Canadian crowdfunding investors received good news yesterday. Regulators increased the investment limits on crowdfunding platforms, so Canadians can invest more money in companies that aren’t publicly traded. Canadian startups can now sell three times as much stock to investors each year with the limit rising to $1.5 million. And the maximum amount of money an individual can invest in each stock offering rose from $1,500 to $2,500. The limit increases further to $10,000 if the platform qualifies as an exempt market dealer, which many crowdfunding platforms are. The new Canadian Securities Administration regulations also replace the province-level laws for Canadian crowdfunding. These rules go into effect on September 21, 2021.
What This Means for Canadian Investors
According to Digitalyze, the equity crowdfunding rules in Canada apply to both equity and debt investments. So this legislation doesn’t just increase the amount of money that Canadians can invest in stocks that aren’t listed on exchanges. It also allows investors to purchase more debt securities on peer-to-peer lending platforms like goPeer and Lending Loop. These notes will likely be lower risk than the common stock of privately held Canadian startups but may also provide lower returns if the startup succeeds.
Investors get the biggest benefit from this rule change if they invest through an exempt market dealer. That means that the crowdfunding platform employs financial advisors who examine the stock and note offerings on their platforms and decide whether they’re suitable investments for individuals. Startups that don’t meet the screening criteria won’t be allowed to sell their shares and notes on the platform. If a crowdfunding platform doesn’t provide this service, investors must do additional research into the securities they’re purchasing.
What This Means for Specific Canadian Crowdfunding Platforms
In 2019 Digitalyze reported that FrontFundr was an exempt market dealer but Vested was not. FrontFundr is still an exempt market dealer in 2021 and has helped Canadians invest in many more companies over the past few years. It has helped Canadian startups raise over $70 million through over 60 campaigns. That’s an average of $1.17 million per startup, so if startups on this platform could only raise $500,000 per year in the past, these campaigns were running for more than two years on average. And they might last even longer now. An investor who has already invested $1,500 in a startup on FrontFundr can now invest an additional $8,500 in the same startup.
Vested, on the other hand, is still not an exempt market dealer in 2021. Its website says that it has raised $2.85 million for Canadian startups through 66 campaigns. That’s about $43,000 per startup. Its featured projects include several SPACs, payment processors, and a mining exploration company. Vested has a minimum investment of $100 versus $250 for FrontFundr. This crowdfunding platform will still benefit from the recent rule change because the maximum investment in these startups will now be $2,500, but you can’t invest $10,000 in a startup on this platform like you can on FrontFundr.
Another equity crowdfunding platform in Canada is GoTroo. This platform has helped 14 Canadian startups raise a total of $999,000. Like Vested, GoTroo is not an exempt market dealer. So investors who use this platform can now invest a maximum of $2,500 in the startups listed there. While there aren’t a lot of startups listed on the GoTroo platform, many of the startups that did use it successfully raised money, including a startup that makes hair-loss products and a startup that detects water damage in smart homes.
Debt crowdfunding platform LendingLoop owns the exempt market dealer Loop Securities. So Canadian investors will also be able to invest up to $10,000 in notes issued by a single small business on this platform. Small businesses will also be able to sell as much as $1.5 million in notes each year through the platform. LendingLoop is also a major crowdfunding platform that has arranged $70 million in loans to Canadian small businesses.
The crowdfunding platform goPeer owns the exempt market dealer Peer Securities. So the investment cap for a small business loan on the goPeer platform has also risen to $10,000. That doesn’t mean that it’s a good idea to invest all of your money in a loan to a single Canadian business, though. The startup asks for a minimum investment of $1,000. The idea is that the investor invests $10 in notes issued by 100 different companies after that. But that also means that a wealthier investor could invest more money through the platform. A $1 million investment could be split up into notes worth $10,000 each from 100 different startups with the expanded crowdfunding cap in place.
The Regulatory Change Benefits All Canadian Crowdfunding Platforms
The major Canadian crowdfunding platforms will receive the full benefits of the new regulations in September. Individual investors will be able to invest $10,000 in common stock or notes issued by a single startup or small business. And businesses will be able to sell securities worth $1.5 million each year on these platforms. The smaller crowdfunding platforms that aren’t exempt market dealers won’t receive as much of a benefit as their peers, but the investment cap on those platforms will still rise to $2,500.