This project would be injecting roughly $1.5M into labour costs
in the local economy, as well as $500,000 to professional trades.
Another $600,000 would be transferred to the local municipality
through development fees as well as $200,000 to the local utilities.
A single project could create over 30 full time jobs at an annual
salary of $60,000. To suggest that the Crowdfunding Prospectus
Exemption should exclude real estate as an asset class because it
does not help SMEs is incorrect and misguided.
We understand there are concerns about potential conflicts
of interest between a crowdfunding portal that raises capital for
real estate projects where it has a material interest (i.e., where the
issuer and owner of a project is a related issuer of the portal). The
PCMA believes that these concerns can be adequately addressed
through detailed and responsible disclosure requirements and the
adoption of additional safeguards. We would be pleased to work
with the OSC to address these concerns once we understand
exactly what the basis for them is. We refer the OSC to our
comments involving the proposed prohibition on related issuers
from using the OM Prospectus Exemption above (Question 8
under the OM Prospectus Exemption).
Based on the foregoing, the PCMA opposes the proposed
exclusion of real estate from the Crowdfunding Prospectus
Exemption and, in particular, believes that income producing real
estate is an important and viable asset class for investors and
should not be ignored let alone prohibited by the OSC.
3) The Crowdfunding Prospectus Exemption would require that a
majority of the issuer’s directors be resident in Canada. One of the
key objectives of our crowdfunding initiative is to facilitate capital
raising for Canadian issuers. We also think this requirement
would reduce the risk to investors. Would this requirement be
appropriate and consistent with these objectives?
Generally, this sort of requirement is contrary to the borderless
nature of an online e-commerce business. The Canadian
start-up and SME community are in fierce competition for talent,
markets and capital with US and international companies. If the
Crowdfunding Prospectus Exemption for Issuers is too restrictive,
Canadian entrepreneurs will simply bypass the Canadian capital
markets. Moreover this not a restriction under any other existing
private capital markets prospectus exemption.
Restricting board makeup to be a majority of Canadian
residents is a serious barrier to Canadian issuers building the right
team (including its board of directors) to compete on a global scale.
The proposed regulation is a serious concern to the PCMA. SMEs
have a hard enough time attracting great management and board
members without putting geographic constraints on an issuer.
Similarly, limiting the use of the Crowdfunding Prospectus
Exemption to Canadian domiciled companies severely undermines
the market opportunity for Canadian-based Crowdfunding portals
to survive and flourish in this burgeoning new global business
model. As long as the proper cross-border documents are filed
with US and Canadian securities regulators, and the Issuer has
a registered business location in Canada, there should be no
restriction on US companies using the Crowdfunding Prospectus
Finally, an equally important consideration in the Crowdfunding
movement is allowing the general public to participate in the next
Apple, Google, Facebook or Twitter. By limiting US start-ups
from accessing the Canadian capital markets (which is what this
proposal effectively does) we are limiting the Canadian public’s
opportunity to participate as an investor in “the next big thing”.
4) The Crowdfunding Prospectus Exemption would impose
a $1.5 million limit on the amount that can be raised under
the exemption by the issuer, an affiliate of the issuer, and an
issuer engaged in a common enterprise with the issuer or with
an affiliate of the issuer, during the period commencing 12
months prior to the issuer’s current offering. (a) Is $1.5 million
an appropriate limit? (b) Should amounts raised by an affiliate
of the issuer or an issuer engaged in a common enterprise with
the issuer or with an affiliate of the issuer be subject to the limit?
© Is the 12 month period prior to the issuer’s current offering
an appropriate period of time to which the limit should apply?
(a) Yes, $1.5 million is an appropriate limit, however, if a sunset
clause is introduced for this exemption, then it should be revisited
in the future. We note there is already concern in this US that its
proposed limit of $1 million should be increased to $2-3 million.
(b) Yes, the amounts raised by an affiliate of the issuer or an
issuer engaged in a common enterprise with the issuer or with an
affiliate of the issuer should be subject to the limit.
(c) Yes, the 12 month period prior to the issuer’s current offering
is an appropriate period of time to which the limit should apply.
5) Should an issuer be able to extend the length of time a
distribution could remain open if subscriptions have not been
received for the minimum offering? If so, should this be tied to
a minimum percentage of the target offering being achieved?
Yes, the PCMA believes that in many cases 90 days may
not be sufficient time to close a crowdfunding transaction. If the
concern is that information becomes stale if the offering is open
for too long, then we suggest the offering be allowed to remain
open for a further 90 days provided that:
• 20% of the offering has been raised; and
• the information about the offering on the portal is still
accurate, or it is updated to change any stale dated financials
or other information.