Introduction to Crowdfunding · 2017-09-07 · Finance private citizens to affect political change...
Transcript of Introduction to Crowdfunding · 2017-09-07 · Finance private citizens to affect political change...
Date: December 9, 2013
Prepared for: Employment and Social Development
Canada - Phase IV, 6D359, Gatineau, Quebec
Prepared by: Craig Asano
Introduction to Crowdfunding
Introduction to Crowdfunding
• Part 1: Introduction to NCFA Canada
• Part 2: What is Crowdfunding?
• Part 3: Benefits and Challenges
• Part 4: Industry Overview
• Part 5: Regulatory and Market Overview
• Part 6: Questions and Answers
• Part 7: Appendices
Slide | 2 Employment and Social Development Canada
Presentation Outline
PART 1
Part 1: NCFA Canada Introduction
Slide | 3 Employment and Social Development Canada
• Canada’s leading Crowdfunding Industry Association
• Cross-Canada non-profit with a growing National membership
of over 600+ industry stakeholders, SMEs and investors with a
wide social media reach
• Broad-based representing all forms of crowdfunding
• Community-based, membership-driven, collaborative,
transparent, inclusive and dynamic
• Support innovation, small businesses and entrepreneurship
and advocate for a dynamic, robust, harmonious and
protective Crowdfunding industry in Canada
• We serve industry, government, academia, small to mid-size
enterprises, innovation hubs and investor communities
Slide | 4
Who is NCFA Canada?
Employment and Social Development Canada
Slide | 5
NCFANot-for
Profit
* All resources are voluntary except for executive
management and any contracted services
Community-based
Industry Partners
� Sponsors
� Members
� Ambassadors
� Business associations
� International affiliates
Eco-system Partners
� Federal Government
� Provincial / municipal –
Regional Innovation centres
� Universities
Programs and
ServicesAdvocacy
Education and
Research
Networking and
Connecting
Industry News
Canadian Directory
Research & Analytics
Online and Offline
courses
Media Interviews
Public Relations Voice
Lobbying
Legal Framework
Regulations
Partner development
Lead generation
Introductions
Hosted Events
Ambassador Workshops
Community Building
* 2014 goals
Online marketplace
for discounted services
Programs
* Executive Management
Advisory Committees
Non-voting National Membership
NCFA Canada - NFP Structure
Employment and Social Development Canada
PART 2
Part 2: What is Crowdfunding?
Slide | 6 Employment and Social Development Canada
Slide | 7
What is Crowdfunding?
Definition: “Pooling of small amounts of capital from a large number
of people (known as ‘the crowd’) using the internet and social media”
Basic Models:
Primary Participants:
• Industry Stakeholders: Portals, providers
and enablers
• Fundraisers: Individuals or companies
that are seeking funding
• Investors: Retail or accredited
���� ���� �
Employment and Social Development Canada
�
Legally permitted
Not legally permitted
Permitted in Saskatchewan and via OM Exemption in some provinces
����
�
�
Slide | 8
Does Crowdfunding Work?
Source: Kickstarter Campaign page Rewards-based Canadian Example
Employment and Social Development Canada
Slide | 9
Sharing Economy
Moores Law
Virtual Startups
Maker Faire
Dragon’s Den
Disruptive Innovation
Social Enterprise
Key Drivers – Advancements in Technology
Highly Connected World
Employment and Social Development Canada
Slide | 10
The Brain Drain
Key Drivers – The Funding Gap
The Funding Gap
� Decline in innovation, capital
drain, negatively impact job
creation
SMEs are the backbone of
the Canadian economy
� Need capital to innovate
and compete globally, yet
they face HIGH BARRIERS
Risk?
Employment and Social Development Canada
Slide | 11
Donation-based Canadian Examples
Finance private citizens to affect political change
• St. Joseph’s Fleming Long Term Care Facility, ON
• Campaign to raise $25-100k to change federal laws
to protect seniors from abuse in long-term care
homes.”
