FrontFundr, a Vancouver based Fintech and leading investment crowdfunding platform in Canada, is raising capital while advocating on behalf of a more common-sense approach to online capital formation.
Canada is a smaller market that has an active early-stage community and a dedicated professional sector promoting Fintech. But the regulatory environment enabling online capital formation is pretty much broken.
Securities are regulated at the provincial level meaning rules are fragmented and difficult to manage – especially if you are a smaller firm seeking to raise capital or a platform helping to match investors with promising young firms. While the country has talked about rationalizing securities regulation it just isn’t going to happen any time soon. Provincial regulators are happy with their leading role at the local level and the political will to streamline regulations just doesn’t exist. Bureaucratic empires are difficult to change.
Early last year, the Canadian Securities Administrators (CSA) committed to creating a harmonized crowdfunding regime so there may be a light at the end of the tunnel. At that time, the CSA noted that the securities regulatory authorities of British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick and Nova Scotia, had adopted “substantially harmonized” rules. The participating jurisdictions implemented the start-up crowdfunding exemptions by way of local blanket orders, as amended from time to time1 (the start-up crowdfunding exemptions orders) CSA staff said they were developing a “national instrument with the same key features as the start-up crowdfunding exemption.” The goal is to improve “harmonization and the effectiveness of crowdfunding as a capital-raising tool.
No word as to when this harmonization goal, a project that is truly simple on the surface, will be accomplished.
Leading the charge in advocating on behalf of a rationalized regime, has been the National Crowdfunding and Fintech Association (NCFA) and platforms like Frontfundr.
In December, Peter-Paul Van Hoeken, founder and CEO of Silver Maple Ventures Inc., the parent company of FrontFundr, promoted greater access for both accredited and non-accredited investors. In a discussion with WealthProfessional, Van Hoeken explained his ambition to transform private markets into a “fully recognized and mature asset category.”
Van Hoeken stated:
“Currently, if you want to diversify your portfolio, the typical investor can turn to ETFs, bonds, REITs, and savings accounts. Why shouldn’t investors, regardless of how much they’re making, have private-market investments in their portfolio as well? That’s the question we’ve asked from the very beginning,” he declared.
Van Hoeken believes that CDN $2.5 billion could be released for private markets if just 1.5% of investible assets held by the public went into this sector – thus helping to boost entrepreneurship and innovation.
This past January, Van Hoeken criticized the unwieldy crowdfunding ecosystem. In WealthProfessional once again, Van Hoeken politely stated:
“Ontario introduced its own crowdfunding rule in 2016, which turned out to require too much work and didn’t produce the expected impact.”
The truth was harsher than Van Hoeken’s diplomatic statement as not a single issuer utilized the Ontario exemption to our knowledge. A profound failure of both elected and appointed officials.
Meanwhile, Canada trails behind more developed ecosystems like the United Kingdom where many early to later stage firms pursue investment crowdfunding and multiple well-known unicorns have raised growth capital from a wider segment of the population – not just money from the already rich.
Crowdfund Insider recently spoke to Van Hoeken. We asked him how soon harmonization will emerge across the Canadian provinces. He told us that the Canadian provincial securities regulators are working on a national investment crowdfunding rule, but it remains unclear as to when this new regulation will be finalized. Perhaps 12 – 18 months longer.
Van Hoeken also expressed his opinion that funding caps are insufficient in Canada as the existing Startup Crowdfunding rule is set to CDN $250,000 per offering, twice per the calendar year (so CDN $500,000 per year) – an amount that is “definitely too low.”
In the UK, there is no crowdfunding cap with an effective speedbump triggered by a prospectus requirement at EUR 8 million. The European Union will harmonize member state rules at some point in the future with EUR 5 million offering cap.
Van Hoeken also expressed his belief that the Accredited Investor rules in Canada should also be revised and brought up to date with today’s situation of the capital markets. The rule is similar to the one in the US which is currently going through its own attempt to modernize the ham-fisted regulation that currently lacks any recognition for financial sophistication and understanding of risk.
Last week, FronFundr announced a self-crowdfunding offering, selling shares in itself at CDN $0.73 per share with a CDN $500 minimum order. The offering company, Silver Maple Ventures, is seeking CDN $1.5 million.
DID YOU KNOW that you can invest in private companies through RRSP? Learn more: https://t.co/KVuX8GrJiF. @FrontFundr, Canada’s #1 Private Markets Platform, enables everyone to invest. NOW you can invest in FrontFundr itself through RRSP! https://t.co/olF9XvCphp @DealSquareTech pic.twitter.com/Qvi80WPlYQ
— peterpaulvanhoeken (@petervanhoeken) February 1, 2020
In a release, Van Hoeken said:
“Since 2014, we’ve been frontrunners in connecting private companies with the Canadian investing public. We worked with securities regulators in Canada to bring the private markets online and provide everyone access, which was certainly unknown here at the time, when everything was paper-based and transactions had to happen face-to-face.”
The offering is listed on both FrontFundr and DealSquare – a new venture by Silver Maple Ventures in a partnership with NEO Exchange, Canada’s third-largest exchange. DealSquare pairs private market offerings with securities dealers and investment advisors and offers a front-to-end online solution to dealers including electronic settlement into clients’ accounts, essentially handling private securities in the same way as public securities.
DealSquare, while matching a more sophisticated market to private securities, may at some point morph into a secondary market for trading these same private securities thus providing liquidity for a traditionally illiquid investment. Secondary markets for private securities already exist in the UK and the US although the volume is low as the sector is nascent.
Crowdfund Insider asked Van Hoeken when DealSquare may be able to power trading in securities. Van Hoeken’s response was understandably muted:
“It is hard to predict when the secondary market for private securities will be live. We see secondary trading in the private markets not as a primary objective in itself, moreover to drive primary issuance in that investors do have certain opportunities to liquidate their securities at certain times. Companies that wish to maintain high liquidity and listing with daily price formation can already be well served through multiple well-established venture exchanges in Canada.”
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