Innovation

Ontario May Loosen Rules for Raising Capital

Ontario entrepreneurs could gain access to prospectus-exempt financing

Written by Jeff Beer for Canadian Business

The Ontario Securities Commission (OSC) is reviewing proposed options and regulatory changes for prospectus-exempt financing in Ontario. Some see the development as a golden opportunity for the province to help entrepreneurs and boost the province’s already strong startup environment.

“They should look at these startup companies as a relatively unique opportunity and really provide them with substantially liberalized rules for raising capital,” says Eric Apps, a senior lawyer who specializes in technology at Toronto-based Wildeboer Dellelce LLP.

Ontario limits participation in the exempt markets, where securities can be sold without a prospectus, to a minimum $150,000 purchase or to a regulator-accredited investor. Apps says this makes it an exclusively “rich get richer” scenario and prevents smaller companies from attracting a larger pool of potential investors.

The exempt markets have proved controversial, particularly in Alberta—where anyone can invest in speculative real estate development—which has seen billions of dollars lost over the last few years in dodgy schemes. A recent OSC report found rampant problems among exempt market dealers, including inadequate documentation and selling to unqualified investors.

Apps says fraud is a legitimate concern, but not limited to the exempt markets, citing stock disasters like Bre-X and SinoForest. And his recommendations to the OSC hardly take a Wild West approach, asking that early stage growth companies in the tech and life sciences should be able to raise up to $1 million a year for up to five years without having to use a prospectus or rely exclusively on high net worth investors; and that investors would be limited to investing $5,000 in any one startup.

“We let people buy lottery tickets, bet on horses, gamble in casinos, why wouldn’t we let more people invest some of their money in some of these companies with a minimum of regulation?” says Apps.

Originally appeared on PROFITguide.com