The Ontario government is examining ways to loosen the rules that restrict crowdfunding, a popular method of online fundraising for startups, The Globe has learned.
Premier Dalton McGuinty has championed the possibilities crowdfunding offers, according to a source close to Mr. McGuinty, who recently noted the Ontario Securities Commission is contemplating a crowdfunding exemption to the Securities Act.
Such an exemption is necessary because there are concerns about how regulators can protect investors who participate in crowdfunding, which refers to online campaigns that raise awareness about a specific project or business and solicit funds from individual investors. The concept has been made popular by such sites as Kickstarter and Indiegogo. Since anyone can solicit funds, it’s tough to verify whether a company that says it will put money it raises toward building a new plant, for example, will actually do so.
For that reason, crowdfunding in Canada has been more or less limited to donations, outlawing any offerings of equity stakes. If a company that makes watches raises money, it can give the product to each of its investors once they are produced, but it can’t turn donors into investors by offering them stock.
Until recently, crowdfunders in the United States abided by the same rules. But President Barack Obama signed the Jumpstart Our Business Startups (JOBS) Act in April, and it allows “unaccredited investors,” or regular folks without much money, to invest in a startup’s fundraising campaign. When the bill was being debated, Mr. Obama argued it would help small businesses hire new workers, and put Americans back to work. Given Ontario’s pesky unemployment rate and battered manufacturing sector, the same motivations apply here.
Ontario is now assessing its options to follow the U.S. lead, and a consultation process with regulators is expected to start in the next few weeks.