How about Crowdfunding?

2015-04-14

Share
Home›NewsVOL.18N°3Français
HowAboutCrowdfunding?byStevenBento
In2013alone,theInternetphenomenonknownas”collectivefinancing”,
“socialfundraising”or”crowdfunding”generatedover5billiondollarsin
donationsworldwide.
TheKickstarterplatformaloneraisedover24milliondollarsinCanada2.The
datafor2014hasnotyetbeencompiled,butjudgingfromthesuccessoflarge
scaleprojectssuchasCoolestCoolerandOculusVR,aswellasmedia
coverageofthephenomenon,crowdfundingdoesnotseemtohaveslowed
downyet3.
ThisarticleisoneinaseriesofthreethatwillfocusonCrowdfundingwhichis
increasingatanexponentialrate.
TheBeginnings
Whatstartedasatooltofinanceinnovativeprojectshasitsrootsinthe
traditionalmodelofartisticphilanthropy,whereartistsappealeddirectlytotheir
targetaudiencetofinancetheirwork4.Previouslylimitedtoartisticorsocially
mindedprojects,crowdfundinghasbecomesimplyanothertypeoffundraising
forprojectsofallkinds.Thisnewsystemisverypromising,asitallowsmore
democraticaccesstoequity,andwillbenefitfromregulationsproposedby
variousprovincialorganizationsthatgovernfinancialmarkets.TheUnited
StatessharesCanada’senthusiasmforcrowdfunding.Thevariousmeasures
takenoverthelastfewyearsthroughthe“JumpstartOurBusinessStartups
Act”bearwitnesstothepopularityofthisconcept5.
WhatisCrowdfunding?
Crowdfundingconsistsofcollectingsmallamountsofmoneyfromalarge
numberofonlineinvestors6.Itisdifferentfromtraditionalfundraisingmethods
inthatitinvolvesaweb-basedportal.Itthereforetakesadvantageofthe
Internet’sbroadreach,andresultsinmanysmallfinancialtransactions.The
investorprofileisyoungerthanbefore(20-35yearsold,ratherthan48-59),
anddiffersfromthatoftraditionalinvestors.Assuch,crowdfundingisof
particularinterestforbusinessesthatarejuststartingout,whichoftenface
difficultieswhenapproachingtraditionalinvestors.
TypesofCrowdfunding
Therearethreetypesofcrowdfunding.“Pledge”crowdfunding(i.e.donation)
isgenerallypermittedinQuébecifcurrentlegalandfiscalregulationsare
followed.“Donationandreward”crowdfunding(i.e.donationinreturnfora
WarningtoAllPirates:
CheckYourMailbox!
HowAbout
Crowdfunding?
SaleofaPatentata
Loss:IsItDeductible?
Canada-EU:FreeTrade
MustBeSecureTrade
ThreeNew
ProfessionnalsJoin
ROBIC
Usefuland
Non-ObviousNews
Activitiesofour
Members
ROBIC’sClient
Portal
Archives
Subscribe
Toseeourelectronic
brochure,clickhere

product)isalsopermitted,withsimilarrestrictions.Finally,“equity”
crowdfundingallowstheexchangeofstockusingshareholderequityorother
securitieswithanRSIorROI.Thislasttypeoffinancingisabouttobecome
regulatedbyseveralorganizations,suchasdraftregulation45-108respecting
crowdfundinginQuébec.
LegalAspects
CanadianlawisnotasuptodateasU.S.lawwithrespecttocrowdfunding.
TheCanadianlawsthatrelatetofundraisingweredraftedbeforethe
crowdfundingphenomenoncameintobeing.Thereisthereforenocentralized
organization,suchastheSecurityExchangesCommissionintheUS,
authorizedtolegislateinthismatterinCanada.Crowdfundingfacestwomajor
challengesinCanada:thedivisionofpowerbetweenthefederaland
provisionalgovernments,andthedualobjectivesofcurrentlegislationwith
regardtobusinessfinancing(theConsumerProtectionlawandlaws
facilitatingeconomicexchanges).InQuebec,draftregulation45-108
respectingcrowdfunding,notyetinforce,proposestoidentifyrightsand
obligationswithregardtocrowdfunding,andappearstoproposesimilar
obligationsasthosecurrentlyproposedinOntario6.
WhereDoesIntellectualPropertyFitintoAllThis?
Sincemostprojectsarepostedonpubliccrowdfundingplatformsbeforea
“proofofconcept”hasbeencarriedout,itisrarethatintellectualpropertyis
protectedatthatpoint.Apublicdisclosureoftheinventionmadebyan
inventormorethanoneyearpriortothefilingofapatentapplicationinCanada
wouldalsohavetheadverseeffectofeliminatingthepatentabilityofthe
inventioninCanada.Bysharingtheirideas,projectsandconceptsonline,
oftenataveryearlystageofdevelopment,thosewhoturntocrowdfundingrun
theriskofhavingacompetitorstealtheirmostimportantresourceatthat
stage:theirintellectualproperty.
Thisissueaswellastheoneabouttheupcominglegislationwillbothbethe
topicsofdistinctarticlesinthecomingeditionsoftheROBICnewsletter.
1http://www.theglobeandmail.com/report-on-business/small-business/sb-money/business-funding/high-
tech-bike-is-kickstarter-canadas-most-funded-project-of-the-year/article20510125/
2https://www.kickstarter.com/projects/ryangrepper/coolest-cooler-21st-century-cooler-thats-actually;
https://www.oculus.com/company/
3http://www.theatlantic.com/technology/archive/2013/06/kickstarters-of-yore-mozart-lady-liberty-
alexander-pope/277389/
4JumpstartOurBusinessStartupsAct15U.S.C.§78a
5http://www.oxforddictionaries.com/definition/english/crowdfunding?q=Crowdfunding
6http://www.lautorite.qc.ca/files//pdf/reglementation/valeurs-mobilieres/45-108/2014-03-20
/2014mars20-45-108-cons-fr.pdf;http://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20140320_45-106_rfc-
prospectus-exemptions.htm