OSC EXEMPT MARKET REVIEWOSC NOTICE 45-712APPENDIX B – INVESTOR SURVEY REPORT
Th
e Bron
desbury Group Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
PREP
ARED
FOR TH
E ONTA
RIO SEC
URITIES COMMISSION
WRITTEN
BY: E
DWIN L.
WEINSTEIN, P
HD
MAY
28, 201
3
EXEM
PT M
ARKE
T ST
UDY ON CRO
WDFU
NDING
Th
e Bron
desbury Group Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
TABLE OF CO
NTENTS
0.0
EXEC
UTIVE
SUMMAR
Y
1 1.0
INTR
ODUCT
ION
5
1.1
METHOD
6
1.2
WHO W
AS IN
TERV
IEWED
7
1.3
ORG
ANIZAT
ION O
F TH
IS REP
ORT
13
2.0
PROPE
NSITY
FOR BU
SINESS IN
VESTING
14
2.1
RISK PRO
FILES
15
2.2
DECISION IN
FLUEN
CES
16
2.3
WILLINGNESS TO
INVE
ST VIA CRO
WDF
UNDING
18
2.4
SME INVE
STING AND CR
OWDF
UNDING
20
3.0
INVE
STING VIA CRO
WDFU
NDING
21
3.1
ASSESSMEN
T OF RISKS
22
3.2
DECISION IN
FLUEN
CES
23
3.3
INFO
RMED
PRO
PENSITY FOR INVE
STING
27
4.0
NOT IN
TERE
STED
IN SME IN
VESTING
29
4.1
WHO ARE
THE NON-‐IN
VESTORS
30
4.2
REAS
ONS FO
R NOT INVE
STING
31
4.3
UNRE
GULATED M
UTU
AL FUNDS
32
5.0
SUMMAR
Y & CONCLUSIONS
34
AP
PENDIX A
-‐ ONLINE SU
RVEY
S
39
APPE
NDIX B -‐ LI
TERA
TURE
REV
IEW
54
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
1
0.0
EXEC
UTIVE
SUMMAR
Y Th
e Ontario Securities Com
miss
ion (OSC) is c
onsid
ering several ide
as
for n
ew cap
ital raising
prospectus e
xemptions th
at m
ay provide
bu
sine
ss enterprises, p
articularly start-‐up
s and
Small-‐M
edium
Enterprises (SME), w
ith greater access to capital. New
exemptions m
ay
also provide
individu
al investors w
ith m
ore investmen
t opp
ortunitie
s,
subject to ap
prop
riate investor protections and
limita
tions.
“Crowdfun
ding
” is on
e of th
e prop
osed
ideas for new
cap
ital raisin
g prospe
ctus exemptions.
This survey will help to assess w
hat m
atters to
poten
tial SME an
d crow
dfun
ding
investors. This include
s discussion of circ
umstan
ces tha
t bo
th encou
rage and
discourage investmen
t, as well as the
kinds of
peop
le likely to
invest und
er differen
t circ
umstan
ces.
The survey was executed on
the Internet and
took 15-‐20
minutes to
complete, dep
ending
on interest in crowdfun
ding
. A total of 1
501
adult C
anad
ians to
ok part in the survey. A
ll on
line interviews w
ere
cond
ucted be
tween March 13-‐Ap
ril 4, 201
3. O
nline interviews w
ere
cond
ucted in both En
glish an
d Fren
ch, according
to th
e respon
dent’s
choice.
The sample is a broa
d cross-‐section of Can
adians, w
hich is nationa
lly
represen
tativ
e by age and
region
. Med
ian saving
s and
investmen
ts
(includ
ing RR
SP but excluding
hom
e) in our sa
mple are ab
out $
45,000
. Almost 6
out of 1
0 respon
dents h
ave less th
an $50
,000
in sa
ving
s and
investmen
ts. In every age grou
p, m
ore than
half o
f respo
nden
ts have
less th
an $50
k in sa
ving
s and
investmen
t. This rises to
three-‐qu
arters
in th
e youn
gest age group
.
The survey itself is divide
d into th
ree broa
d sections.
• All R
espo
nden
ts. This include
d: D
emog
raph
ic inform
ation;
Investmen
t beh
aviour; P
rope
nsity
for b
usiness investin
g; and
De
cision
influ
ences.
• Po
tential C
rowdfun
ding
Investors. Tho
se sh
owing interest in
investing via crow
dfun
ding
were asked to: Ide
ntify risks;
Motivations; D
esire
for p
rofessiona
l advice; In
form
ation ne
eds; and
Factors a
ffecting the am
ount of m
oney th
ey wou
ld invest.
