Startups would be able raise up to $150,000 twice a year by issuing securities through crowdfunding portals, under a proposal by the British Columbia Securities Commission.
The BCSC, along with other provincial regulators in Canada, put forward today (March 20) a plan to allow early-stage companies to distribute securities without a prospectus provided they meet certain conditions.
B.C.'s commission is seeking comments on the proposed startup crowdfunding exemption until June 18.
"We understand that many small and early-stage businesses believe the current regime is too expensive, relative to the amount of capital they need. We would like to know whether a start-up crowdfunding exemption would fill a funding gap in the current regime," the BCSC states in a notice and request for comment.
"The start-up crowdfunding exemption would be directed at small and early-stage businesses, designed to allow them to raise a defined amount of money in a more cost effective way. Investors in these start-ups would accept the risks of investing in early-stage businesses with some protection through limits on their investments."
Reporting issuers and investment funds would not be permitted to raise funds in this manner. Investors would be limited to ponying up $1,500 per offering.
Online crowdfunding portals, which would not be registered, would be prohibited from offering investment advice. They would have to "ensure investors confirm online that they have read and understood the issuer’s offering document and the risk warnings required under the exemption" and "ensure that all funds are held in trust for investors until the issuer raises the minimum amount required to close the offering".
"Today, a form of crowdfunding would already be permitted in BC with the use of an offering memorandum. Under the existing regulatory regime, a BC business could distribute securities through a website operated by a registered dealer. If the business relied on the offering memorandum prospectus exemption, it could raise any amount from any investor in BC," the BCSC notice states.
The BCSC is asking for input on nine questions relating to the proposal.
One question asks: "Although the start-up crowdfunding exemption is intended to assist start-up and early stage businesses, it is not restricted to those issuers. Should we restrict the exemption to issuers that have raised less than a certain amount since their formation? Should we limit the total amount an issuer can raise under this exemption?"