• Appeared on ‘The Crowd funder Show’ launching
September 22, 2013
Community Aide (Alberta Arts Flood Rebuild)
• Seeking $500,000 to rebuilt the arts sector from
damaged or destroyed homes, venues, equipment
and lost contracts
• Industry dollar-for-dollar matching incentive
programs by Suncor Energy and Alberta Foundation
for the Arts
Employment and Social Development Canada
Slide | 12
Social Impact Crowdfunding Examples
Social Impact: Breast Cancer Detect Innovation
• Live campaign – raised over $50,000 towards
launching first clinical partner study
• In collaboration with regional innovation centre,
MaRS, hospital clinic and a group of universities and
breast cancer patients
Dutch city Rotterdam Crowdfunds a Bridge
• Raised $130,000 in 4 months to pay for planning,
design and development
• “The more you donate, the longer the bridge”.
Individuals and organizations sponsored planks of
wood with their name on it
• Civic project bringing the public and city together
Employment and Social Development Canada
Slide | 13
Peer-2-Peer Lending Portal Example
Employment and Social Development Canada
Funding Circle : Online marketplace for
small business loans
• Launched in 2010 and is backed by large VCs
(i.e., Union Square Ventures) and prominent
British entrepreneurs
• Facilitated £183 million pounds of small
loans between 60,000 members
Used by UK Government as Loan Channel
• Investors get an average net return of 5.7%,
access to their funds and can manage risk
• Borrowers get quick access and competitive
rates independent from the bank
Canadian P2P example
• Community Lend – P2P exemptive relief order from the Ontario Securities commission
Slide | 14
Canadian Equity Crowdfunding Portal Example
Employment and Social Development Canada
Goals:
• Generate positive social and
environmental impacts
• Build a scalable social
innovation model that can
operate in other provinces,
states and nations
Social Venture Exchange (SVX):
• In Sep 2013, the SVX received an exemptive order to operate as a Restricted Dealer in
Ontario only. Initiative in collaboration between MaRS, TMX and SVX groups
• Single access point for impact ventures, funds and investors
• During pilot year, their goal is to register 30 issuers, 100 accredited investors, and mobilize
at min $2.5 million in capital for at least 10 ventures and funds on the platform
Slide | 15
Canadian Equity Crowdfunding Portal Example
Employment and Social Development Canada
The Exempt Capital Network
• Launched in 2013, based in Calgary and in
partnership with an EMD
• Brings together corporate issuers, exempt
market accredited investors and industry
professionals
Optimize Capital Markets
• Launched in Sep 2009, Optimize is a
marketplace where accredited investors
and institutions can trade in private
investment opportunities
• Operate in Ontario, Quebec, Alberta and BC
PART 3
Part 3: Benefits and Challenges
Slide | 16 Employment and Social Development Canada
• Access to a new source of capital to fill a critical funding gap � Efficient, transparent, cost effective
� Mobilize funds to non-traditional groups (e.g., rural areas, local)
• Crowdfunding helps get new businesses off the ground� First customer traction and pre-order sales (reduces risk)
� Help raise early stage funding (VC feeder system)
� Market driven valuations
� Organizational preparedness
• Market research and product validation� Crowdsourced feedback ‘intelligence’ (bolsters confidence, or
demands that entrepreneurs pivot their business model)
• The power of the crowd: social media / marketing mavens� Once committed investors become avid supporters, promoters and
connectors for the project
Slide | 17
Crowdfunding Benefits for Startups and SMEs
Employment and Social Development Canada
• Support innovation and entrepreneurism in Canada
• Participation in more opportunities (96% of Canadians are non-
accredited investors)
• Direct connection with project founders (engagement)
• Wide range of projects to invest in (diversification)
� Spread risk in a self-directed manner
� Choose a portal and project that suits their investment profile
� Organizational preparedness
• Standardization, tracking and transparency� Technology will professionalize and streamline investor relations
� Standardize shareholder agreements and legal documents
• Direct access to other investors� Angel group syndications, lead investors versus the general crowd
• Go beyond geographic boundaries� Easy access to deals
Slide | 18
