What is Crowdfunding?

Crowdfunding is the practice of raising funds through the mutual effort of friends, family, investors, and clients. This method, which usually takes place online, channels a larger pool of supporters by capitalizing on a business’ network and reach to get funded. There are currently three main types of crowdfunding.

History of Crowdfunding in Canada

In Canada, investing in private companies of any kind is controlled by Securities laws.  A prospectus exemption allows companies to avoid considerable paperwork and ongoing requirements when investors buy their shares, and all private companies use them to raise capital. 

For years, traditional prospectus exemptions only allowed certain people to invest in these private companies, whether they be established small businesses or startups: mainly close friends, family and business associates of the founders and wealthy investors.  The system was not well designed to allow everyone to participate, with the idea being that since these investments were complicated and high risk, only those with the adequate knowledge or the ability to withstand losing their whole investment (wealthy people) being able to participate.

However, technology and equity crowdfunding changes all that. With computers, software, and the internet, it became possible for hundreds or thousands of people to invest small amounts in one company, something which was not feasible back when every transaction was manual and required the in-person signing of documents.  Now equity crowdfunding makes it easy for people to participate and invest small amounts in a variety of exciting companies.  However, Canadian securities laws were not prepared to handle this type of investing, and new rules needed to be created to both allow more investors, but also to protect those same investors.  

With the boom of equity crowdfunding around the world in places like the UK, USA, and Israel, several Canadian Securities Regulatory Authorities (the government organizations that regulate investing in each province) created special prospectus exemptions for Equity Crowdfunding in 2016.  These exemptions allow companies to raise funds directly from the public if they meet several requirements.  One example of an exemption prepared by the Ontario Securities Commission (OSC) and a few others is called Multilateral Instrument 45-108 Crowdfunding, or the Crowdfunding Exemption for short. This regulatory change was an amazing first step, and equity crowdfunding became possible in certain provinces in Canada for the first time.  

However, company’s wanting to use the Crowdfunding Exemption cannot do it on their own.  The Crowdfunding Exemption requires a licensed company, called a Restricted Dealer or Exempt Market Dealer, to act as the platform and broker the deals between the companies raising money and the investors. Equivesto Canada Inc. is licensed to ensure that we meet securities regulations, protect investors and companies, and can be monitored. The OSC places the responsibility on licensed platforms to ensure no one can just make up a company, set up a platform, and raise millions of dollars.  

A few months after the 2016 rule change Equivesto was born.  Founded in 2017, we have been working diligently since then to perfect our platform and get our Exempt Market Dealer registration (click here to confirm our licence). In 2020, we launched and entered the market, to help Canadians directly invest in exciting companies. 

In 2021, regulators from across Canada came together to agree on one set of equity crowdfunding rules that would apply all across Canada. This unified rule, called National Instrument 45-110 Startup Crowdfunding Exemption, is an excellent set of rules that makes equity crowdfunding accessible and useable for the majority of Canadian companies and investors.

We are proud that Equivesto, along with other members of the Canadian equity crowdfunding community, was able to provide feedback to the regulators and help make these new rules a reality.