• Crow
dfun
ding
Non
-‐Investors. Tho
se sh
owing virtua
lly no interest
in investing in SMEs via crowdfun
ding
were asked: Poten
tial
interest in investing in unregulated
mutua
l fun
ds; R
easons fo
r not
investing in SMEs and
in unregulated
mutua
l fun
ds (if a
pplicab
le).
There are several cho
ices to
make in designing
surveys, and
becau
se
we were very con
cerned
abo
ut gettin
g en
ough
respon
se on a very new
topic like crow
dfun
ding
, we elected to use crowdfun
ding
as a
basis for
stream
ing pa
rticipan
ts into one
of the
two mutua
lly exclusiv
e stream
s.
We also used low cut-‐off scores to
iden
tify those po
tentially interested
in crowdfun
ding
, in an
effo
rt to
ensure sufficien
t respo
nse to th
e crow
dfun
ding
que
stions.
It is im
portan
t to un
derstand
the cut-‐off scores. W
illingn
ess to invest
was ra
ted on
a 1 (D
efinite
ly NOT interested
) to 10
(Definite
ly
Interested
) scale in all three qu
estio
ns whe
re it is asked
. Only those
giving
ratin
gs of 1
-‐3 were de
emed
‘Not interested
’ in investing,
whe
ther in SME gene
rally or c
rowdfun
ding
specifically. Th
us all those
giving
ratin
gs of 4
-‐10 were de
emed
‘interested in investing’. Ba
sed on
the typical psycholog
ical distan
ces o
n a 1-‐10
scale, how
ever, it is u
seful
to th
ink of th
e interested
investors in tw
o grou
ps. Th
ere is a “core
investor” that is likely to
invest and
gave 7-‐10
ratin
gs; as w
ell as a
set o
f “poten
tial investors” who
are less likely to
invest and
gave 4-‐6 ratin
gs.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
2
As you
read
the survey re
sults, it is impo
rtan
t not to
over-‐interpret
small differen
ces. W
hile th
e survey has overall statistical accuracy of
+2.5%, tha
t reflects the
likelihoo
d of gettin
g the same nu
mbe
rs by
asking
the same qu
estio
ns. It do
es not re
flect th
e likelihoo
d that
peop
le will do wha
t the
y say. M
uch of th
e survey asks p
eople to
speculate on
wha
t the
y wou
ld do in re
spon
se to
a com
plex se
t of
alternatives. Th
e simple an
swer is we can’t b
e sure wha
t the
y will do
until th
ey are in th
e situation. N
onethe
less, w
e can be
reason
ably
certain that whe
n a much larger group
expresses interest in one
alternative over ano
ther, the
preferred
alte
rnative will re
main so in
practice. The
immed
iate practical im
pact of this w
arning
is th
at you
shou
ld be reluctan
t to interpret d
ifferen
ces in respon
se unless the
y are
quite
substantial. W
e ha
ve aim
ed to
do this whe
n we select
inform
ation to present and
discuss in th
is re
port.
PROPE
NSITY
FOR BU
SINESS INVE
STING
• Interest in SME investing an
d interest in crowdfun
ding
are highly
related. O
verall, th
e tw
o grou
ps overla
p by abo
ut 80%
(42.0%
+
37.3%). Som
e three-‐qu
arters of SME investors a
re interested
in
crow
dfun
ding
, and
con
versely, 86%
of tho
se interested
in
crow
dfun
ding
are interested
in SME investing. The
simple grap
hic
below sh
ows h
ow th
e total pop
ulation divide
s up in te
rms o
f interest in SME investing an
d crow
dfun
ding
. •
As we will se
e later, whe
n pe
ople are interested
in one
type
of
investing (SME or crowdfun
ding
) and
not th
e othe
r, the main
diffe
rence is th
eir fam
iliarity
and
com
fort with
the Internet. Th
at
explains m
ost d
ifferen
ces, and
other th
an dem
ograph
ics related
to
Internet usage, o
ther dem
ograph
ic differen
ces a
re largely
immaterial. As a
result, it sh
ould be un
derstood
that a con
clusion
applied to one
of the
two grou
ps of investors wou
ld alm
ost
certainly ap
ply to th
e othe
r group
.