Crowdfunding Benefits for Investors
Employment and Social Development Canada
• Fraud and investor protection� Crowd intelligence and due diligence
� Insurance
• Concerns of illiquid nature of crowdfunding investments� Purchase risk acknowledgement
� Strong case to develop a secondary market
• Increase in business failures and investor fatigue
• Large number of investors � Can be organized into a trust (single controlling member)
� Streamlined communications, voting, reporting and tracking
• Regulations need to match equity crowdfunding models� In the US, SEC/FINRA slow to finalize and only recently released equity
crowdfunding rules and regulations
� Canadian regulators are assessing the need for proposed frameworks of a
specific crowdfunding exemption versus permitted under existing
prospectus exemption (i.e., the OM exemption by an EMD)
Slide | 19
Crowdfunding Challenges
Employment and Social Development Canada
PART 4
Part 4: Industry Overview
Slide | 20 Employment and Social Development Canada
Slide | 21
Funding Volume
Grew by 81%
$2.7 billion in 2012
$1.5 billion in 2011
Distribution
60% North America
35% Europe
5% Other
Total # of Portals
Grew 80%
813 in Mar 2012
452 in Apr 2011
Source: Massolution Apr 2012
Global Funding Volume by Region (2012)
Employment and Social Development Canada
Slide | 22
Source: Massolution Apr 2012
Accelerating
81% y-o-y growth
In 2012
Distribution
Lending - $1.2b (44%)
Donation - $980m (37%)
Reward $383m (14%)
Equity $116m (4%)
Fastest Growing
Lending 111%
Global Funding Volume by Model (2012)
Employment and Social Development Canada
Source: Massolution Apr 2012
Slide | 23
Total Campaigns
1.1 million worldwide
North America (625k)
Europe (470k)
Total # of Portals
Grew by 50%
542 portals in Apr 2011
813 portals in Mar 2012
Average Campaign Size by Model
Employment and Social Development Canada
Slide | 24
Vibrant Growing Industry• 300%+ growth in donation/reward portals since April 2012
• Several niche portals such as student scholarships, sports
athletes, not-for-profits and crowdfunding research
Canadian Industry – Portal Distribution
Reward-based:
Equity-based via Dealer:
Employment and Social Development Canada
Industry
• Growing eco-system� Financial providers, consultants, placement agents
� European crowdfunding network and rise in Asia
� Iterative equity crowdfunding regulations (cost of capital vs need)
• Big data from ‘investment profiles’
• Live Crowdfunding
• Enterprise Crowdfunding� CSR (e.g., Microsoft’s ‘Chipin’ student laptop program)
� Consumer centric (Dodge Dart CF purchase of a vehicle)
� Crowdsourcing input, contests (Doritos revenue share)
• Mainstream Crowdfunding� A&E Project Startup; CNBC Crowdrules
� Celebrity (Donald Trump – fund anything)
Global Crowdfunding Trends
Slide | 25 Employment and Social Development Canada
Portals
• More dealer-broker models (EMDs, IIROC)
• Feeder systems and aggregation models
• Increase in niche, community and hybrid platforms
• Direct Crowdfunding (white label, widgets, plugins)
• Cross-border crowdfunding
Issuers and Investors
• More competitive = will need to be more prepared
• Accredited investor equity crowdfunding
• Optimize long term online strategy (engagement)
• Predetermined entry / exit strategies
• Integrated funding strategies (government + CF + VC)
• Member-driven investor syndicates
Global Crowdfunding Trends
Slide | 26 Employment and Social Development Canada
PART 5
Part 5: Regulatory and Political Overview
Slide | 27 Employment and Social Development Canada
• Events and conferences are springing up across the globe
• Increase in the number of start-ups (i.e., Maker Faire movement)
• SMEs are seeking education to learn best practices for launching a
successful crowdfunding campaign
• Licensed Dealer-Brokers are partnering with Crowdfunding platforms
in the U.S. and new portal registration category created like AngelList
• Online investment communities are forming syndicates
• The largest and most successful portals are aggressively targeting to
expand globally including to Canadian markets
• VC funds are investing in equity crowdfunding portals, such as Union
Square Ventures led $7.5m in CircleUp
• Title II of the JOBS Act commenced on Sep 24, 2013 allowing private
companies to advertise and solicit to the general public for investments
provided that ultimately only accredited investors invest
Slide | 28
Market Overview: High Demand and Activity
Employment and Social Development Canada
