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Presentation at VIEA Summit on October 20, 2014 discussing: - 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.
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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.
• No Attorney-Client Relationship Created: This information on this presentation is not intended to create, and receipt of it does not constitute, an attorney-client relationship having been created by us with you or anyone else. Do not send us confidential information until you speak with us and receive our authorization to send that information to us. The act of talking to us informally or sending an email to us will not create an attorney-client relationship. If you are not currently a client of Venture Law Corporation, your email will be not considered privileged and may be disclosed to other persons. We promise, however, to keep your name confidential unless you tell us otherwise when talking to any regulators or third parties about securities law matters.
• 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.
@AlixeCormickwww.viea.ca #VISummit
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.
@AlixeCormickwww.viea.ca #VISummit
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
@AlixeCormickwww.viea.ca #VISummit
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.
@AlixeCormickwww.viea.ca #VISummit
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
@AlixeCormickwww.viea.ca #VISummit
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
@AlixeCormickwww.viea.ca #VISummit
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 $320,413
@AlixeCormickwww.viea.ca #VISummit
U.S. Accredited InvestorEquity Crowdfunding Portals
(CDN$ - 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
@AlixeCormickwww.viea.ca #VISummit
Canadian Equity Crowdfunding Portals Operating Now
(October 29, 2014)
Accredited Investor Portals
Offering Memorandum Portals
@AlixeCormickwww.viea.ca #VISummit
Proposed Equity Crowdfunding Specific Rules In Canada
@AlixeCormickwww.viea.ca #VISummit
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.
@AlixeCormickwww.viea.ca #VISummit
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.
@AlixeCormickwww.viea.ca #VISummit
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.
@AlixeCormickwww.viea.ca #VISummit
Current Rules Issuers Can Use When Equity Crowdfunding in Canada
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.
@AlixeCormickwww.viea.ca #VISummit
Current Rules Issuers Can Use When Equity Crowdfunding in Canada
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.
@AlixeCormickwww.viea.ca #VISummit
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.
@AlixeCormickwww.viea.ca #VISummit
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.
@AlixeCormickwww.viea.ca #VISummit
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.
@AlixeCormickwww.viea.ca #VISummit
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