On November 27, 2019, FrontFundr obtained discretionary approval to use start-up crowdfunding rules already available in other provinces. Working with the Ontario Securities Commission (OSC), Canada's largest investment crowdfunding platform now offers its clients a simplified process to crowdfund in Ontario – providing opportunity for both companies and investors.
What does this mean for Canadian private companies?
Inefficient crowdfunding regulations that previously inhibited companies from raising capital from the public in Ontario have been removed. FrontFundr is now in a position to help its start-up clients based in Ontario and in any other jurisdictions in Canada to raise money from retail investors in Ontario. And conversely, Ontario investors now have an opportunity to invest in start-up companies from across the country.
“Access to capital can make or break a company,” said Peter-Paul Van Hoeken, Founder and CEO of FrontFundr. “We see our role as democratizing the private markets. We have successfully helped 42 companies raise capital; we are pleased the largest province in Canada now provides better access to crowdfunding in line with the rest of the country.”
At FrontFundr, we are all about democratizing capital – providing companies access to capital is in our DNA. We have been change-makers since we launched our platform in 2015 – successfully funding companies and transforming the Canadian private markets landscape by creating new opportunities for all Canadians.
Listen to Peter-Paul's podcast on the impact and Read Anthony Couture's Q&A to find out more
Anthony Couture, FrontFundr's Chief Compliance Officer has been busy opening up the Ontario crowdfunding market, we did a Q&A with him to understand the changes and what it means?
What is equity crowdfunding?
Unlike funding portals such as Kickstarter, where a company distributes a benefit of some kind for the money they’ve received, equity crowdfunding allows for partial ownership of the company itself. It’s an investment, and you receive a security tied to the future value of the company in exchange for that investment.
What have been the hurdles for equity crowdfunding in Canada?
Canadians by and large are cautious investors with nominal awareness of the private markets in general; knowledge is often gleaned from the business section of major papers and thought of as the playground for big money on Bay street. Demonstrating that we have direct access to this world through our platforms and the price of entry is affordable has certainly been a focus for us. It’s a systemic change, which takes time.
What is an Exemption?
People are often confused by this but it’s important to understand, as it is the basis for much activity in the private markets. In a nutshell, it means a company is exempt from a rule for making their security available to purchase or sell through a public exchange, such as the TSX, but they still must sell the security following specific guidelines. As an exempt market dealer, we at FrontFundr may sell the securities of these non-public, or private companies, to investors after reviewing the investment and determining is it is suitable for the investor. Crowdfunding is one of these exemptions.
Who oversees the private markets?
Oversight of the private markets is directly monitored by the securities regulators across the country. Each province has their own and each provides their own particular rules as it concerns selling or buying private market securities in their jurisdiction. As you can imagine, this can lead to a cluttered regulatory landscape on some issues, but on the flip side, we have direct access to the regulators and are able to have fruitful conversations on key issues. For example, we recently received an order from the Ontario Securities Commission (OSC) to use one of the crowdfunding exemptions in Ontario.
I thought Ontario already had a crowdfunding exemption?
They do, but it was proving unsuccessful over time, so we were able to work with them and under specific terms and conditions, use a different rule for crowdfunding in Ontario, one which has already been successfully used in the rest of the country.
That seems like a big deal.
It is. We can now provide our startup company clients access to the country’s largest capital pool, and conversely, provide investment opportunities from anywhere in the country to Ontario investors. Not only that, but professional advisors may now view some of these investment opportunities on behalf of their clients through our sister platform, DealSquare, opening up further capital prospects for companies looking to grow and succeed.
Final thought, what one myth do you want to debunk about crowdfunding?
There are many, but I’ll stick to one: that crowdfunding is for amateurs and little people - you’d be amazed by the knowledge and sophistication we see within our investor pool. If you’re a company, working with us sets you up for future potential financing. Going through our due diligence process gets you investment-ready and your development can be tracked over time. You’re part of an ecosphere that is familiar to investment professionals. For investors, it’s an opportunity to get in at the start of something - exactly where those professional investment folks like to mingle.