowdfunding are investment crowdfunding, securities-based crowdfunding or distributing securities over the internet.


Equity Crowdfunding – What is it and Why is it Taking

OffWhy is equity crowdfunding taking off• Part of wave of internet disrupting traditional industries

inefficiencies.• Part of wave of cultural disruption of people wanting to connect

in a meaningful way to the things we buy, do and invest in;• Over all leveling of access to capital and investment.

• In 2013, Angel investors in Canada invested $89 million into 199 deals.

• In 2013, Venture Capitalists invested $2 billion into 452 deals in Canada.

• Only 1% of this money flowed to ventures in SK and MB collectively.

• Compared to the U.S. , this flow of capital is small to size.


What is happening now in equity crowdfunding

• Worldwide overview• Equity crowdfunding in United States• Equity crowdfunding in Canada


Equity & Debt Crowdfunding Portals


All Crowdfunding Portals(930)Donation &

Product Presale Crowdfunding

(675)

Equity Crowdfunding

(225)

Debt Crowdfunding

(30)

Early Stage Non-accredited

Investor(100)

Early Stage Accredited

Investor(75)

Later Stage Accredited

Investor(35)

Portals worldwide May 2014

European Seed And Early StageEquity Crowdfunding Portals

(May 14, 2014)

PortalHomeCountry

TotalRaised onPlatform

Number of

Offerings

Mean Offering

Size

Anaxago France $6,500,000 19 $342,105

CrowdCubeUnited Kingdom

$36,806,451 116 $317,297

Companisto Germany $6,990,295 30 $233,010

Invesdor Finland $2,262,000 11 $205,636

OurCrowd(1) Israel $45,000,000 37 $1,216,216

Seedmatch Germany $16,858,725 60 $280,979

SeedrsUnited Kingdom

$14,920,000 96 $155,417

SyndicateRoom(1

)

United Kingdom

$10,720,000 11 $974,545

Symbid Netherlands $5,699,331 36 $158,315

WiSeed France $10,137,231 36 $281,590


U.S. Accredited InvestorEquity Crowdfunding Portals

(May 14, 2014)

PortalMarketFocus

TotalRaised onPlatform

Number of

Offerings

Mean Offering

SizeCircleUp Consume

r $ 30,000,000 30 $342,105

Equity Net All $231,748,700 18,896 $12,264

Crowdfunder All $111,700,000 9,778 $11,423

Fundable All $114,000,000 651 $175,115

Microventures All $39,600,000 56 $707,143

Realty Mogul Realty $18,000,000 67 $268,657

Fundrise Realty $10,000,000 19 $526,315

Rock the Post All $30,698,452 62 ?


Canadian Equity Crowdfunding Portals Operating Now

(May 14, 2014)


Accredited Investor Portals

Offering Memorandum Portals

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Proposed Equity Crowdfunding Specific Rules In Canada

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Proposed Equity Crowdfunding Rules In Canada


Start-Up Crowdfunding Exemption: (BC, SK, MB, QU, NB, and NS - SK version available now!)

• issuer may raise $150,000 in two separate offerings in 12 month period;

• investor has 12 month cap of $1,500 per issuer in 12 month period;

• issuer & investor both must reside in jurisdiction; • not available to reporting issuers or investment funds; • portal cannot be related to issuer of securities; and • portal is not required to be registered as a dealer but must file

notice and related forms 30 days in advance before commencing business.

Proposed Equity Crowdfunding Rules In Canada


Integrated Crowdfunding Exemption: (SK, MB, ON, QU, NB, and NS)

• issuer may raise $1,500,000 in 12 month period; • investor has 12 month cap of $2,500 per issuer and max of

$10,000 under exemption in 12 month period; • issuer & investor both must reside in jurisdiction;• not available to reporting issuers, investment funds, real estate

issuers, or issuers with an unstated business;• portal cannot be related to issuer of securities; and• portal must be registered as a restricted funding portal and

cannot be an exempt market dealer or investment dealer.

Current Rules Issuers Can Use When Equity Crowdfunding in

CanadaAccredited Investor Exemption: (Available in every province & territory in Canada)

• no limit on how much an issuer may raise ; • available to all issuers regardless of business sector or residency;• no investment cap on investors; • Investor must meet income, financial asset or net asset test:

– annual income of $200,000 individually or $300,000 with spouse; or– net financial assets of $1 million+ excluding home; or – net assets of $5 million+.

• portal relationship to issuer of securities to be managed; and• portal must be registered as an exempt market dealer, investment

dealer or restricted dealer.


Current Rules Issuers Can Use When Equity Crowdfunding in

CanadaOffering Memorandum Exemption: (Available in every province & territory in Canada, but ON. ON considering)

• no limit on how much an issuer may raise;

• available to all issuers regardless of business sector or residency;

• offering memorandum and financial statements required;

• AB, SK, MB, QU, PEI, NU, YK or NWT residents if investing $10,000+ must be an eligible investor based on: annual income ($75,000 individually or

$125,000 with spouse); or net assets ($400,000); or a close friend, family or business associate; or have obtained advice from an eligible adviser on suitability;

• portal relationship to issuer of securities to be managed; and

• portal must be registered as an exempt market dealer, investment dealer or restricted dealer.


The Problem the Saskatchewan and Start-Up Crowdfunding Exemption Solves in

Canada

Increases issuers access to capital• Not all of us come from rich families.• Angel Investors and Venture Capitalists rarely invest in early stage

ventures.

Increases investors access to early stage companies• People invest in people and things they know and the Start-Up

Crowdfunding Exemption allows them to do exactly that rather than being shut-out.


The Problem the Saskatchewan and Start-Up Crowdfunding Exemption Solves in

Canada

Existing securities exemptions often breached by accident• Family exemption does not include aunts, uncles, cousins, and ex-

wives’ husbands, now issuers can tap into that group of family.• A close personal friend is defined differently by regulators and normal

people resulting in close personal friend exemption being unavailable.• Accredited investor are rare and often people who think they are

accredited are not as defined by the securities regulators.• Calculating who does and does not count as one of the 50 investors

allowed under the private issuer exemption is confusing to normal people.

The Start-Up Exemptions eliminates need to be worried about the interpretation about the status of an investor.


Thank-you

Thank you to David Nguyen for his research assistance and to each attendee for participating in this seminar.

Venture Law Corporation618-688 West Hastings Street

Vancouver, BC V6B 1P1Phone: 604-659-9188

Fax: 604-659-9178Email: [email protected]

Website: www.venturelawcorp.comBlog: www.AlixeCormick.com

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Equity Crowdfunding: What is Happening