The comments are in, and the majority are in favour of crowdfunding.
Earlier this year the Ontario Securities Commission put out a request for public comment on the merits of allowing companies to raise equity through crowdfunding. One hundred letters were ultimately sent in and law firm Osler, Hoskin & Harcourt LLP has very handily combed through them. The verdict: Most people support the proposal.
However, "a minority of stakeholders" expressed the view that "investor protection concerns could not be adequately dealt with by regulation." In other words, no amount of oversight could really protect people from getting ripped off.
Here's a summary of the benefits and drawbacks conveyed:
- Projects that need $1-million to $2-million often have trouble raising money, and crowdfunding could help fill the gap.
- At the moment, a lot of small startups are seeded by investors who are introduced to companies through informal networks of contacts. Crowdfunding would remove the secrecy and offers a much more efficient model.
- Companies looking to raise money wouldn't have carte blanche to do whatever they like: There would be limits on things like how much each person can invest in a single company, as well as in total through crowdfunding, as well as extensive corporate disclosure when trying to raise money.
- Investors will be ripped off because it will be impossible to monitor what each fundraiser does with its money.
- Equity crowdfunding could complicate the governance structure as the company grows because the fundraising process can result in thousands of shareholders, all of whom have fractional stakes.
And of course, there had to be at least one odd comment:
- Someone argued that social media makes it impossible to get ripped off in a scam because "issuers seeking capital through crowdfunding would not be faceless; instead, because of their interaction with social media, they would be well-known actors."
Well, the people who rip investors off in more conventional models aren't faceless either. And social media can't help you if your money's already in a scam.
Though the comments favour crowdfunding, by no means does the OSC have to approve it. In fact, the Commission treats crowdfunding as a "concept idea" for discussion purposes, so it doesn't have to rule for or against. For now, it simply wants to hear public opinion.
(Tim Kiladze is a Globe and Mail Reporter.)
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