Crowdfunding -- the raising of capital, typically through small individual investments on an online platform -- has obvious appeal: it allows investors to take a relatively risk-free flutter, if the investment is small; and it provides smaller issuers, in particular, the ability to raise capital from a wide investor base. There are some obvious risks, of course, especially if larger investments are at stake. Fraud is the obvious one, but so are projects that raise some -- but not all -- of the capital they require.

The Ontario Securities Commission has ventured cautiously into crowdfunding, having considered the issues in a December 2012 consultation paper. In the Matter of MaRS VX (OSC, 17 June 2013) grants relief to a not-for-profit subsidiary of MaRS Discovery District from certain know-your-client and suitability requirements that would permit it to operate a crowdfunding platform, albeit one that is a fairly limited in scope. The filer will be permitted to operate an online portal to connect accredited investors with 'social impact' or 'environment impact' issuers that 'aim to solve social or environmental challenges in Ontario'. A public web portal will contain information about the filer and how to qualify as an investor through a separate, private portal. In order to access the private portal, accredited investors will be required to provide suitable identification and sign an investment agreement in which they acknowledge their acceptance of the investment risks disclosed to them through the portal. Issuers will be required to acknowledge their compliance with disclosure and other securities law requirements. The filer, for its part, will merely provide the platform to connect investors and issuers, and will not recommend or trade in securities itself.

While the OSC suggests that the MaRS VX order should 'not necessarily be viewed as a precedent for other filers in Ontario or in other jurisdictions', it probably is to be regarded as a template for future crowdfunding initiatives in Canada.

http://www.osc.gov.on.ca/en/SecuritiesLaw_ord_20130620_215_mars-vx.htm

http://www.osc.gov.on.ca/documents/en/Securities-Category4/sn_20121214_45-710_exempt-market-review.pdf