There’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
- 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
- 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?