that the Prescribed Individuals are acceptable to the principal
regulator. In addition, the PCMA does not believe any disclaimer
by a principal regulator will relieve it of any perceived approval or
liability in the eyes of the investing public. We believe this should
be the responsibility of the funding portal and not the principal
regulator. Accordingly, the PCMA believes that all funding portal
should be registered.
(b) The PCMA recommends that the Participating Jurisdictions
reconsider this aspect of the Start-up Exemption and require the
registration of the funding portal as a restricted dealer, since
investments in small businesses may be high risk and some
investors will lose money and should be afforded the protections
of a registrant when making such investments.
PCMA believes a funding portal under the Start-Up Exemption
should be subject to the same requirements as a funding portal
under the Crowdfunding Prospectus Exemption in order to
adequately protect investors.
21) We are considering imposing a limit per calendar year of 2
capital raises by an issuer of a maximum amount of $150,000 under
the exemption ($300,000 per year). Are these limits appropriate?
If not, please provide what you would consider acceptable limits
given the parameters of the proposed exemption.
The Start-up Exemption, as proposed, is intended to assist
start-up and early stage companies. It enables companies to
raise relatively small amounts of capital by providing relief from
certain disclosure requirements, such as financial statements and
a robust offering document, thereby reducing the cost of capital
While we believe the $150,000 limit per capital raise is
appropriate, limiting the number of raises per calendar year is
problematic. The financing needs of start-ups can be unpredictable,
and limiting this to twice per year is unnecessarily restrictive.
Accordingly, the PCMA believes an alternative approach
would be to limit the maximum amount of capital that can raised
under the exemption during the lifetime of an issuer to a maximum
amount of $500,000 (the Threshold Amount). Once the Threshold
Amount is raised, an issuer could no longer rely on the exemption.
Having a Threshold Amount is consistent with the proposed
Crowdfunding Prospectus Exemption, where additional disclosure
(e.g., audited financials) is required once an issuer has raised more
than $500,000 and expended more than $150,000.
The PCMA submits that the calculation of the Threshold
Amount should include all monies raised by the issuer through
any other prospectus exemption, such as the private issuer
exemption or the family, friends and business associates
exemption under NI 45-106.
The PCMA believes that if an issuer raises more than the
Threshold Amount, then additional disclosure and investor
protection safeguards would be required.
22) The Start-Up Exemption would prohibit an investor from
investing more than $1,500 in a single investment under the
exemption. (a) Is this limit appropriate? (b) Should there also
be a limit on the dollar amount that may be invested on a
yearly basis by an investor?
Our answers below assume the portal under the Start-Up
Exemption is regulated as a restricted dealer as per our response
in question 20 above.
(a) The PCMA agrees with an investment limit, and that this
limit should be based on a fixed dollar amount since an investment
limit based on a percentage of an investor’s net assets or income
would add complexity to the Start-up Exemption. PCMA submits
that the investment limits should be increased to a maximum
$2,500 per investment under the Start-Up Exemption and $5,000
per investment under the Crowdfunding Prospectus Exemption.A
higher limit could be introduced after a period of time, following
implementation and a review of the investment limits under the
However, we suggest that limits should be removed or
increased for accredited investors participating through a funding
portal under the Start-Up Exemption, without introducing suitability
obligations for the portal. A reasonable precedent has been set
in Ontario and Quebec with the exemptive relief order obtained
by MaRS VX, which allows accredited investors to invest up to
$25,000 in a single transaction but no more than an aggregate
amount of $50,000 per annum, without a suitability obligation
imposed on the portal.
Alternatively, we also refer you to our answer to question 18,
above, where we submit that a registered dealer should be able
to raise capital under the Crowdfunding Prospectus Exemption
on behalf of an issuer. In such circumstances, a registered dealer
operating a portal under the Start-Up Exemption should be able to
raise an unlimited amount of money from an accredited investors,
provided that the registrant complies with applicable securities
law including, its obligation to ensure an investment is suitable.
(b) The PCMA believes there is a need to introduce an annual
limit on the dollar amount invested under the Start-Up Exemption
which should be similar to the investment cap of $10,000 under
the Crowdfunding Prospectus Exemption.
23) Should there be minimal ongoing disclosure that issuers
be required to provide to their security holders? If yes, what
should it be?
No, the PCMA believes that disclosure requirements for
security holders under Canadian corporate law, is adequate.