equity crowdfunding

www.viea.ca #VISummit

Equity Crowdfunding – Noise or Music to Your

Ears

by Alixe CormickVenture Law Corporation

October 30, 2014

@AlixeCormickwww.viea.ca #VISummit

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.


Outline of Discussion

• Equity Crowdfunding – What it is and Why it is Taking Off.

• What is Happening Now in Equity Crowdfunding.

• Proposed Equity Crowdfunding Specific Rules in Canada.

• Current Rules Issuers Can Use When Equity Crowdfunding in Canada.

• The Benefits and Drawbacks of Equity Crowdfunding.

• Closing Comments.


Equity Crowdfunding – What is it and Why it is Taking Off

What is Equity Crowdfunding?• Equity crowdfunding is the offering of unregistered securities

through a 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 it is Taking Off

Why 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 they buy, do and invest in.

• Over all leveling of access to capital and investment. • Equity Crowdfunding works.


What is Happening Now in Equity Crowdfunding

• Overview of Crowdfunding Portals• European Seed and Early Stage Equity Crowdfunding

Portals• U.S. Accredited Investor Equity Crowdfunding Portals• Canadian Equity Crowdfunding Portals Operating Now


Overview of 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

(CDN$ - October 15, 2014)

PortalHomeCountry

TotalRaised onPlatform

Number of

Offerings

Mean Offering

Size

Anaxago France $12,942,381 21 $616,304

CrowdCubeUnited Kingdom

$73,602,325 116 $634,503

Companisto Germany $17,251,830 30 $575,061

Invesdor Finland $4,041,240 11 $367,385

OurCrowd(1) Israel $62,466,196 37 $1,688,276

Seedmatch Germany $28,812,237 60 $480,204

SeedrsUnited Kingdom

$14,920,000 96 $155,417

SyndicateRoom(1)

United Kingdom

$18,765,304 19 $987,647

Symbid Netherlands $7,796,300 78 $99,953

WiSeed France $14,738,980 46 $320,413


U.S. Accredited InvestorEquity Crowdfunding Portals

(CDN$ - October 15, 2014)

PortalMarketFocus

TotalRaised on

Platform

Number of

Offerings

Mean Offering

SizeCircleUp Consumer $ 33,798,000 30 $1,126,600

Equity Net All $279,121,910 27,492 $10,152

Crowdfunder All $116,039,800 15,355 $7,557

Fundable All $155,470,800 651 $238,818

Microventures All $45,064,000 75 $600,853

Realty Mogul Realty $40,597,031 98 $414,255

Fundrise Realty $34,924,600 19 $1,838,136

OneVest(FKA Rock the Post)

All $111,272,948 62 $181,822


Canadian Equity Crowdfunding Portals Operating Now

(October 29, 2014)

Accredited Investor Portals

Offering Memorandum Portals


Proposed Equity Crowdfunding Specific Rules In Canada


Proposed Equity Crowdfunding Specific 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 and 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 Specific 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 and investor both must reside in jurisdiction;• available to reporting and non-reporting issuers involved in all business

sectors except investment funds, issuers with a unstated business purpose (blind pools) and real estate issuers that are not a reporting issuer.

• 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 Canada

Accredited 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.



Offering 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.



Existing Security Holder Exemption:(Available in every province & territory in Canada, but ON. ON considering)

• no limit on how much an issuer may raise;• available to all reporting issuers listed on TSX, TSX-V or CSE;• requires news release, investor confirmation of status, and

right of action for misrepresentation;• investor has 12 month cap of $15,000 per issuer unless they

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

investment dealer or restricted dealer.


Benefits and Drawbacks of Equity Crowdfunding

Benefits• New avenue to access capital for private and public issuers.• Eliminates risk of existing exemptions being improperly used

by issuers and broadens investor base.• Boosts investor relations best practices.• Opportunity to establish loyal repeat investors. • Streamlines traditional forms of capital raising.• Provides transparency that currently does not exist.• Most all or nothing platforms do not a charge fee unless

issuer reaches funding goal.


Benefits and Drawbacks of Equity Crowdfunding

Drawbacks• Equity crowdfunding does not guarantee investors.• Successful equity crowdfunding requires planning and work.• Equity crowdfunding favors those who have a crowd and

use social media.• Crowding funding using the integrated crowdfunding

exemption and offering memorandum exemption is expensive.

• Online fundraising can mean negative as well as positive exposure.


Closing Remarks

Equity Crowdfunding is Here and Growing Fast• Equity crowdfunding specific exemptions are pending. • The market in the interim is crowdfunding using existing

exemptions.• Issuers using Rule 506(c) in the U.S. since Sept. 23, 2013 have

raised approximately $385,840,413 (Crowdnetics 10/08/14).• Canadian issuers are raising capital on U.S. accredited investor

crowdfunding portals.• Institutional investors are active on equity crowdfunding portals.• NASDAQ, NYSE, TSX and Aequitas are all interested in providing a

secondary market for private issuers who crowdfund.


Thank-youThank you to David Nguyen for his research assistance and to each attendee for participating in this panel discussion.

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

Twitter: @AlixeCormickGoogle+: AlixeCormick

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