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President Obama has signed the JOBS Act into law,
legalizing crowdfunding in startups by non-accredited
investors, so that anyone and their mother can invest in
non-prospectus qualified investments.
The new law stipulates that entrepreneurs can now
raise money from any and all, however, startups are limited
to $1 million per year, and must stick to portals approved by
the Securities and Exchange Commission. What’s more, the
legislation dispenses with the 500-shareholder rule, which
put a limit on the number of shareholders a company was
allowed before registering with the SEC (and going public).
Read full article at www.techcrunch.com
Should Canada follow the US and allow crowdfunding for startups by non-accredited
investors? Is this technology going to end the public market?
Antonio (Tony) Arias, ALA Midas Capital Inc. British Columbia
Canada should follow closely the SEC regulations as it evolves, as well as other
countries, which have already accepted crowdfunding. More importantly, stakeholders
of crowdfunding should organize and initiate their own self-regulatory body in
order to maintain the credibility and professional standing of this fund raising tool.
Crowdfunding is just one of the tools to raise capital. Each business has to be able to
stand on its own merit.
To preserve the integrity of the system, it is important the entrepreneur CEO along with
a professional CFO spend as much time educating potential investors about the risks
and rewards of the deal. Investors should be given the opportunity to conduct the due
diligence process like other professional investors do. As being suggested in the US,
an investor should not invest more than 5% of his portfolio on the particular risk.
Emily Yu, CF Canada Financial Group Inc. British Columbia
I am absolutely against it. Most non-accredited investors could not afford the risk of
these speculative investments. It is not in the best interest of the client to be involved
with this sort of investment if they lack the ability to afford the risks involved.
Peter Fang, Entrepreneur, British Columbia
Allowing crowdfunding would be a positive step towards deregulation in
Canada for startups raising capital. Proper investor education (awareness
campaigns by the government, for instance) and risk disclosures will address
most of the concerns about the inherent risk of startup investments for
non-accredited investors. After all, most people do understand that a high
proportion of startups do fail, and most of them invest because they love
the idea, and treat it more like a donation rather than investment, the kind of
mentality we have already seen in Kickstarter before the deregulation.
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