Crowdfunding: Why Canada is far behind the U.S.: KEVIN CARMICHAEL: Globe and Mail: CATA Speaks Out
May 3, 2012

Here’s a real time example of how the absence of a national securities regulator hurts Canada’s economy.

View full article at this URL:
http://www.theglobeandmail.com/report-on-business/economy/economy-lab/daily-mix/crowdfunding-why-canada-is-far-behind-the-us/article2420066/ 

At this moment in the United States, about a dozen companies are gearing up to link entrepreneurs to thousands of investors.

The Jumpstart Our Business Startups Act, which President Barack Obama signed into law in March, rewrote securities law to allow business owners to seek capital from unaccredited investors. The change means crowdfunding, heretofore restricted to charitable initiatives, can be used to sell shares to the public. There are strict limits on how much “unsophisticated” investors will be allowed to commit to a single company, but companies will be able to sell shares to dozens, or even hundreds, of investors. In the United States, angel investors and venture capital firms will now have to compete with “the crowd.”

Crowdfunding relies on social media platforms to bring entrepreneurs and companies together, not unlike an online brokerage firm. Among the companies developing an internet-based exchange is Durham, North Carolina-based Motaavi. One of the company’s co-founders is Nick Bhargava, who is originally from Edmonton. He has no intention of setting up shop back home in Canada.

Mr. Bhargava and his associates spent months lobbying Congress to make crowdfunding legal. That was no easy thing, but at least they could focus their efforts on one government: federal securities law trumps state regulations...

Gary Stairs, president of Red Hot Learning Inc. in Fredericton, finds the arguments against crowd funding “paternalistic.”

After entrepreneurs like Mr. Stairs max out their credit cards and the goodwill of friends and family, here’s what they have to do to raise money to take their companies to the next level: paperwork.

Mr. Stairs is on his fifth draft of the documentation that the New Brunswick Securities Commission requires so that he can solicit money from an individual investors without going through a public offering. The crowdfunding law in the U.S. is designed to prevent individuals from plowing their life savings into a company they know little about. Mr. Stairs says New Brunswick and Canada should do the same. He reckons he could have raised the money he needs to expand by now with access to crowdfunding. Instead, he’s about $60,000 and several months trying to satisfy New Brunswick’s securities regulator – all without knowing if his application to solicit funds ultimately will be approved.

On Wednesday, Mr. Stairs and others in the Canadian Advanced Technology Alliance begin a campaign to bring crowdfunding to Canada. The group plans to fan out across the country, putting pressure on provincial governments to change their securities rules to match those in the U.S. JOBS Act. Canada’s technology industry fears capital eager to get a piece of the next Facebook will rush to the U.S., leaving Canada further behind than it already is. “We have to do this at the same pace of the U.S. or we’ll get so far behind that we’ll never catch up,” said Barry Gander, executive vice president at the technology alliance.

Mr. Stairs, Mr. Gander and their allies have their work cut out.

Canada’s securities regulators are distant observers of what’s happening in the United States. Crowdfunding would be “a pretty big leap, I think, for us to take, but we would be interested in seeing where it goes,” Bill Rice, head of the Alberta Securities Commission and chairman of the Canadian Securities Administrators, said earlier this year.

Policy makers must find a trade-off between investor protection and allowing entrepreneurs reasonable access to capital. In Washington, a deeply divided Congress united around the argument that some of their Enron-inspired securities rules were stifling innovation and job creation.

Canada’s policy makers are about to be asked to make a similar re-examination. It’s going to take time, since those doing the asking will have to make the same points 13 times. And time, as they say, is money.