Re
latio
nship Be
tween Interest in SME Investing &
Crow
dfun
ding
(% Total)
Crow
dfun
ding
New
/You
ng
Investmen
t Yes
No
Yes
42.0
13.8
55.8
No
6.9
37.3
44.2
48.9
51.1
•
Risk to
lerance, age and
gen
der a
re th
e three pe
rson
al
characteristics tha
t are m
ost ind
icative of prope
nsity
for b
usiness
investing, whe
ther we are talking ab
out investin
g in SME or
crow
dfun
ding
.
• Five th
ings have a strong
positive im
pact on willingn
ess to invest in
SME, while lack of information an
d lack of liquidity deter
investmen
t. Th
e po
sitiv
e influ
ences in de
scen
ding
order of n
et
impa
ct are:
o
The bu
siness is in an
indu
stry you
kno
w well.
o
It is a well-‐e
stab
lishe
d bu
sine
ss with
a new
plan for g
rowth.
o
It is a local business tha
t you
might use.
o
It is a start-‐up
com
pany with
an idea th
at so
unds goo
d.
o
You can bu
y it throug
h your fina
ncial adviso
r and
get advice.
• Ro
ughly ha
lf of re
spon
dents a
re not willing to invest in SME or via
crow
dfun
ding
. Ab
out o
ne-‐sixth expressed
strong
interest in SME
investing an
d crow
dfun
ding
. Th
e remaining
one
-‐third were
deem
ed poten
tial investors.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
3
• Re
gressio
n an
alysis iden
tifies fou
r dem
ograph
ic variables th
at have
a major im
pact on willingn
ess to invest in SME, whe
ther th
roug
h crow
dfun
ding
or n
ot: age (you
nger), gend
er (m
ale), risk ap
petite
(high) and
owne
rship of com
plex investmen
ts. Ag
e ha
s the
greatest influ
ence.
• Be
sides th
e de
mog
raph
ic variables, regression an
alysis iden
tifies
two eq
ually im
portan
t prim
ary influ
ences o
n the crow
dfun
ding
de
cision
: It is easy to buy into th
e compa
ny on the Internet; and
It
has a
n idea th
at so
unds goo
d to you
. “It could take a fe
w years to
fin
d ou
t if the
business is p
rofitab
le” is a negative influ
ence as
powerful as e
ither positive influ
ence.
Investing Via Crow
dfun
ding
•
Almost h
alf o
f respo
nden
ts expressed
an interest in “Investing via
Crow
dfun
ding
”. H
alf a
lso expressed an
interest in SME investing.
While th
e tw
o grou
ps are not iden
tical, it w
as only the grou
p that
expressed an
interest in crowdfun
ding
that answered
the
questio
ns in th
is se
ction. W
ith th
e exception of issues re
lated to
the Internet, the
differen
ce in re
spon
se betwee
n SM
E investors
and crow
dfun
ding
investors is largely im
material.
• Re
spon
dents w
ere show
n a list o
f nine po
tential risks of investin
g in an un
regu
lated market a
nd asked
which one
s con
cerned
them
. Ro
ughly tw
o-‐third
s of tho
se willing to invest were concerne
d ab
out
Potential for frau
d an
d the Risk of losing their m
oney. R
ough
ly half
of re
spon
dents c
ited ad
ditio
nal reasons re
flecting a concern with
the lack of u
nbiased inform
ation an
d the lack of liquidity.
• More than
one
-‐third of tho
se interested
in investing via
crow
dfun
ding
wou
ld be willing to invest $10
00 or m
ore whe
n provided
with
goo
d inform
ation ab
out the
com
pany and
its p
lans.
Cond
ition
s tha
t increase willingn
ess to invest are: goo
d track
record; h
igh grow
th indu
stry; kno
w th
e ow
ners; an inde
pend
ent
annu
al fina
ncial rep
ort; an
d a high
ly detailed bu
sine
ss plan.
• Whe
n asked ab
out the
impo
rtan
ce of h
aving some seven diffe
rent
type
s of information, th
ree type
s of information were im
portan
t to
three-‐qu
arters: Finan
cial inform
ation ab
out the
com
pany; Yearly
inform
ation ab
out h
ow th
e compa
ny is doing
; and
How
the
compa
ny will use th
e mon
ey it gets from investors.
• Whe
n given a choice abo
ut how
they wou
ld prefer to invest,
respon
ses m
ade it clear tha
t gettin
g ad
vice from
a fina
ncial advisor
is im
portan
t. M
etho
ds involving an
advisor app
ealed to ro
ughly
three tim
es as m
any investors c
ompa
red to m
etho
ds th
at by-‐
passed
an ad
visor. If using an
advisor is not possible, providing
an
Offe
ring Mem
oran
dum slightly increases w
illingn
ess to invest usin
g the Internet.
