(Adds industry comment, background)
By Alastair Sharp
TORONTO, March 20 The power of the crowd may
soon be harnessed to help fund business startups in Canada, with
several provincial securities regulators publishing proposed
rules on Thursday that would allow large numbers of people to
invest small amounts in promising projects.
The rule changes could offer a lifeline to the country's
technology community, which often turns to U.S. investors and
companies to fund early-stage growth.
Crowdfunding has proven a popular way for artists and others
to raise money, but in Canada it has not involved equity stakes
The Ontario Securities Commission, the country's biggest
capital markets watchdog, said its new rules would allow
registered online portals to collect up to C$2,500 ($2,200) per
investment from small-scale investors.
Such investors would be allowed to invest up to a total of
C$10,000 a year, while the companies would be limited to raising
C$1.5 million per year from crowdfunding.
"Today we have proposed new tools, which will transform
Ontario's exempt market by providing greater access to capital
for businesses and expanding investment opportunities for
investors," OSC Chairman Howard Wetston said in a statement.
And it is not just tech companies that stand to benefit.
Real estate, among others, stands ready to accept grass-roots
"It's a new opportunity to raise capital and get others that
traditionally aren't involved into the real estate game," said
Tim McKillican, the president of Open Avenue, a private real
estate developer and manager that owns almost 1,000 apartments,
mostly in Ontario's Kitchener-Waterloo region.
Without the new rules Open Avenue must win funding from rich
investors judged sophisticated enough to invest wisely or
otherwise able to sustain a loss of their capital.
"It's not like your net worth determines your sophistication
in investing," McKillican said.
Regulators in Alberta, Quebec, Saskatchewan and New
Brunswick published a joint proposal similar to the OSC
document. The releases start a 90-day consultation period.
British Columbia, another of Canada's biggest capital market
jurisdictions, said it was seeking comment on whether it should
adopt rules that less-populated Saskatchewan introduced in
Under those rules, single investments would be limited to
C$1,500 and businesses would be able to raise only two C$150,000
rounds a year.
Bill Rice, who heads both the Alberta Securities Commission
and an umbrella group of Canadian regulators, said serious
effort has been put into aligning the proposals.
"Differences in regulatory approach reflect differences in
local experience and feedback," he said. "Our intent is to
review the submitted comments and achieve as much harmonization
as possible before the final rules come into force."
Backers of such grass-roots investments have been waiting
for months for these proposals, which if adopted would give the
nascent model an injection of credibility.
"This is just the tip of the iceberg. These markets have
tremendous amounts of potential and this is step one," said
Craig Asano, the founder of the National Crowdfunding
Association of Canada, who hopes a secondary market will emerge.
Others, however, are more circumspect.
"My concern is that investors who might try their hand at
crowdfunding and get burned will then not buy IPOs when the tech
window presents them because they say a pox on the whole
technology house," Mark McQueen, the chi3ef executive of
Wellington Financial, said ahead of the rule proposals.
(Editing by Peter Galloway)