On November 29, The Globe and mail reported that the government of Ontario is looking at ways to make their strict crowdfunding laws more flexible. Current Canadian rules make crowdsourcing, a new and quickly growing method of gaining funding for ventures, illegal in the country. At the front of this drive to loosen restriction is former Premier Dalton McGuinty who is very optimistic about the possibilities of crowdfunding. Efforts from McGuinty might be paying off as he noted that the Ontario Securities Commission is thinking about updating the Securities Act so that crowdsourcing will be exempted.
Crowdfunding is a method in which startups gather funds by asking for individual amounts from a myriad of people to meet certain funding goals. There are many online sites that feature campaigns from people and companies who setup pages to receive funds. The government is reluctant to allow crowdsourcing because it wants to protect the investors that partake in crowdfunding activities. Popular sites like Kickstarter and Indiegogo feature thousands of campaigns but it can be difficult to verify claims online because of the anonymous nature of the medium. At the moment there is no way of assuring a company will use the funds as they propose they will, a major sticking point for many.
The regulatory restrictions and risks have kept Canadian crowdfunding limited to donations that do not relate to any sort of equity stake. Basically, a startup in Canada can give their product to investors once it has produced the item but cannot give people that donate any if their company’s stock.
Startups in the US faced similar issues until the Obama administration took a proactive approach to the matter with the President signing the Jumpstart Our Business Startups (JOBS) Act in April. This act provides “unaccredited investors,” the chance to invest in a startup. At the time Obama was campaigning for the bill he claimed that its approval would help small businesses hire more people. Ontario may also be looking at the benefit of job creation as a major motivator to give exemptions for crowfunding. Ontario is looking into the matter and a consultation process including regulators is expected soon.
Source: Globe and Mail
Photo: Canada Cloud
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