Crowdfunding: popular but ineffective?

Author: Zoe Thomas | Published: 7 Apr 2014

Canadian regulators have followed their US counterparts in proposing crowdfunding rules. But the effectiveness of both regimes could be limited by burdensome fundraising restrictions.

Equity crowdfunding, which would allow startups to raise capital from unaccredited investors, was a popular feature of 2012’s Jumpstart Our Business Startups Act (Jobs Act).

Rules issued for comment by the Ontario securities regulators on March 20 follow similar structures to the US proposal, including constraints on the amount that can be raised and disclosure requirements.

Many have noted that the funding strategy appeals to small non-accredited investors. McCarthy Tétrault partner Andrew Parker compared it to a social media-type phenomenon.

"As myself and some of my colleagues see it, investors under these new portals may think of themselves as venture capitalists – very high risk, very little reward so that they are really just investing in the team and the promise of its product/service and...