MaRS has gotten the green light from the Ontario Securities Commission (OSC) to start an online portal that will connect accredited investors and startups looking for funding.
On Friday, the OSC approved an exemption to allow MaRS Social Venture Connection, or MaRS SVX, to operate as a restricted dealer. This means investors using its portal will not need to disclose their financial statements and portfolio information, known as suitability requirements. The exemption applies to any accredited investor who invests up to $25,000 in a single offering and a maximum of $50,000 in total within one year through the portal. If they want to invest more, they’ll have to disclose more information and go through all the documentation normally required in suitability.
MaRS SVX will still have to establish their clients’ identities, their accredited investor status, and ensure clients aren’t laundering money through the portal. The OSC also noted this exemption should not necessarily be viewed as a precedent and will only apply to investors from Ontario.
The portal should be up and running in beta mode this summer, starting with 50 startups that try to solve social or environmental problems within Ontario. That includes charities, non-profit organizations, co-ops and companies that focus on waste reduction, sustainable food, alternative transportation, helping people with disabilities, and other kinds of similar efforts.
Still, the OSC’s decision marks a hopeful shift in bringing equity-based crowdfunding to Canada, says Adam Spence, founder of the SVX arm of MaRS. He says MaRS first started making inquiries with the OSC in May 2011. With this decision finally arriving two years later, he gives a lot of the credit to the Torys LLP legal team for its pro bono work, as well as the TMX Group, KPMG, and the provincial government.
“We hope this creates some precedent for crowdfunding to take root in Ontario and across the country,” Spence says. “If the SVX can be an early model to help lay the groundwork for crowdfunding, I think that’s a very positive thing.”
He adds there will be a vigorous application process for startups looking to access the portal, which will only be a “match-making service” between startups and investors. After that, the two parties would have to meet at webinars or networking events but do any transactions in person, not online.
“We’d describe it as eHarmony for impact investing,” he says.
Having an online portal as a connection point makes the search for funding much less expensive for startups who would otherwise have to file their own prospectuses to try to attract investors. That’s also very time-consuming, especially for a startup in its early stages, Spence says.
On the other side, the decision is also good news for investors, especially since it dispenses with suitability, says Brian Koscak, a corporate and securities lawyer with Cassels Brock & Blackwell LLP. Koscak is also the chairman of the board for the Exempt Market Dealers Association of Canada.
Complying with suitability can often be a time-consuming process, and investors may often want to keep their financial information confidential, he says. He adds he sees this as “a great starting point” for crowdfunding since it lays out what kinds of processes future equity-based crowdfunding platforms may need to have in place, like background checks and investor agreements, as well as a laundry list of things these platforms can’t do, like advertising or referral agreements.
“This is the beginning of a dialogue,” Koscak says. “To me, this is an excellent move forward by the OSC in trying to promote capital raising and basically trying bring together capital markets and technology.”
Although the OSC decision will only be valid for the next two years, Spence says he’s hopeful MaRS SVX can convince the OSC the model works. He’s also aiming to spread it across the country in the future.
“We’re anxious to be successful and to demonstrate being engaged in investments by an online format has high potential and is going to do a lot of good both investors and entrepreneurs. And we would like to see a time, soon, when investments are available online, not only for accredited investors … but investors like you and I.”
We’ll be discussing how this latest move from the OSC might spell some big changes ahead in bringing equity-based crowdfunding to Canada during our Twitter chat! Join us online at the hashtag #itbcrowdfund on Thursday, June 27 at 2pm EST – we’d love to hear your thoughts!