• Crowdfunding is a hot topic amongst start-up, new venture, finance,
technology, marketing, government and academic circles
• OSC has taken a leading role in engaging public discussions. Released a
consultation paper in Dec 2012 and received 100+ responses, as set out in its August
2013 progress report
• CSA viewing Offering Memorandum exemption as Canada’s equity
crowdfunding exemption
• CSA released a blanket order that relaxed some financial reporting
requirements last Dec 2012 and is reviewing OM exemption options
• Jun 17, 2013, OSC issued an exemptive relief order for MaRs SVX to sell
securities over the internet to Ontario AI investors for ‘social impact’ deals in
Ontario only ($25-50k/year cap) – relief from Suitability
• Jul 9, 2013, FCAA in Saskatchewan issued a new proposal for comment, which
has been called ‘Crowdfunding lite’
• Canadian deal flow is going South to raise capital on US rewards-based portals
such as Indiegogo and Kickstarter and equity portals such as AngelList
Slide | 29
Market Overview: Strong Political Incentives
Employment and Social Development Canada
Slide | 30
(See Appendices: 1-4 for more details)
Canadian Crowdfunding Regulations
OSC CSA BCSC FCAA
Notice
Reference
Exempt Market Staff
Consultation Paper 45-
710
Multilateral Blanket Order
45-311 to OM - Exemption
from certain financial
statements
National instrument 45-
106
Proposed exemption to
assist capital raising for
small businesses
Equity Crowdfunding
Proposal
Date Issued Dec 2012 Dec 2012 Feb 2013 Proposal Jul 2013
Status Proposal In effect Proposal [LIVE] Dec 6th, 2013
Jurisdiction OntarioCanadian Securities
AdministrationBritish Columbia Saskatchewan
Issuer
Cap per year < $1.5 million < $500k < $150k
Restrictions
Excludes reporting issuer,
investment fund,
mortgage or real estate
entity
Excludes reporting issuer,
investment fund,
mortgage or real estate
entity
Up to twice per year
Incorp Canada Office Yes
AdvertisingPortal and issuer site
only
Audited >$500k None
Certified <$500k $<500k
Complex Securities No No No
POS Disclosure Yes Yes Yes Yes
Risk Ackknowledge Yes Yes Yes Yes
Investor
per deal < $ 2,500 < $ 1,500
per year < $10,000 < $ 2,000 < $ 2,000 Unlimited
Restrictions Accredited or Retail Accredited Accredited or Retail Accredited or Retail
Cooling off period 2 days
Portals Registered Registered Registered
No investment advice
Pre-notice filing
No Registration
Employment and Social Development Canada
PART 6
Part 6: Questions and Answers
Slide | 31 Employment and Social Development Canada
Craig Asano is the Founder and Executive Chair of the
National Crowdfunding Association of Canada (NCFA
Canada), a cross-Canada non-profit with the mandate to
provide education, advocacy and networking opportunities
in the emerging Crowdfunding industry. Craig has 15 years
of experience as a marketing strategist, software
technologist and start-up entrepreneur in technology,
finance, manufacturing and real estate sectors.
He is actively involved in developing the Canadian
Crowdfunding industry at a grass-roots level connecting with
industry stakeholders, leaders and key participants across
the country. He regularly participates at crowdfunding
events and has spearheaded multiple programs and
initiatives including Canada’s largest Crowdfunding
Directory, a National Ambassadors outreach program, and
NCFA Canada’s advocacy efforts to advance equity-based
Crowdfunding regulations in Canada.
Slide | 32
Craig Asano: Contact Information
Employment and Social Development Canada
Brian Koscak is a Partner at the law firm of Cassels Brock
& Blackwell LLP located in Toronto, Ontario and practices
in the area of corporate and securities law. Brian is the
Chairman of the Exempt Market Dealers Association of
Canada, a national non-for-profit organization
representing exempt market dealers, issuers and
compliance professionals across Canada. Brian is also a
member of the Ontario Securities Commission’s Exempt
Market Advisory Committee which is considering new
ways to raise capital in Ontario, including through equity
crowdfunding.
Brian is actively involved in developing a viable
Crowdfunding framework for Canada. He has spoken at
numerous Crowdfunding conferences, events and
webinars, met with securities regulators across Canada to
discuss the many aspects of Crowdfunding and is actively
engaged with clients in the space and more generally with
the prospectus and registration issues involving selling
securities over the internet.
