B.C. Entrepreneurs Turn to Crowd-Funding For New Ways of Financing Startups

National Crowdfunding Association of Canada | BCBusiness
Crowd funding has been popularized by campaigns like the Pebble smart watch

B.C. entrepreneurs look to legalize financing through online platforms in the effort to kickstart budding healthcare ventures

A quirk in B.C.’s securities regulations has a group of Vancouver entrepreneurs looking to kickstart equity-based crowd-funding for high-tech ventures, a means of raising funds online from non-accredited investors that’s currently illegal in Canada and the U.S. 

Crowd-funding, or raising funds through the collection of small contributions using web platforms, has allowed online communities to promote and finance their projects, often with the help of social media channels. 

B.C. companies involved in this kind of donation-based crowd funding have seen more success so far: Weeve.it, a social fundraising site for charitable causes, was acquired by LX Ventures Inc. in February, and Vancouver-based Fundrazr has helped causes listed on its site raise upwards of $20 million. For the world of crowd-funding, which doesn’t promise gifts or the satisfaction of giving to a worthwhile project, B.C. investor Antonio Arias speculates it will be akin to traditional investing with a similar set of risks involved. 

Arias is part of a group of B.C. financiers lobbying B.C.’s securities regulators to alter the rules around selling equity stakes to non-accredited investors via online platforms. Supporters of the change point to a tool in B.C.’s securities laws unique in North America that allows such investors to buy equity stakes in startups, but they hope to mainstream it and expand its use.

“B.C. has legalized crowd-funding for a decade,” said angel investor Mike Volker at last month’s Vancouver Enterprise Forum. Volker runs two investment funds that back local technology startups, one set up for accredited investors and another that uses “offering memorandum,” a financing tool unique in North America that allows companies to raise unlimited amounts of money from individual investors.

Arias hopes that health and wellness venture projects will be able to turn to online crowd-funding platforms in the future instead of the more traditional routes of venture capital and bank loans or tapping into the resources of friends and families. 

Equity-based crowd-funding is illegal in Canada and the U.S., but is legal in some European jurisdictions, says Thomas Hellman, a professor at UBC’s Sauder School of Business. The JOBs Act recently signed into law in the U.S. will make it legal for entrepreneurs to raise up to $1 million of early stage equity-based financing according to the National Crowdfunding Association of Canada, but the law has not yet come into effect.