• Am
ong the grou
p with
an interest in investing via crow
dfun
ding
, some 4 ou
t of 1
0 wou
ld invest und
er $10
00, 2 out of 1
0 wou
ld
invest $10
00-‐199
9, 2 out of 1
0 wou
ld invest $20
00-‐499
9, and
the
remaining
2 out of 1
0 (17%
) wou
ld invest $50
00 or m
ore.
• Focusin
g on
the grou
p willing to invest $50
00 or m
ore, we no
te a
few cha
racteristics tha
t make this group
distin
ct. C
ompa
red to
those willing to invest sm
aller a
mou
nts, th
ey are: H
ighe
r incom
e;
Have more mon
ey sa
ved/invested
; Male; Own more fin
ancial
prod
ucts; H
ave high
er risk to
lerance; and
Are m
ore likely to re
ad
and un
derstand
fina
ncial statemen
ts.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
4
NOT INTERE
STED
IN SME INVE
STING
• Th
ose no
t interested in SME investing are olde
r and
less edu
cated.
They are also
more likely to be wom
en. Th
ey own fewer
investmen
t produ
cts o
verall, and
are less likely to
own each
investmen
t produ
ct we surveyed
. The
y also have less m
oney sa
ved
or invested
than
average and
they are lower income. Tho
se not
interested
in SME investing are less com
fortab
le using
the Internet,
and in fa
ct, 4 out of 1
0 did no
t use th
e Internet fo
r any buying
activ
ity in th
e pa
st m
onth. This is typical fo
r the
age, incom
e, and
ed
ucation distrib
ution that cha
racterizes th
ose no
t interested in
SME investing. Tho
se not interested
in SME investing also have
less to
lerance for risk.
• Th
e sin
gle do
minan
t reason for n
ot investing in new
or y
oung
bu
sine
sses was Risk of losing
their m
oney, w
hich re
flects the
relativ
ely low risk to
lerance we ob
served
in th
eir d
emog
raph
ics.
The Po
tential for frau
d, which is effe
ctively an
othe
r way of losing
mon
ey, w
as th
e second
most com
mon
reason
for u
nwillingn
ess to
invest in SME.
• After a
n explan
ation of th
e im
plications of a
n un
regu
lated mutua
l fund
(hed
ge fu
nd or p
ooled fund
), those no
t interested in SME
investing were asked ab
out w
illingn
ess to invest in an un
regu
lated
mutua
l fun
d. A
bout 9% sh
owed
some interest (4
-‐10 ratin
g), b
ut
only 1% sh
owed
a strong
interest as g
auged by a 7-‐10 ratin
g on
a 1-‐
10 sc
ale. Risk
of losing mon
ey was th
e most com
mon
reason
for
lack of interest, followed
closely by Do
n’t k
now eno
ugh ab
out
unregu
lated fund
s to invest com
fortab
ly, and
Poten
tial for frau
d.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
5
1.0
INTR
ODUCT
ION
The Ontario Securities Com
miss
ion (OSC) is c
onsid
ering several ide
as
for n
ew cap
ital raising
prospectus e
xemptions th
at m
ay provide
bu
sine
ss enterprises, p
articularly start-‐up
s and
Small-‐M
edium
Enterprises (SME), w
ith greater access to capital. New
exemptions m
ay
also provide
individu
al investors w
ith m
ore investmen
t opp
ortunitie
s,
subject to ap
prop
riate investor protections and
limita
tions.
“Crowdfun
ding
” is on
e of th
e prop
osed
ideas for new
cap
ital raisin
g prospe
ctus exemptions.
Inform
ation ab
out the
investmen
t kno
wledg
e an
d be
haviou
r of
individu
al investors is d
ifficult to ob
tain. In orde
r to en
sure th
at any
new prospectus e
xemptions con
side
red by th
e Co
mmission
includ
e ap
prop
riate investor protections, the
Com
mission
wou
ld like to
gain
insigh
t into individu
al investors’ views a
bout investing in start-‐up
s and
SM
Es. This s
urvey is de
signe
d to get inform
ation that will help the
Commission
better u
nderstan
d:
• Th
e na
ture of investors’ d
esire
to invest in start-‐up
s and
SMEs,
includ
ing risk ap
petite an
d size of investm
ent;
• Investors’ perceptions of the
risks a
ssociated with
investing in th
e exem
pt m
arket;
• Th
e specific inform
ation ne
eds o
f investors investing in start-‐up
s an
d SM
Es; and
•
The role of p
rofessiona
l adviso
rs in investors’ investmen
t decision
-‐making process.
