Canadian government urged to get crowded; By Courtney Symons at OBJ: CATA CEO speaks out,
July 25, 2012

Industry pushes to make crowd-based equity fundraising legal

In a climate where capital is hard to come by, a new fundraising phenomenon has taken social media by storm and has startups consulting the crowd.

Topics :
Canadian Advanced Technology Alliance.Australia , Advanced Technology Alliance , U.S. bank , United States , Canada , United Kingdom

Popular websites such as Kickstarter and Indiegogo allow users to create online fundraising campaigns to ask for loonies or larger amounts from people within their social and professional networks. Investors are not granted equity in the company, but rather “perks” – a product presale, promotional gear or even just good karma.

But significant barriers stand in the way of taking this trend to the next level in Canada, barriers that the United States overcame after enacting the Jumpstart Our Business Startups (JOBS) Act in April. This legalized debt- and equity-based crowdfunding by updating decades-old securities laws that prohibit people from publicly soliciting funds from unaccredited investors.

Those dated laws still stand in Canada, however. With no national securities commission capable of making sweeping national changes, it falls to each province and territory to change legislation – and we need to get moving, says John Reid, president and CEO of the Canadian Advanced Technology Alliance.

Australia and the United Kingdom have already adopted laws similar to the United States to allow for equity-based crowdfunding.

“The fact that we’re slow adopters is really not a good sign and message that we should be sending out internationally,” he says. “We’re trying to make Canada a destination for business startups, yet we’re lagging behind.”

WHAT NEEDS TO BE DONE

Last month, CATA submitted an open letter to federal Industry Minister Christian Paradis, calling on the Canadian government to “address funding gaps in the innovation chain” and provide a framework of support for crowdfunding from which the provinces and territories could draw.

The letter asks the government to consider tax credits for crowdfunders as an incentive to help startups gain capital of which angel investors, family and friends can only provide so much.

Mr. Reid says he believes it will only take one province or territory committing to updating legislation before the rest follow suit. Changing laws could place Canada at the forefront of the crowdfunding movement.

“You always have to go for the big picture, and the bigger picture is how we can become the innovation nation instead of the catchup nation,” he says.

 CROWDFUNDING: THE FACTS

Venture capital investments in Canada have been dropping since 2001. Last year, $1.5 billion was invested nationally, down 28.6 per cent from $2.1 billion in 2007.

The amount of new money coming into Canadian VC funds was almost flat in 2011 at slightly more than $1 billion (compared to a 32-per-cent increase in the U.S.), and none of that new money came from U.S.-based investors (compared to 16 per cent in 2010).

A total of $112 million in equity crowdfunding was raised in 2011 globally, a little more than half of which was from the United Kingdom and Ireland.

Most of the rules in the U.S. JOBS Act have yet to be drafted, but in general the act will allow up to $1 million raised from investors, or up to $2 million if firms supply the crowd with audited financial statements. The companies do not have to disclose financial statements until they have 1,000 shareholders

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