If you are a start-up considering the crowdfunding route,
let's talk. Here are a few tips to consider:
IP: Most crowdfunding portals require
extensive disclosure of the start-up's business plans and
product prototypes. That makes sense - after all, investors want to
know what they're investing in. The start-up should consider
the scope of disclosure in light of intellectual property issues.
Will the technical info, drawings, or descriptions constitute a
public disclosure of the company's inventions, and if so, this
may impact patentability, in Canada or the US or other important
markets. Consider patent issues, and also make sure you mark your
trademarks and display copyright notices where appropriate.
Securities Laws: Raising money from investors? In
Canada, perhaps the best way to approach the issue is not to
ask "is crowdfunding legal?". Rather,
decide what you want to accomplish and then make sure your
efforts are compliant with current laws. Every company must
comply with securities laws. An offering to sell
shares requires a prospectus or an exemption, and there are a
number of exemptions which may be suitable for your start-up.
"Crowdfunding" is a nebulous term, and
depending on how it is implemented, it may run afoul of current
securities laws, or it may be so cost-prohibitive to your start-up
that you will choose a different path. The crowdfunding exemption
is being developed. Some provinces (such as Saskatchewan) have
implemented rules permitting equity crowdfunding. Other
provinces such as Alberta are considering such rules.
Corporate Issues: As equity crowdfunding rules become
more mature, you should consider the implications. Let's say
the rules permit equity crowdfunding in your province. You want to
raise $1.5 million (which is the maximum under the proposed
Crowdfunding Exemption). Let's say each investor kicks in
$2,500 for shares in the company (which is the maximum single
investment under the proposed Crowdfunding Exemption). That's
600 shareholders. That means 600 people (most of whom
are total strangers) own a piece of your
company. Next, you want to raise $2 million from venture
capital investors. How will VCs view your company if they are
joining 600 minority shareholders? Equity crowdfunding may be
a great option for your start-up, it may be the way to get your
product to market. Or it may be a bad fit in light of your
long-term strategy. Either way, you should go in with your eyes
open so you know what you are signing up for.
Get some practical advice as you consider your
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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A recent Saskatchewan Court of Queen's Bench decision allowed a court-appointed receiver to sell and transfer intellectual property rights free and clear of encumbrances, finding that a license to use improvements of an invention was a contractual interest and not a property interest.
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