“Crowdfun
ding
” is on
e of se
veral ide
as fo
r new
cap
ital raising
prospe
ctus exemptions investigated
in th
is stud
y. The
broad
er notion
of “crow
dsou
rcing” is fa
miliar to
man
y pe
ople. “Crow
dsou
rcing is th
e practice of obtaining
nee
ded services, ide
as, o
r con
tent by soliciting
contrib
utions from
a large grou
p of peo
ple, and
especially from
an
online commun
ity, rathe
r tha
n from
trad
ition
al employee
s or
supp
liers” (W
ikiped
ia, 12 Ap
ril 201
3). In its m
any form
s, crowdsou
rcing
is often
a m
ix of d
onation, m
oney fo
r goo
ds to
be prod
uced
, or sim
ply
the de
sire to be a pa
rt of a
socially m
eaning
ful exercise
.
The focus o
f crowdfun
ding
is narrower, especially with
in th
e context o
f this survey. Here we are explicitly referring to “the fund
ing of a
compa
ny by selling
small amou
nts o
f securities to
man
y investors”,
typically usin
g the Internet (a
dapted
from
Wikiped
ia, 12 Ap
ril 201
3).
This type
of fun
ding
has been activ
ely de
veloping
in th
e UK in re
cent
years, and
over the
past y
ear it w
as given
heigh
tene
d prom
inen
ce by
the prop
osed
crowdfun
ding
exemption in Title III of the
U.S. JOBS
Act.
But w
hile th
e focus o
f crowdfun
ding
is se
lling
securities, we cann
ot
assume that th
e prim
ary motivation of investors is s
olely mon
etary
return on investmen
t.
This survey will help to assess w
hat m
atters to
poten
tial SME an
d crow
dfun
ding
investors. This include
s discussion of circ
umstan
ces tha
t bo
th encou
rage and
discourage investmen
t, as well as the
kinds of
peop
le likely to
invest und
er differen
t circ
umstan
ces.
1.1
METHOD
Form
ulating qu
estio
ns to
improve the Co
mmiss
ion’s u
nderstan
ding
of
this market req
uired a great d
eal of d
iscussio
n. Crowdfun
ding
is largely
unknow
n territo
ry. Th
ere was little prio
r research to provide
any
guidan
ce. As a re
sult, th
e process o
f que
stion de
velopm
ent involved a
serie
s of steps.
• Th
e Bron
desbury Group
(“Bron
desbury”) m
et with
Com
miss
ion
staff to discuss issue
s, th
e kind
s of q
uestions th
at were feasible,
and the prioritization of issues to
fit survey tim
e lim
its.
• An
initial outline of su
rvey issues was develop
ed and
discussed
un
til agree
men
t was re
ache
d.
• Bron
desbury de
velope
d the first draft of survey qu
estio
ns.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
6
• Bron
desbury an
d the Co
mmiss
ion staff reviewed
and
revised ite
ms
a nu
mbe
r of tim
es to
make the be
st possible use of su
rvey time.
• Th
e fin
al se
t of q
uestions was pilot tested with
the pu
blic and
am
ende
d accordingly be
fore going
“live”.
The survey was executed on
the Internet and
took 15-‐20
minutes to
complete, dep
ending
on interest in crowdfun
ding
. A total of 1
501
adult C
anad
ians to
ok part in the survey. A
ll on
line interviews w
ere
cond
ucted be
tween March 13-‐Ap
ril 4, 201
3. O
nline interviews w
ere
cond
ucted in both En
glish an
d Fren
ch, according
to th
e respon
dent’s
choice.
The sample is a broa
d cross-‐section of adu
lt Ca
nadian
s, which is
natio
nally re
presen
tativ
e by age and
region
. Med
ian saving
s and
investmen
ts (including
RRS
P bu
t excluding
hom
e) in our sa
mple are
abou
t $45
,000
. Almost 6
out of 1
0 respon
dents h
ave less th
an $50
,000
in sa
ving
s and
investmen
ts. In every age grou
p, m
ore than
half o
f respon
dents h
ave less th
an $50
k in sa
ving
s and
investmen
t. This rises
to th
ree-‐qu
arters in th
e youn
gest age group
. Only tw
o grou
ps were completely exclud
ed from
participation in th
e survey: A
dults und
er age 20; and
peo
ple who
ever h
eld an
y form
of
securities-‐related registratio
n with
a provincial securities com
mission
. Some 32
0 po
tential respo
nden
ts were elim
inated
from
participation
due to th
eir securities re
gistratio
n.
