Invest Crowdfund Québec

Pour l'adoption d'Invest Crowdfunding au Québec | For the adoption of Invest Crowdfunding in Quebec

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Equity Crowdfunding Panel:  Take-Aways and Then Some

OnesizenotfitallThere’s nothing I enjoy more in conferences than engaging discussion in a panel. I have to say this time, I was a tad reluctant. The idea of discussing a crowd-triggered financing model without the presence of the main concerned – the crowd or the ordinary investors – was not my idea of collaborative work.  But being true to myself, I was curious to hear what VCs and lawyers had to say of the current proposed regulation on equity crowdfunding in Canada. More importantly, to see how their position evolved from last year’s AMF public session. And I was also there to learn, to validate my understanding of the REG 45-108 and to share my findings with the broader audience.

Considering I had only two hours to take in as much as deemed possible, small talk was not an option. I attended two panels: one with Patrick Théoret which was more a fireside chat, the second with Robert Brouillette (Anges Quebec), Sophie Forest (Bright Spark Ventures) and JS Cournoyer (Real Ventures) moderated by Diane Bérard (Les Affaires).

Patrick Théorêt (AMF) explained the decisions with regards to investor and issuer caps. In short, the proposed issuer cap for start-ups of $150k is to be in line with Saskatchewan and the low investor caps for start-ups and other businesses of $1,500 and $2,500 respectively are the result of a survey that I have yet to see the source.

I personally would like to extend my thanks to Patrick Théorêt who played along graciously with our many questions, at times double-sworded. I take away from this conversation that

  1. there is a dire necessity to analyze the successes across the globe and to consider, perhaps, that what works elsewhere may be worth a try here
  2. the working committee responsible for this regulation should be broadened to include businesses (start-ups, retailers, corporations) and citizens. It appears that some rules were defined in-house with no outside consult, e.g. the owner of the platform must be a restricted dealer. Why not look in Australia where ASSOB’s CEO is not a broker yet deals with “sponsors”  (brokers) and the model works on a shared-commission basis?

Yes, there will be chaos. Yes, there will be order.

The a-ha moment I believe was in the following panel. Whilst I could not stay for its entirety, I highlight here the probing moments. First, some context. From the outset when, we, entrepreneurs, began advocating for the legalization of equity crowdfunding two years ago, there was a divide:

  • Those who believed that not all businesses should have access to equity crowdfunding and that ordinary investors were not knowledgeable enough to purchase shares
  • Those that agreed with the latter yet believed that crowdsourcing could elevate collective knowledge. With knowledge comes the power to make the right decisions for both issuers and investors.

Back to our panel, I hear the concerns of some of the panelists that the “ordinary” crowd may be exposed to bad investment decisions due to lack of information or that the “average” company may not be the right fit for this model. I agree with those statements. Let’s imagine the future:

Business ABC  launches an equity crowdfunding campaign, does not disclose sufficient information thinking “no one will know” and eventually the crowd finds out and game’s over.

Or the investor that puts his life’s savings in a local store expansion expecting a return in the following year but then recession strikes, and the company is forced to downsize. No return on investment here.

There is a probability that these predictions may come true, and that during the first years of equity crowdfunding, there will be chaos. But chaos and order can co-exist. The crowd has the power of choice and will exercise that choice in both 
rational and irrational ways. Moving forward, let’s think up solutions to help the crowd make better decisions. In response to one of the panelists concerns, one solution would be crowd coaching businesses that for a lesser fee can provide guidance to the ordinary investor. Your thoughts?

I’m not advocating that regulators shouldn’t do whatever they can to protect investors. But one thing is certain, if we try to control everything, chaos will find a way to penetrate our order. Because, it is the natural order of thing.

So now let’s imagine the other future further down the line:

Business XYZ  shows transparency in all counts (including disclosing not so attractive financials) and a real motivation for bettering the region through its solution. They gain respect from the community and successfully raise the funds.

Or the investor that believes in that business/entrepreneur and for that reason (not only), invests an amount he can afford and with that, comes the pride of contributing to economic wealth for him and perhaps the generations to come.

These stories pull us away from today’s definitions of profit (exits and public trade). And that’s fine. Because, not every entrepreneur is looking to raise billion dollar businesses. That does not make them less of an entrepreneur. It just makes them consider other variables. Let’s see…job creation, innovation, giving back to the community, family.

Two Worlds Colliding is a Good Thing

In closing, it is a difficult task to carve out a new framework that both protects investors and stimulates the economy. I commend the AMF and the other Canadian Securities Commissions for taking a crack at it. I also commend them for putting startups in their agenda. It’s difficult because two worlds collide: one with tight processes and  a history full of hard lessons, the other who thinks out of the box and for whom the only limit is the sky.  That is why I think that events such as these would have gained at hosting a more diverse audience to hear their concerns and outlooks.

It makes for a co-constructed framework from the ground up and history shows that that is the key to success. The investment industry is changing, the boundaries are slowly falling and before we know it, ordinary and accredited investors will be conversing and envisioning the future together. Who’s in?

