such matters (e.g., Ontario Securities Commission (OSC) Staff
(c) many investors understand real estate and want to invest
in their communities;
(d) many investors do not have the time, experience or capital
to invest in a real estate project on their own. However, they can
invest a small amount that forms a part of their individual portfolio
while partnering with an experienced real estate developer/
property manager to operate the asset; and
(e) real estate investments create jobs for local small and
medium enterprises (SMEs). For example, a single $1.5M equity
crowdfunding investment can support a real estate development
of $5M with the use of a typical real estate mortgage. 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 entire asset class since it does
not help SMEs is incorrect and misguided.
We understand there are concerns about potential conflicts of
interest when a crowdfunding portal 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
appropriate existing disclosure requirements under applicable
securities law. Moreover, if there is a need for additional structural
safeguards, such as independent review committees, we believe
this is best addressed outside of a review of the Crowdfunding
Prospectus Exemption since such matters would apply to all
prospectus exemptions that are relied upon by a dealer that is
related to an issuer. We refer the Participating Jurisdictions to the
attached Schedule “A” where we have included our response to
the OSC’s proposed prohibition on related issuers under the OM
Prospectus Exemption, which equally apply to the Crowdfunding
The PCMA opposes the exclusion of real estate issuers from
using the Crowdfunding Prospectus Exemption and, in particular,
we believe that income producing real estate is an important and
viable asset class for investors that should not be prohibited by
the Participating Jurisdictions.
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
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 Exemption.
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 the 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.