Amon
g those who
were eligible fo
r participation, we also put a limit of
400 respon
dents o
n the nu
mbe
r of p
eople who
did not own fin
ancial
prod
ucts fo
r saving or investmen
t. In
clud
ing this group
was based
on
the be
lief tha
t crowdfun
ding
might attract peo
ple who
don
’t invest
now. Limiting
the sample of peo
ple with
out investm
ents was based
on
the no
tion that th
ose alread
y investing were more likely to provide
inform
ed opinion
on a more complete rang
e of que
stions. This
limita
tion meant th
at 452
willing pa
rticipan
ts were no
t allowed
to
complete the survey. Th
e fin
al su
rvey data were weigh
ted in a way
that gave those with
out savings or investm
ent the
ir true
amou
nt of
impa
ct as a
propo
rtion of th
e gene
ral pop
ulation. Thu
s the
400
respon
dents w
e surveyed
were treated as if we ha
d actually su
rveyed
all 852
peo
ple with
out savings or investm
ent. Th
is is stan
dard practice
for e
nsuring the gene
ral pop
ulation is correctly
represen
ted.
The Bron
desbury Group
ana
lyzed the survey data moving from
consistency checks and
simple freq
uencies to more complex cross-‐
tabu
latio
ns. Bo
th chi-‐squ
are an
d an
alysis of chi-‐squ
are resid
uals were
used
in th
e an
alysis. In add
ition
, multip
le line
ar re
gression
was used to
iden
tify those most likely to invest via crowdfun
ding
and
predictors o
f the am
ount invested
. Re
gressio
n provided
a guide
to th
e most
meaning
ful variables fo
r discussion in th
e repo
rt.
The survey itself is divide
d into th
ree broa
d sections.
• All R
espo
nden
ts. This include
d: D
emog
raph
ic inform
ation;
Investmen
t beh
aviour; P
rope
nsity
for b
usiness investin
g; and
De
cision
influ
ences.
• Po
tential C
rowdfun
ding
Investors. Tho
se sh
owing interest in
investing via crow
dfun
ding
were asked to: Ide
ntify risks;
Motivations; D
esire
for p
rofessiona
l advice; In
form
ation ne
eds; and
Factors a
ffecting the am
ount of m
oney th
ey wou
ld invest.
• Crow
dfun
ding
Non
-‐Investors. Tho
se sh
owing virtua
lly no interest
in investing in SMEs via crowdfun
ding
were asked: Poten
tial
interest in investing in unregulated
mutua
l fun
ds; R
easons fo
r not
investing in SMEs and
in unregulated
mutua
l fun
ds (if a
pplicab
le).
There are several cho
ices to
make in designing
surveys, and
becau
se
we were very con
cerned
abo
ut gettin
g en
ough
respon
se on a very new
topic like crow
dfun
ding
, we elected to use crowdfun
ding
as a
basis for
stream
ing pa
rticipan
ts into one
of the
two mutua
lly exclusiv
e stream
s.
We also used low cut-‐off scores to
iden
tify those po
tentially interested
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
7
in crowdfun
ding
, in an
effo
rt to
ensure sufficien
t respo
nse to th
e crow
dfun
ding
que
stions.
It is im
portan
t to un
derstand
the cut-‐off scores. In all three
que
stions
whe
re willingn
ess to invest was asked
, it w
as ra
ted on
a 1-‐10 scale with
1 meaning
‘Definite
ly NOT interested
’ and
10 meaning
‘Definite
ly
Interested
’. Only those giving
ratin
gs of 1
-‐3 were de
emed
‘Not
interested
’ in investing, whe
ther in SME gene
rally or c
rowdfun
ding
specifically. Th
us all those giving
ratin
gs of 4
-‐10 were de
emed
‘in
terested
in investing’. Ba
sed on
the typical psycholog
ical distances
on a 1-‐10 scale, how
ever, it is u
seful to think of th
e interested
investors
in tw
o grou
ps. Th
ere is a “core investor” that is likely to
invest and
gave 7-‐10 ratin
gs; as w
ell as a
set o
f “po
tential investors” who
are less
likely to invest and
gave 4-‐6 ratin
gs.