Post also published on DFY 


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A Look-back at the AMF Public Consultation on Equity Crowdfunding

Last March, the Quebec Securities Commission (AMF)  held a public consultation to discuss Equity Crowdfunding and its applicability. Our team has been working tirelessly since July for this moment. With  “success stories” multiplying across the globe, we, too, want our SMEs and start-ups to benefit from this model. Enabling them to raise funds online and individuals to become investors without having 1M$ in assets. Angels and VCs  around the table agreed that this model complements the existing ones, and that it is  a necessary component to our ecosystem…”we fund 30 out of 1300 startups. What happens to the remaining 1270?” one angel asked.

You will find a recap of the session on our partner site, National Crowdfunding Association. The following outlines some of the principles raised in session and that you will find in our upcoming positioning paper:

  1. Notion of risk. A business is pitched on a crowdfunding portal. There is always a potential risk notably if the business is early stage (prototype, beta) that the investor may not see a return. The investor must be at ease with this and rely on his own knowledge or seek council.  On the other end of the spectrum, a business that has sales to show for, will be expected to justify its valuation and have the figures to back it up. Transparency is key.
  2. Trust the crowd (unaccredited investors). We do not expect a perfect fit in year 1 of adoption. There will be growing pains as there were for e-commerce in the late 90’s. The important is to leverage these and build best practices. You may find investors that are not satisfied with their choices and may blame others. We believe that this learning phase will be a confidence builder and they will find, with time, better sources of advice on and  off line.
  3. Higher Cap . To ensure a higher penetration rate and fulfill the needs of both start-ups and SMEs, we recommend raising the investment round to 1M$ on a 12-month period.
  4. Relying on social networks. This is where the paradigm shift must occur. I understand that it may hard to believe that online conversations can help detect fraudulent practices but it is a fact. As Kickstarter’s founder said, “People have called them out and they don’t get funding. The internet asks questions.”
  5. The shareholders agreement generated much discussion among the securities lawyers present at the session.  Experience shows that agreements are source of fraud either through restrictive clauses or fine print. Hence they believe that Invest crowdfunding may be the host of such practices. We recommend having standard shareholder agreements (same format for all) to reduce collateral dammage. This point remains to be discussed and should not be a barrier to adoption.
  6. The status of Equity Crowdfunding portals is an important issue.We believe that portals, as in England, France, Finland, Belgium and Australia, should stand as a matchmaking site – nothing more, leaving advisory to others. It is the investor’s responsibility to seek council (cf. point #2) and the issuer’s to pitch/explain in layman’s terms.  To restrict portals to traders only or to restrict portal usage to accredited investors is taking the crowd out of crowdfunding. It’s VC online, as provided by FundersClub.  Portals in Quebec, Ontario and Alberta are in the works . They are waiting for the green light.

At Invest Crowdfund Québec, we will continue our work with regulatory bodies and remain optimistic about the prospect of equity crowdfunding in Canada.


Crowdfund Night Recap

I attended Crowdfund Night yesterday at the Notman House and saw familiar faces. The Plebs and Make a Champ crowdfunding platform founders, to name a few. There is clearly a growing trend in Quebec to bypass the current financing structures. For many reasons. One, not everyone gains access to financial programs and two, it can take months until you do receive funding if you are selected. Hence, viable and right-on-target projects often see their days counted and end up in the sewer. Plebes and Make a Champ address those needs. They select their projects carefully, assessing their worth (past, present, future) prior to engaging with them.

This said, the “other” model – Equity crowdfunding or Invest crowdfunding – is more complex as it involves securities regulation. Buying private equity online through a web platform is a formidable way of helping businesses scale yet there are potential pitfalls along the way. Last night, I gave a talk on Invest Crowdfunding, the “Localvesting” model:  how it could create sustainability, how mom and pop investors should have the opportunity to invest in a business they believe in, how fraud is kept to a minimum in invest crowdfunded nations, and social medias’role. In short, how this model fits well within the Quebec ecosystem. We also discussed what it takes to make it legal in Quebec and the rest of Canada.

Since our last presentation, I got the distinct impression that awareness around this model is growing. Questions from the crowd were more acute. “Which sectors will benefit from this model?”, “Are there support structures in place to help businesses crowdfund?”, “How does share valuation work?”. It’s safe to say that grassroot initiatives like ours are beginning to unfold. Public speaking is one facet of our movement. Content generating/curation, all-around networking, engaging within our communities, think tanks and our own professional endeavours are also part of the equation.

At Invest Crowdfund Quebec, our objective remains to inform, educate, and create awareness. At our next team meeting, we’ll be mapping out 2013 action plan. We invite our readers to show their support by attending events, asking more questions on this blog, recommending articles and generating content. These questions and thoughts will contribute to the framework we are building in collaboration with the other provinces. Such a framework is a gateway to convincing our authorities to put  Invest Crowdfunding on the public agenda.

Special Thanks to the organizers Heri Rakotomalala and Bruno Rakotozafy who did an awesome job!


Are Montrealers “for” the Adoption of Invest Crowfunding?

Are Montrealers “for” the Adoption of Invest Crowfunding? 

