REGULATION OF EQUITY CROWDFUNDING IN CANADA

Silicon Valley Meets Crowdfunders Second Annual Conference and Expo

Brian Koscak, Partner, Cassels Brock & Blackwell LLP

Co-Chair, Equity Crowdfunding Alliance of Canada

Chair, Private Capital Markets Association of Canada

April 3-4, 2014 @ Palo Alto, CA

Disclaimer

The opinions expressed today are provided in my personal capacity and do not necessarily reflect the opinions of Cassels Brock & Blackwell LLP or any of its clients.

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This presentation is for educational purposes only and should not be construed as legal advice and anyone considering raising capital or becoming a dealer or portal in Canada should consult with a lawyer specializing in Canadian securities law.

Equity Crowdfunding in Canada

1. Equity Crowdfunding is legal in Canada under existing prospectus exemptions provided securities are sold through a registered dealer (exempt market dealer).

● Two prospectus exemptions

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● Two prospectus exemptions

● Accredited investor exemption

● Offering memorandum exemption

Accredited Investor Exemption

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Offering Memorandum Exemption

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1. SeedUps Canada

● working with an exempt market dealer

Who is doing it today in Canada

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2. Optimize Capital

● Registered as an exempt market dealer

Proposed New Equity Crowdfunding Eco-System of Capital Raising in Canada

● March 20, 2014, various Canadian securities regulators published for comment a new eco-system of capital raising in the private capital markets.

● The proposed new world order has four main silos:

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Start-Up Crowdfunding Exemption

Equity CrowdfundingExemption

Offering Memorandum Exemption

AccreditedInvestorExemption

(Comment period ends June 18, 2014)

(Comment period ends June 18, 2014)

(Comment period ends June 18, 2014)

(Comment period ends May 28, 2014)

Proposed Equity Crowdfunding Exemption

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Proposed Start-Up Exemption

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Comparison of Equity Crowdfunding Frameworks (Selling securities on the internet to the public)

OfferingMemorandum

Exemption

Equity Crowdfunding

Exemption (Proposed)

Start-Up Crowdfunding

Exemption(Proposed)

Issuer Restrictions

Applicable Jurisdictions All Canada except ON ON, QB, MB, SK, QB, MB, SK, NB, NS

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Applicable Jurisdictions All Canada except ON

where it is proposed

ON, QB, MB, SK,

NB, NS

AB – monitoring

comments

QB, MB, SK, NB, NS

AB – monitoring

comments

BC – seeking comments

Canadian issuers only No Yes No, but head office

requirement

Public and private issuers Both Both Private issuer only

Prohibitions on types of

issuers or industries

No, except for ON/NB,

investment funds and

related issuers excluded

No investment funds, real

estate issuer, issuers that

do not have a business

plan or related issuers

No investment funds or

reporting issuers

Comparison of Equity Crowdfunding Frameworks (Selling securities on the internet to the public)

OfferingMemorandum

Exemption

Equity CrowdfundingExemption (Proposed)

Start-Up Crowdfunding

Exemption(Proposed)

Distribution Details

Restrictions on offered

securities

No, except for ON, no

complex securities such

Simple securities and

no derivatives.

Simple securities and

no derivatives.

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securities complex securities such

as structured finance

products or specified

derivatives

no derivatives. no derivatives.

Issuer Caps No $1.5 Million $150,000/$300,000

Investor Caps BC Model – NoneAB Model - $10,000 unless an eligible investorProposed OM Model –$10,000 unless an eligible investor then up to $30,000 (AB, SK, QB, ON, NB)

$2,500/$10,000 $1,500

Comparison of Equity Crowdfunding Frameworks (Selling securities on the internet to the public)

OfferingMemorandum

Exemption

Equity Crowdfunding

Exemption (Proposed)

Start-Up Crowdfunding

Exemption(Proposed)

