SeedUps ready to offer new Start-Up Crowdfunding Exemption
By Sandi Gilbert
On May 14, 2015, six Canadian provinces jumped into the equity crowdfunding space in a big way. BC, Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia announced a new prospectus exemption for early stage companies to raise capital - the Start-up Crowdfunding exemption. Until now, companies profiled on our platform, SeedUps, have been issuing their shares under the OM exemption or the Accredited Investor exemption. Now - there's a new option.
What are the significant changes?
- Financial Reporting – while we still want to see prospective companies' financial projections and review historical financials as part of our due diligence, companies are no longer required to present financial statements prepared by outside accountants that conform to GAAP or IFRS standards in the new Offering Document, a costly, and frankly unreasonable task for companies that have had little or no financial history to date. We work with early-stage companies every day - companies that are seeking ‘go to market’ funding in the range of $250K - $1 million. The financial requirement is the single biggest obstacle they face today.
- The Offering Document – is straight forward to complete; and clear, concise and easy for investors to read and review.
- The Maximum Raise – is $500,000 split into two $250,000 raises twice per calendar year. That capital, combined with capital from Friends and Family, Angels and Accredited Investors can certainly help most early stage companies gain some traction and aligns nicely with the reduced disclosure as identified above. The average capital ask on our platform is currently $600,000 - so it seems that the regulators have it right on this one too.
- The Maximum Investment – OK ... this might be the one area where the regulators got it wrong. $1,500 is a really small number. The average investment on the SeedUps platform today sits around $4,000. We think $1,500 is an arbitrary number, and one that should be re-evaluated in the near term. Many eligible investors will wish they could invest more into early stage companies they believe in - it just means they can only invest $1,500 in each one.
- Concurrent Raises - companies can raise capital under another exemption concurrently and contribute those investments to the minimum raise in order to close the offering. This means that Angels and other sophisticated investors can participate in the capital raise.
- Eligible Securities – the commissions have provided great flexibility in terms of the types of securities offered. In addition to common shares, companies can issue debt, convertible debt, preferred shares and limited partnership units. These alternate forms of capital, or combinations thereof, can be attractive to investors and early stage companies alike.
We have a pipeline of companies preparing to pitch their offering on our platform. These new regulations will significantly reduce the costs of preparing for their raise and allow more investor dollars to impact the business. That means more investment opportunities for our registered investors and broader access to capital for early stage companies seeking growth capital.
Sandi is the Founder of SeedUps Canada, a CrowdFinance platform that brings sophisticated investors and ordinary individuals together to make direct investments into privately held small to emerging companies seeking between $250,000 and $2 million in capital. The platform facilitated North America’s “First Ordinary Investor” to make an online investment into a private company. Today, she is working diligently to develop technology infrastructures that enhance the private equity marketplace by providing tools that companies can use to prepare to raise capital and to manage their shareholders post raise. Sandi is a board member of NACO and an advisor to early stage companies.