Check it out…

Montreal New Tech organized a special Invest Crowdfunding edition this past October, featuring start-ups engaged in that area. The event gathered nearly 200 people. Start-ups, VCs, policy-makers, crowdfunding platform providers, large corporations, strategists, PR, media, …

Diana Yazidjian of Invest Crowdfund Quebec presented the landscape of Invest Crowdfunding practiced in other parts of the world, the financial gap in Quebec and concluded with a call-to-action to sign the petition

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Democratizing Investment: Join Us!

Investment Crowdfund Quebec: Work in Progress

What have we been up to at Invest Crowdfund Quebec? Keeping busy in many ways: putting together nuggets of business intelligence, building our team, engaging our stakeholders, notably the Montreal Securities Commission, the Autorité des marchés financiers (AMF) and speaking Invest Crowdfunding. Our latest event: Montreal New Tech tomorrow, October 2, along side Noah Redler, Start-up Canada. Here’s a preview.

Our Findings and Assumptions

– August and September were a learning curve for us. Collecting best practices from across the globe, AustraliaUK and the Netherlands to name a few, where Invest Crowdfunding platforms  (ASSOB, Crowdcube, etc..) have been growing at a frenetic pace. Engaging with their respective CEOs and asking them hard questions regarding due diligence, corporate responsibility and fraud prevention

Quebec needs to look at this new model even more so today as our innovation index is falling steadily and businesses are fleeing to outside markets where investment opportunities are more diversified.

We are paying attention to market signals and stakeholders’ issues. Fraud prevention is at the top of the list. Because Invest Crowdfunding (ICF) is not immune to risk and we, as advocates, need to get a comprehensive view of how ICF can work for us in our ecosystem within our legislative jurisdiction.

Experience shows that in other countries where ICF has been operating for years , crowdfunding may be less susceptible to fraud than other investment channels. We believe that the quantity, quality and accessibility of information through social networks will enhance transparency and protection for the investors. In fact, the ICF platforms we’ve engaged with expect from investment-seeking businesses that they provide company statements, forecasts and the like, and that they engage with potential investors through Q&A and chats. Having read some of their material, it’s safe to say that these businesses enter the ICF model prepared for all the tough questions from potential investors (see screen shots).

This said, in this example, Optimum Technologies, a biotechnology company, potential investors asking questions seem well informed, not to say experts.

These “specialized” investors may inquire on patents pending, the governance structure, etc…as seen below.

We envision ICF also designed for “softer” industries, i.e. retail and service. My top pick is Maggie and Rose, a Family Members Club based in Kensington (London) in business for the last 5 years, showing a great track record and who has recruited 14 investors so far. These stories are truly inspirational and I see this as a new haven for SMEs (<100 employees) which represent 95% of the Quebec business landscape.

Building the Team to Lead ICF in Quebec

New developments have seen the day thanks to hard work from the Quebec team and the other provinces. To name one, Tony Arias, VP ICC for British Columbia has launched the Healthy Crowfunder portal and is educating on Equity Crowdfunding in different ways through media and blogging.

Our Quebec team has been actively engaging with the community – start-ups, legal, policymakers, VCs, strategists, Crowdfunding platforms – and meeting with experts across the world. If there’s one thing I’ve learnt through the course of my professional life, it’s the collaborative force of many that drives progress and triggers change.

Our team has expanded and is made up talented, go-getter individuals with the ongoing support of National Chair of Invest Crowdfund Canada, Cindy Gordon, National Legal Advisory, Andrea JohnsonSherwood Neiss, the instigator of the JOBS Act, for his strategic vision, and Victoria Lennox, founder of StartupCanada who’s been doing a fabulous job on promoting the startup ecosystem across the country.

We believe that every change affecting the economy can only succceed with cohesion. Stakeholder engagement in the conversation is key.

 Meeting with our Securities Commission: A step in the right direction

The Autorité des marchés financiers (AMF) is the body mandated by the government of Québec to regulate the province’s financial markets. They met with us to know more about our advocacy group. The AMF team is showing great interest in ICF as they recognize the financing gap widening in Quebec and companies going public on the decline. We are hoping to go further, open the current regulation and move toward an invest crowdfunding exemption.

Putting equity into crowdfunding is from an abstract viewpoint an extraordinary idea, a “why didnt we think of this before?’ idea. But then comes the part where you need to sit down, and think, think hard of the implications, the ins and outs, the “what-if” scenarios and there are plenty. And I must say that meeting with the securities commission was the right trigger. Our prep work made us realize that, albeit the many unknowns, we are missing out on an opportunity for economic growth if we do not pursue this effort.

Bottom line, we believe that every individual should have the opportunity to access capital. Please show your support by e-signing the petition . The more signatures we gather for the legalization of Invest Crowdfunding, the more Government will …pay…attention!

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Article: Equity crowdfunding source of innovation, capital for startups (Financial Post)

With the proper regulations, crowdfunding is a new source of capital for innovation and new ideas. It gives the small guys a chance.

by Quentin Casey, Financial Post, October 22, 2012