Starting last week, Saskatchewan became the first province to allow startups and small businesses to raise capital through equity crowdfunding.
The Financial and Consumer Affairs Authority (FCAA) announced on Friday the Saskatchewan Equity Crowdfunding Exemption. The new exemption allows local startups and small businesses to use crowdfunding to sell securities such as shares, limited partnership units and promissory notes to residents of the province and unaccredited investors.
Canadian startups and small businesses have been pushing for equity crowdfunding since last year, when US President Barack Obama signed the Jumpstart Our Business Startups (JOBS) Act. The Act, signed in April 2012, created a crowdfunding exemption for American startups and opening the door to web-based funding.
The Government of Saskatchewan’s “Plan for Growth: Vision 2020 and Beyond” highlighted the importance of helping small businesses and startups in the province meet the challenges of growth.
“Small businesses play a central role in our economy,” said Gordon Wyant, the minister responsible for FCAA, in a statement. “Our government’s goal is to make sure that Saskatchewan continues to be one of the best places in Canada to start and grow a small business through competitive taxes, a continued reduction of red tape, measures to address the province’s labour shortage, and now through an additional source of funding.”
FCAA Chair and CEO Dave Wild explains in an interview that it was the local entrepreneurs who put them on the path towards equity crowdfunding.
“They were letting us know that there was a gap in fundraising for startups,” he says.
The current rules for selling stock can be “expensive, complicated and time-consuming” for startups and small business, he notes. “Equity crowdfunding will help fill the gap for these businesses so that they can compete in our market. We think it may get them over the initial funding hurdle. It offers an alternative side to finding capital.”
However, Wild notes that there are concerns as well. “One of our concerns is that entrepreneurs may not be ready to go to the public market,” he says. “There’s going to be a certain set of demands from investors. [Entrepreneurs] need to be accountable to hundreds of people.”
In addition to serving entrepreneurs, Wild adds that the exemption “may [also] encourage people to invest in companies, who otherwise may not invest in companies. It encourages them to get involved. It’s a unique opportunity to grow our provincial economy.”
The FCAA says that protecting the public interest is at the top of its priorities too. In addition to other precautions, the exemption limits the amount of money people can invest to $1500 for an offering.
“These will be fairly high-risk investments,” Wild says. “Even if these are great entrepreneurs, there will be some failures.”
Other provinces may also be following suit. The Ontario Securities Commission is reportedly intending to propose its own equity crowdfunding exemption for early next year.
“Equity crowdfunding is very exciting for us,” Wild says. “It feels right given the online market.”