1.2
WHO W
AS IN
TERV
IEWED
A total of 1
501 pe
ople participated
in th
e survey drawn from
across
Cana
da giving us a sa
mpling error o
f +2.5%
. A total of 3
20 peo
ple were
exclud
ed from
participation be
cause they were either currently or
form
erly re
gistered
with
a provincial securities com
mission
. In
additio
n, 452
peo
ple were exclud
ed from
participation be
cause we set
a qu
ota on
the nu
mbe
r of respo
nden
ts we wou
ld accep
t who
owne
d no
major fina
ncial produ
cts (i.e., GIC, m
utua
l fun
d, stocks, b
onds,
complex investmen
ts).
While sa
mpling was don
e to ensure prop
er re
presen
tatio
n of gen
der
and age grou
ps with
in re
gion
, weigh
ting was don
e to ensure the
balance correspo
nds to the 20
11 Cen
sus. In ad
ditio
n, we weigh
ted
those with
out investm
ents to
ensure that th
e fin
al sa
mple refle
cted
all
adult C
anad
ians ra
ther th
an just th
ose with
investmen
ts.
Exhibit 1
.1 sh
ows the
dem
ograph
ics o
f our sa
mple be
fore weigh
ting
(raw
) and
after weigh
ting (w
eigh
ted). Th
e diffe
rences are quite sm
all,
which indicates tha
t the
orig
inal sa
mple was a goo
d represen
tatio
n of
respon
dents a
cross C
anad
a.
• By
age, o
ne-‐qua
rter of respo
nden
ts were age 20
-‐34, one
-‐qua
rter
35-‐49, one
-‐third 50-‐64
and
one
-‐sixth were age 65
or o
lder. Half o
f the sample is female.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
8
• By
region
, we ha
ve 38%
Ontario, 24%
Que
bec, 7% East a
nd 31%
from
the West.
• 3 ou
t of 1
0 respon
dents h
ave a un
iversity de
gree
and
the
remaining
7 out of 1
0 are split betwee
n pe
ople with
a college
diplom
a/certificate and
those with
a se
cond
ary scho
ol diploma or
less.
FINAN
CIAL
PRO
FILE OF TH
E CA
NAD
IAN POPU
LATION
Exhibit 1
.2 provide
s an overview
of h
ouseho
ld income an
d saving
s in
the gene
ral pop
ulation. In this an
d all sub
sequ
ent e
xhibits, w
e will
show
weigh
ted results to
give a prop
er se
nse of th
e po
pulatio
n as a
who
le.
• As th
e exhibit sho
ws, over 4
out of 1
0 (44%
) have ho
useh
old
income un
der $
50k. O
ne-‐qua
rter have ho
useh
old income in th
e $5
0-‐74
k rang
e an
d 3 ou
t of 1
0 ha
ve hou
seho
ld incomes in th
e $7
5-‐14
9k ra
nge. O
nly 3%
have ho
useh
old income of $15
0,00
0 or m
ore.
Med
ian ho
useh
old income is abo
ut $61
k.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
9
• Med
ian saving
s an
d investmen
ts (including
RRS
P bu
t excluding
ho
me) are abo
ut $45
,000
. Almost 6
out of 1
0 respon
dents h
ave
less th
an $50
,000
in sa
ving
s and
investmen
ts, 2 out of 1
0 ha
ve $50
-‐99
k an
d an
othe
r 2 out of 1
0 ha
ve $10
0k or m
ore in sa
ving
s and
investmen
ts. Fewer th
an 1 out of 1
0 ha
ve as m
uch as $25
0k in
investmen
ts (7
%).
• In every age group
, more than
half o
f respo
nden
ts have less th
an
$50k saved
and
invested
(see Exhibit 1.3). A
t best, on
ly one
-‐qu
arter h
ave $1
00k or m
ore saved/invested
. In the youn
g ad
ult a
ge
grou
p, th
ree-‐qu
arters have less th
an $50
K saved an
d invested
.
• Exhibit 1
.4 sh
ows o
wne
rship of five categories o
f finan
cial
prod
ucts. Th
ey are listed
in descend
ing orde
r of current
owne
rship. Loo
king
at m
utua
l fun
ds, w
e see that 33%
of
respon
dents o
wn them
now
and
ano
ther 9% owne
d them
sometim
e du
ring the pa
st five years but not now
. We can also se
e that 11%
of respo
nden
ts are not su
re if th
ey owne
d them
in th
e pa
st five years or n
ot.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
10
• Other th
an m
utua
l fun
ds, G
ICs/Te
rm Dep
osits/CSB
s are the on
ly
prod
uct tha
t is ow
ned by
at lea
st one
-‐qua
rter of p
eople. Stocks
(not in a m
utua
l fun
d) are not fa
r beh
ind. Few
er th
an 1 out of 1
0 ow
n corporate or governm
ent b
onds or c
omplex investmen
ts.