Slide | 33
Brian Koscak: Contact Information
Employment and Social Development Canada
Brian Koscak
Partner, Cassels Brock & Blackwell LLP
(416) 860 2955
Cassels Brock & Blackwell LLP
Suite 2100, Scotia Plaza Suite 2200, HSBC Building
40 King Street West 885 West Georgia Street
Toronto, ON Canada M5H 3C2 Vancouver, BC Canada V6C 3E8
Tel: 416 869 5300 Tel: 604 691 6100
Fax: 416 350 8877 Fax: 604 691 6120
PART 7
Part 7: Appendices
Slide | 34 Employment and Social Development Canada
Dec 2012: OSC Staff Consultation Paper 45-710
• $1.5 million in any 12 month period
• $2.5k in any single deal up to $10k in any 12 month period
• Incorporated in Canada and head office located in Canada
• Advertising restriction to only the portal and issuer’s website
• Not available to investment funds or complex securities
• Investors can only re-sell securities under existing prospectus
exemptions; they are illiquid investments
• Sign a risk acknowledgement and 2 day cooling off period
• Disclosure at point of sale (financing, issuer and risk factors)
• Deal is <$500K mgt certified statements; >$500k audited
• Portal regulation unclear but will have to register (gatekeeper)
Link to OSC Exempt Market Review (Consultation Paper):
http://www.osc.gov.on.ca/documents/en/Securities-Category4/sn_20121214_45-710_exempt-market-review.pdf
Link to NCFA Canada response:
http://www.ncfacanada.org/ncfa-canada-equity-crowdfunding-principles-response-to-osc-staff-consultation-paper-45-710/
Slide | 35
Appendix 1: OSC Exempt Market Review
Employment and Social Development Canada
Dec 2012: Multilateral CSA Notice 45-311 Exemptions from
Certain Financial Statement Requirements in the OM to
Facilitate Access to Capital by Small Businesses
• Issuer group cap under the Blanket Order < $500,000
• Investor cap of $2,000 of all securities distributed under the blanket order
in any 12 month period
• Issuer cannot be a reporting issuer, investment fund, mortgage
investment entity or a Company engaged in the real estate business
• Issuer is not distributing complex securities
Link to NBSC Blanket Order:
http://www.ncfacanada.org/nbsc-blanket-order-with-important-changes-to-om-exemption-to-facilitate-small-business/
Slide | 36
Appendix 2: CSA Relief Under OM Exemption
Employment and Social Development Canada
Feb 2013: National Instrument 45-106 Proposed Prospectus
Exemption to Assist Capital Raising by Small Businesses
• The issuer need only include unaudited financial statements prepared
using private enterprise GAAP in the offering memorandum and comply
with these conditions:
• Issuer group cap < $500,000
• Investor cap of < $2,000 in any 12-month period
• Issuer is not a reporting issuer, investment fund, mortgage investment
entity or real estate issuer
• Issuer cannot distribute complex securities
• OM contains a bold warning on the front page
Link to BCSC Proposal:
http://www.ncfacanada.org/national-instrument-45-106-proposed-prospectus-exemption-to-assist-capital-raising-by-small-
businesses-request-for-comment/
Slide | 37
Appendix 3: Proposed BC CF Exemption
Employment and Social Development Canada
Approved Dec 6, 2013: FCAA Approves Equity Crowdfunding
Exemption in Saskatchewan
• Investors capped at $1,500 per deal but no limit on how many
investments within any 12-month period
• Issuers can raise up to $150,000 no more than twice per year
• Offering period can be no longer than six months
• No financial statement requirements
• Any type of issuer can use this exemption and issue any type of security
• Portals are exempt from registering with the FCCA, therefore, there are no
“know your client” or “suitability” requirements
• Portals cannot provide investment advice
• Portals can charge fees but no fees are required to be paid to the FCCA
Link to Saskatchewan Crowdfunding ‘lite’:
http://www.ncfacanada.org/wp-content/uploads/2013/07/Proposal-FCAA-Crowdfunding-Exemptions-July-9-2013.pdf
http://ncfacanada.org/equity-crowdfunding-available-in-saskatchewan/
Slide | 38
Appendix 4: FCAA Equity Crowdfunding Exemption
Employment and Social Development Canada