Distribution Details - continued

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Limitation on offering

period

No 90 days 90 days except for SK

where it is 180 days

Concurrent offerings Yes Yes, on same terms Yes, except for SK

Restrictions on

soliciting and

advertising

No Yes Yes

Offering document

requirement

Yes Yes Yes

Comparison of Equity Crowdfunding Frameworks (Selling securities on the internet to the public)

OfferingMemorandum

Exemption

Equity Crowdfunding

Exemption (Proposed)

Start-Up Crowdfunding

Exemption(Proposed)

Investor Protection Measures

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Financial information

requirement

Yes Yes Yes

Audited financial

statement requirement

Yes except for local

Orders where

amounts raised are

less than $500,000

Yes, if amounts raised

exceed $500,000

No

Cooling Off Period Yes Yes No, however under

review

Comparison of Equity Crowdfunding Frameworks (Selling securities on the internet to the public)

OfferingMemorandum

Exemption

Equity Crowdfunding

Exemption (Proposed)

Start-Up Exemption(Proposed)

Investor Protection Measures - Continued

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Investor Protection Measures - Continued

Resale restrictions Yes Yes Yes

Ongoing disclosure

requirement

No

Proposed (AB, QB,

ON, SK, and NB)

Yes No

Comparison of Equity Crowdfunding Frameworks (Selling securities on the internet to the public)

OfferingMemorandum

Exemption

Equity Crowdfunding

Exemption (Proposed)

Start-Up Exemption(Proposed)

Regulation of Portal

Intermediary required N/A Yes Yes

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Intermediary required N/A Yes Yes

Intermediary required

to be registered

N/A*

* Yes, if the

issuer/intermediary is

in the “business of

trading” securities

Yes No

Prohibited portal

activities

N/A Yes Yes

Background checks by

portal on individuals

involved with issuer

N/A Yes Yes

1. Accredited Investor Exemption

● Wealthy individuals

● If on-line through a registered exempt market dealer

2. Offering Memorandum Exemption

Summary: Four Ways to do Equity Crowdfunding in Canada

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● The public/crowd

● If on-line through a registered exempt market dealer

3. Proposed Equity Crowdfunding Exemption (for small and

medium sized enterprises or SMEs)

● Registered portal (i.e., restricted dealer, MaRS VX)

4. Proposed Start-Up Crowdfunding (for start-ups)

● Unregistered portal

Cross-Border Equity Crowdfunding Opportunities

●U.S. broker-dealer working with a registered exempt market dealer in Canada

●Selling to accredited investors in the U.S. and Canada

●Selling to accredited investors in the U.S. and Canada and/or the public/crowd in Canada under the Offering Memorandum

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the public/crowd in Canada under the Offering Memorandum Exemption

●U.S. portal working with exempt market dealer or restricted dealer in Canada

●Note – U.S. portals/broker dealers need to comply with Canadian securities law when selling securities to Canadian investors.

Questions

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Speaker Bios

Brian Koscak, B.A.(Hon), M.A., CIP, LLB., J.D. and LL.M 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 Chair of the Private Capital Markets Association of Canada (formerly, the Exempt Market Dealers Association of Canada), a national not-for-profit organization representing exempt market dealers, issuers and compliance professionals across Canada. Brian is also the Chair of the Equity Crowdfunding Alliance of Canada, an alliance of funding portals, issuers, professionals and vendors who seek to

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of Canada, an alliance of funding portals, issuers, professionals and vendors who seek to promote and advocate for equity crowdfunding in Canada. Brian is a member of the Ontario Securities Commission’s Exempt Market Advisory Committee which is considering new ways to raise capital in Ontario’s private capital markets, including equity crowdfunding. Brian is actively involved in developing a viable crowdfunding framework for Canada. He has been mentioned in the media numerous times, spoken at numerous crowdfunding events and conferences and represents various exempt market dealers and portals involving their equity crowdfunding businesses. Brian can be reached by phone at 416-860-2955, by e-mail at bkoscak@casselsbrock.com or on twitter @briankoscak. Brian also regularly writes about Canadian securities law matters on his personal blog at: www.briankoscak.com

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