Yes to Equity Crowdfunding

BC equity crowdfunding | BCBusiness
Delaying the approval of equity crowdfunding could have adverse effects on B.C.’s startup ecosystem.

Opening up startup funding to the general public would put B.C. on an even footing with the U.S. and at least one other Canadian province

When the province of Saskatchewan announced in December it would officially allow equity-based crowdfunding, the rest of us were caught off guard with its impressively forward thinking.

Equity crowdfunding allows startups and small businesses to sell securities such as shares and limited partnership units that represent ownership of the company. This is a lot different from your typical crowdfunding campaign on Kickstarter or Indiegogo, which function more like pre-order sites through which backers get first dibs and early-bird discounts on products that don’t exist yet.

Crowdfunding, then, is a way to sell products, acquire customers and gain traction, while equity crowdfunding is a way to raise capital, selling actual equity to regular folks without going public. Many startups salivate at this idea, and it benefits the economy overall, too, which naturally appeals—or at least, should appeal—to government bodies.

“Small businesses play a central role in our economy,” said Gordon Wyant, the minister responsible for Saskatchewan’s Financial and Consumer Affairs Authority, in a statement in December. “Our government’s goal is to make sure that Saskatchewan continues to be one of the best places in Canada to start and grow a small business.”

Wyant was wise to recognize that if Canada’s provinces are perpetually engaged in friendly competition to attract and launch new companies, then allowing equity crowdfunding is an effective way to lure entrepreneurs to Saskatchewan. But that, ultimately, is little more than petty squabbling within a nation. What we need is to compete against the U.S. and on the world stage—and for that, we need equity crowdfunding to reach all provinces, including B.C.

Saskatchewan’s move followed one made south of the border by U.S. president Barack Obama nationwide. In April 2012, the president signed the Jumpstart Our Business Startups (JOBS) Act, which enabled equity crowdfunding for American startups. This puts Canada (except Saskatchewan currently) behind the U.S.—a lag that could have a particularly prominent impact on B.C., given Vancouver’s precarious proximity to Silicon Valley.

The JOBS act could be another incentive for our entrepreneurs to fly south—as if there weren’t enough already. In Canada’s startup ecosystem, venture capital flows less freely than in the U.S. and there are fewer active angel investors. Equity crowdfunding addresses a gap in fundraising for startups that could supercharge growth for entrepreneurs with great teams and ideas but not enough traction to garner the attention of big-time investors.

Equity crowdfunding has its risks. Without proper regulation, it’s ripe for fraud—a concern that is apt to be under additional scrutiny in B.C., where Vancouver is still licking its wounds after the infamous Vancouver Stock Exchange earned the city the nickname “scam capital of the world” by Forbes magazine in 1989.

Still, it’s a necessary pursuit. The current rules for startups selling stock are “expensive, complicated and time-consuming,” says Saskatchewan FCAA chair and CEO Dave Wild. Equity crowdfunding could be the perfect solution: “It will help fill the gap for these businesses so that they can compete. It may get them over the initial funding hurdle by offering an alternative side to finding capital.”

According to Vancouver mayor Gregor Robertson, the city has more entrepreneurs per capita than any other in North America. Let’s keep it that way. While it’s unlikely Vancouver will have to worry about losing entrepreneurs to Regina or Saskatoon, waiting too long to pull the trigger on enabling equity crowdfunding could have adverse effects on B.C.’s startup ecosystem. What if Ontario moves first? What if Canada starts lagging globally in the crowdfunding space? Then we have a problem.

Fortunately, that problem can be solved before it even surfaces. Equity crowdfunding would be beautiful, British Columbia.