Start-up crowdfunding

Start-up crowdfunding

You may have heard of crowdfunding as a way for small businesses or creative projects to raise funds online from the public. Traditional crowdfunding (non-securities based) typically involves raising money through donations or by pre-selling products. Start-up crowdfunding, however, is a process of investing in a start-up or early-stage company by buying securities, such as debt securities (like bonds) or equity securities (like shares). Start-up crowdfunding investments are made on-line through a crowdfunding portal website, and they involve significant risk.

Start-up crowdfunding rules and exemptions

In Canada, there are rules and procedures in place that govern how businesses and funding portals conduct start-up crowdfunding. These rules are found in National Instrument 45-110: Start-Up Crowdfunding Registration and Prospectus Exemptions.

Overview of start-up crowdfunding rules

• A business can raise up to $1,500,000 under the crowdfunding prospectus exemption in a 12-month period.
• A purchaser can invest up to $2,500 in an offering, and that limit increases to $10,000 if a registered dealer advises that the investment is suitable for the purchaser.
• Funding portals are required to certify on a semi-annual basis that they have sufficient financial resources to continue operations for the following six months.

Start-up crowdfunding funding portals

To determine whether a Start-Up Crowdfunding Portal is exempt from registration under NI 45-110, please use the following link: (https://www.securities-administrators.ca/registration/are-they-registered/).