On October 29th, 2015, Ontario introduced the offering memorandum (OM) exemption. This remains part of a continued effort across Canada to address the funding gap – particularly for small to medium sized businesses that aren’t ready for the public markets, or are too small to garner interest from traditional VC’s.
As of today, January 13th, 2016, issuers (companies) will be able to issue securities in Ontario through the OM, without having to file a Prospectus (Alberta, Saskatchewan, Quebec, New Brunswick and Nova Scotia, will amend their existing OMs to align with Ontario’s in April, 2016). Before the OM, in order for a private company to raise capital in Ontario they would be limited to reaching out to an informal network of family, friends, business associates, and accredited investors. This new exemption will allow issuers to reach out to a larger investor community, including non-accredited investors.
By introducing more investors to the supply of private capital, more startups will be able to bridge the funding gap in Canada. The new legislation provides non-accredited investors access to the New Capital Market that they were previously locked out of. Key components of the new version of the OM include:
- Annual investment limits for some non-accredited investors (dependent on income/asset thresholds)
- Ongoing disclosure (includes annual audited financial statements)
- Marketing materials must be filed with the security regulator
As a Registered Dealer in Ontario, FrontFundr looks forward to working with private companies to help them get the funding they need. Non-accredited investors will also benefit from using FrontFundr’s platform by being able to find vetted, quality deals.
It is important to note that, while the new Ontario OM helps to bridge the funding gap in Canada, there are now three different versions of the OM. The varying legislation in each jurisdiction increases the complexity and limits the issuers’ ability to raise capital across provincial boundaries. When Canadian regulators get closer to harmonizing prospectus exemptions, it will be easier and less expensive for private companies to raise funds in the private capital markets.
Frontfundr applauds Ontario for taking this important step to open up more opportunities for investors and companies. Our hope is that this progress will contribute to a more streamlined approach in the near future.
For more information, follow the link below: Ontario investors get wider access to private capital markets.