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FrontFundr's Len Guenther, Jeannine Bartz, Peter-Paul Van Hoeken and Sean Burke

Canadian startups are beginning to tap a wider pool of investors thanks to a complex, changing set of regulations around equity crowdfunding, the fast-growing form of financing that allows companies to raise money online.

A handful of provinces across the country have either rolled out or are working on new rules that make it easier for everyday investors to grab a piece of a promising project or venture.

Until recently, only accredited investors such as institutions and high-net worth individuals could get in on these private deals. Today, the opportunities are being opened up to all investors, with restrictions on how much they can put down, as well as limits on what the company can raise.

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As a result of the rule changes (some of which are still in the works in provinces such as Ontario), more equity crowdfunding portals are popping up to serve what they hope will be a steady stream of demand for Canadians looking to make money through these alternative investments.

"It's a new asset class," said Craig Asano, executive director of the National Crowdfunding Association of Canada (NCFA). "These markets are growing exponentially globally."

Equity crowdfunding alone grew by 182 per cent to $1.1-billion (U.S.) worldwide in 2014, compared to a year earlier, according to industry research and consulting firm Massolution.

Unlike regular crowdfunding, where people donate cash to help get a project off the ground, equity crowdfunding allows investors to buy a stake in the venture and hopefully see some profit. The concept may sound simple, but the changes in Canada involve a complicated set of new and proposed regulations that can vary by province, each with its own securities regulator.

There are two types of rules in the works in Canada right now: The startup exemption, which was approved in May by six provinces; and the crowdfunding exemption, the latter of which is being driven by Ontario, and is still in the proposal stage.

The startup exemption has been adopted by B.C., Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia. It allows companies with head offices in these provinces to raise up to $500,000 per year – but no more than $250,000 in one offering. Individual investments are capped at $1,500 per deal.

The crowdfunding exemption Ontario has on the table is more broad, allowing for a maximum of $1.5-million to be raised each year, with a $2,500 ceiling for individual investors per deal, to a maximum of $10,000 a year. Ontario also wants crowdfunding portals to be registered with securities regulators as dealers, which is not required under the other provinces' crowdfunding model.

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"We think those limits are appropriate for our market," said Monica Kowal, vice chair at the Ontario Securities Commission (OSC). The OSC plans to deliver its proposal to the Ontario finance minister for approval this fall.

Ontario is working with regulators in some of the other provinces behind the startup exemption to see if their regulations can co-exist.

FrontFundr is among the first platforms to take advantage of the startup exemption from its home province of B.C. It launched in May and started off raising money for Guusto, a mobile gifting app that lets users send a gift, like a restaurant coupon or bottle of wine, to others. The offering allows investors to put in between $500 and $1,500 into the venture.

"It's a great opportunity to unlock value in Canadian companies and attract investors from around the world," FrontFundr chief executive Peter-Paul Van Hoeken said of the new startup exemption.

Even though the rules have changed, Mr. Van Hoeken said companies must still actively seek out investors and educate them about equity crowdfunding.

"Now that we have rules in Canada doesn't mean we have crowdfunding in Canada," he said. "Canada is conservative. It's not like everyone is knocking on our door saying, 'This is great. This is what we've been waiting for!' It's a process."

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The education includes not only telling investors about the new rules, but also the risks.

"We as a platform are trying to make sure everyone understands the risks and rewards," said Mr. Van Hoeken.

Experts say more than half of startups ventures fail, which is partly why regulators are putting restrictions on the equity crowdfunding sector as a way to protect investors.

Mr. Asano of the NCFA said his association is rolling out an equity crowdfunding education campaign across Canada to help investors better understand the model and its potential.

"We're excited, but we understand the complexities – and opportunities – that crowdfunding holds," he said.

Not all equity crowdfunding companies are planning to get involved in the new markets for everyday investors. Some cite the complex patchwork of regulators and regulations and prefer to stick with the larger, accredited investor market, which deals with higher sums.

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"We will not be chasing the non-accredited market any time in the near future," said David Shore, Canadian director of Israel-based OurCrowd, a large global equity crowdfunding platform that recently launched in Canada.

Mr. Shore said there's still a "massive opportunity" in the accredited investor space, especially in Canada, where the startup scene is flourishing.

NexusCrowd, which plans to formally launch later this year, is currently focused solely on accredited investors, but will consider non-accredited investors if the regulations regarding crowdfunding become less limiting than initially proposed.

"We believe the exemptions that are in place in six provinces currently have similar constraints on investors and issuers to the ones proposed by the OSC," said NexusCrowd co-founder and CEO Hitesh Rathod.

Mr. Rathod said the investment limits on both the issuers and investors have the potential of creating a significant administrative burden on the issuers, who prefer to focus on building their businesses. That includes managing hundreds of smaller investors, especially for issuers that raise the maximum amount.

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