A new provincial organization aims to promote equity crowdfunding in Quebec while also doing its part to ensure Canada develops a coherent national crowdfunding approach.
Equity Crowdfunding Quebec (ECQ) was recently launched by a group headed by Gil Michel-Garcia, CEO of WAFU, a Montreal-based consumer goods company. Through Mr. Michel-Garcia, WAFU conducted the first crowdfunded, cross-border capital raise late in 2014.
ECQ’s mission is to make sure equity crowdfunding is accessible for the average Quebecker. A key aspect of their strategy is to lobby Quebec’s securities regulator, L’Autorité de Marches Financiers.
Part of that lobbying will include efforts to assure notoriously conservative Canadian regulators that crowdfunding is indeed safe.
“Equity crowdfunding is a risky type of investment,but this is no reason to limit access to accredited investors only,” Mr. Michel Garcia said. “It is easy to mitigate the risk to such investors through regulations like low investment ceilings and information readily made available.”
By exercising a measure of control over the government education process, ECQ can educate the provincial government how equity crowdfunding can benefit a province whose unadjusted unemployment is one percentage point higher than the national average and the worst west of the Maritimes.
“Equity crowdfunding will ease, accelerate and democratize the way small new businesses are funded in Quebec,” Mr. Michel-Garcia said. “In Quebec we want small companies creating jobs. A lot of people are leaving for lack of opportunity.”
ECQ can contribute by making sure regulations strike a balance between providing appropriate safeguards and creating an environment in which Quebec’s SME’s can benefit from the process.
“We want to participate and contribute to that process in order to ensure that such rules are simple and workable, and are easy to comply with in order to ensure that local Quebec businesses and investors have a viable access to this transformative mode of financing.”
“(Organizations like ECQ) can lead education and research initiatives that allow government to make effective policy decisions on data-driven insights. They can also provide industry perspective on crowdfunding innovations, market enablers and also friction points that need to be managed. Such groups should also work with government to boost investor confidence in these early stage markets by establishing standards and best practices.”
Ideally each province and territory will have its’ own ECQ, so they can address the unique needs within their borders while also combining efforts to ensure the national voice reflects larger goals.
“Regulators in all provinces are talking to each other so it is our job to raise our issues to our regulators and to inform the National Crowdfunding Association to make sure we have a coordinated voice,” Mr. Michel-Garcia explained.
ECQ is also looking beyond provincial and national borders, a philosophy Gil Michel-Garcia knows is mandatory if equity crowdfunding is to maximize its’ potential.
“It is important we have direct contact with our provincial regulators to ensure regulations being enacted conform with JOBS act regulation in the U.S. as to what is being proposed for Title III,” Mr. Michel-Garcia said.
Business aims can gel quite well with investor protections via the establishment of reasonable limits on both sides, Mr. Michel-Garcia explained.
“To limit the amount each investor can invest is a wise approach. We want to minimize the risk of one investor losing a substantial amount of money.”
On the business side, an annual cap of $1 million for individual company raises would be a good starting point he said.
Canadian regulators also have to address the number of shareholders a company can have before they have to fulfill the obligations of a public company.
“In the United States it used to be 500 but with the JOBS Act it increased to 2,000,” Mr. Michel-Garcia said. “In Canada the definition of a private company is any company that has more than 50 shareholders. Right off the bat you see that is not going to work with equity crowdfunding.”
There is a simple solution to this, one which allows a crowdfunded company to have more shareholders while recognizing those investing via crowdfunding will not have the same expectations as larger, traditionally-defined shareholders.
“Basically you are going to be a non-reporting public company,” Mr. Michel-Garcia said.
Such companies must also be allowed to be sold without having to comply with all shareholders like a public company does, Mr. Michel-Garcia said. Without such a provision, the demand for acquisitions will dry up quickly.
“If you don’t fix that problem no private company is going to offer to buy you out if that deal has to be offered to all shareholders.”
General public knowledge of equity crowdfunding is “almost non-existent” Mr. Michel-Garcia admitted, so public education will play a significant role in ECQ’s mandate.
“We want to do a lot of out reach to small companies to let them know this type of financing exists and it is successful.”
“We have to make sure these markets are fully accessible to smaller companies. When you allow small businesses to access financing they create jobs. They are a big job creator in the economy. Make it simple for them to do so and it’s beneficial for everybody.”
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