There is a new financing trend on the horizon. Have you heard of crowdfunding? Historically, this method of financing ideas has been based on donations from current or potential customers to an individual or company who is producing a product or service that people want. The donors do not receive equity in the company, but can pre-purchase products or experiences instead. Two of the most popular donation-based crowdfunding sites in Canada are Kickstarter and Indiegogo. Although this method of financing works for the person who has the company, product or service, there is no real payoff for the investor as it is typically a donation to a cause or idea.
Equity crowdfunding is different. Individuals can use equity crowdfunding to invest in a company, product or service. Securities are sold to the investors like shares, limited partnership units and promissory notes. Essentially, investors then own a stake in the company and any associated profits going forward.
The Financial and Consumer Affairs Authority of Saskatchewan (FCAA) implemented General Order 45-925 Saskatchewan Equity Crowdfunding Exemption (GO 45-925) on December 6, 2013. This exemption assists small businesses and start-ups in raising money for their company, products or services through the availability of making up to two, six-month public offerings of $150,000 per offering to potential investors.
Within the exemption are policies put in place to protect the investor. No investor may invest more than $1,500 per offering, which limits losses, the issuer may not charge an investor a commission or other amount, and both the issuer’s business and the investor must be located in Saskatchewan.
Although traditional sources of financing may be sufficient for many businesses, this exemption might be an efficient and effective way for start-up and small sized businesses to raise the capital they need to maintain a competitive edge in the local, provincial and global markets.
For more information on equity crowdfunding, contact the Financial and Consumer Affairs Authority.