A case for crowdfunding by Christine Dobby, Financial Post: CATAAlliance CEO Speaks Out
April 20, 2012

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Recent changes to legislation in the United States mean that private companies will soon be able to solicit investment from the crowd. The shift to permit non-accredited investors to take small equity stakes in private companies has some suggesting Canada’s own startup scene will be left behind if similar changes aren’t enacted north of the border.

The worst-case scenario, they say, is startup and high-growth companies who can’t find capital in Canada defecting to the more accommodating climate in the United States.

One of the loudest voices calling for change is the Canadian Advanced Technology Alliance (CATA), which has launched a public campaign to urge change to securities laws to permit equity investing via crowdfunding.

“We made it very clear that growth capital is perhaps the No. 1 driver of locations particularly for startup companies. We are in a digital world, so we should look very carefully at what our international competitor nations are doing,” says John Reid, CEO of CATA.

“Instead of falling behind, why don’t we try to make Canada the destination for emerging growth companies?”

“With something like crowdfunding, you’re opening up that risk to an individual who has less financial strength.”

Supporters of crowdfunding say controls can be put in place to address such concerns. For example, CATA’s John Reid said SEC oversight will be implemented in the U.S.

“We recognize that everything has to be done with controls and governance,” he said, adding, “You can’t legislate all risk out of investment.”

Mr. Reid said Ottawa should actively champion a change in securities legislation or risk losing investment and jobs.

“The federal government can say it’s provincial jurisdiction, but that doesn’t mean they’re excluded from messaging, reaching out and taking political leadership,” he said. “I would argue that suasion is quite powerful.”

Mr. Reid said the Conservative government did try to address access to capital for entrepreneurial companies in its recent budget, with an extension of the Industrial Research Assistance Program and a $400-million venture capital fund. But for now funding for startups remains an area of concern, he said.