Ontario crowdfunding rules still in the works

The Ontario Securities Commission is continuing to work on regulating the popular phenomenon of online crowdsourcing for businesses.

Late last year, the market regulator put out a discussion paper asking for public comment on whether it should allow a crowdfunding exemption to let companies raise capital online without having to provide a formal prospectus, or limit their capital raising to so-called "sophisticated" investors who are wealthy.

The OSC has since consulted with small businesses and organizations, government officials and investors, and released a report in August on the work it's done so far.

But there's still no timeline for any proposed legislation.

"We are unable to provide specifics on timing as we need to take the time necessary to develop rules that are appropriate for Ontario," said Huston Loke, the commission's director of corporate finance, in an emailed statement.

Crowdfunding sites such as KickStarter and Indiegogo have helped launch thousands of projects and ventures worldwide. 

Sometimes the funding involves donating to a cause. Sometimes contributors are given some kind of reward or early access to a product in development. Sometimes, it’s more of an unsecured personal loan to a business.

Blacksumac, an Ottawa tech start-up, used Indiegogo to promote and sell its home security system.

Its goal was to raise $100,000, but it raised three times that much.

Blacksumac founder Russell Ure said it's a "great way to get user validation" before entering the market, and that it was a better choice than approaching a venture capitalist.

"You almost need success, demonstrated success, before they come and potentially show an interest in investing in your company. And by that time, you don't need them anyway," he said.

But Ure said that if there's no legislative protection, "bogus companies" might take advantage.

Proposed OSC rules would open this up only Canadian companies.

Investors would also be limited to a single pledge of $2,500 up to a maximum of $10,000 per year.

The start-ups would also have to provide investors with annual financial statements, keep books, records and information such as the names of all security holders and the size of holdings, as well as how the raised funds are used.