• Wha
t this e
xhibit do
esn’t sho
w is th
at 43%
of tho
se surveyed (and
by
exten
sion
the gene
ral p
opulation) do no
t own an
y of th
ese fiv
e catego
ries of fina
ncial p
rodu
cts to th
eir k
nowledg
e. “To
their
know
ledg
e” is m
entio
ned as a qua
lifier for tw
o reason
s. First,
more than
1 out of 1
0 is not su
re abo
ut owne
rship for e
ach an
d every prod
uct. Secon
d, m
any pe
ople own these prod
ucts with
in a
compa
ny re
tirem
ent p
lan (defined
con
tribution plan
or g
roup
RR
SP). Past research ha
s sho
wn that th
ey often
do no
t rem
embe
r they own these prod
ucts since the de
cisio
n ab
out w
hat p
rodu
cts to
buy was m
ade long
ago
1 . •
There are some age diffe
rences in owne
rship of fina
ncial produ
cts,
but this is m
ost p
rono
unced for m
utua
l fun
ds. Owne
rship of
mutua
l fun
ds rises from 4 out of 1
0 for y
oung
adu
lts (2
0-‐34
) to 6
out o
f 10 am
ong those age 35
-‐64 an
d ba
ck dow
n to 5 out of 1
0 for
seniors. For other produ
cts, age differen
ces a
re m
inim
al.
• Pe
ople with
highe
r hou
seho
ld in
come are more likely to own
finan
cial produ
cts than
those with
lower in
come. The
y are also
more likely to accum
ulate sign
ificant sa
ving
s/investmen
t. For
househ
olds with
und
er $50
k income, tw
o-‐third
s don
’t ow
n an
y fin
ancial produ
cts a
nd 6 out of 1
0 ha
ve less th
an $25
k saved. By
contrast, h
ouseho
lds w
ith income of $10
0k or m
ore ha
ve m
edian
saving
s of $
130k and
own tw
o catego
ries o
f finan
cial produ
cts.
1 E. W
einstein, G
roup
RRS
Ps and
Small Pen
sion Plan
s: Employee Survey,
Bren
dan Woo
d Internationa
l, 19
97, 199
9, 200
1.
• Similarly
, the
num
ber o
f produ
cts ow
ned ris
es with
the am
ount
saved or in
vested
(see
Exh
ibit 1.5). Pe
ople’s kno
wledg
e of
finan
cial m
atters also grow
s alon
g with
the am
ount in
vested
2 .
Thus as a
broad
gen
eralization from
the OSC stud
y just cite
d an
d nu
merou
s proprietary stud
ies w
e ha
ve don
e over th
e years, we can
say that th
ose with
more mon
ey sa
ved an
d invested
are likely to
be
more know
ledg
eable ab
out finan
cial produ
cts.
Th
e relatio
nship be
tween age an
d the nu
mbe
r of d
ifferen
t types of
investmen
ts owne
d is not so
line
ar. It is lowest for You
ng Adu
lts and
pe
aks in the Middle Years. The
num
ber o
f differen
t types of
2 OSC, Perform
ance Rep
ortin
g & Cost D
isclosure, Sep
tembe
r 201
0.
http://w
ww.osc.gov.on.ca/docum
ents/en/Securities-‐
Catego
ry3/rpt_20
1106
22_3
1-‐10
3_pe
rfom
ance-‐rpt-‐cost-‐disclosure.pdf
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
11
investmen
ts declines after th
at, b
ut th
e total amou
nt of m
oney sa
ved
or invested
doe
s not. The
y simply focus o
n a sm
aller ran
ge of
investmen
ts.
ONLINE PR
OFILE
Crow
dfun
ding
is prim
arily an Internet-‐based
activity
, so know
ing ab
out
the Internet usage of respo
nden
ts is critical to
und
erstan
ding
the
results. Here we en
coun
ter a
problem
with
bias b
ecau
se th
e survey
was don
e on
the Internet. A pe
rson
who
doe
s not use th
e Internet or
who
has a low level of com
fort using
it can
not respo
nd to
this su
rvey.
A recent stud
y that m
easured Internet usage
3 , show
s tha
t for You
ng
Adults (a
ge 25-‐34
), this lim
itatio
n will have virtua
lly no im
pact becau
se
96% use th
e Internet. For M
iddle Years (35
-‐49), the
impa
ct will also
be
quite
small (6-‐7%
). W
ith 14%
of the
Mature (50-‐64
) not usin
g the
Internet, w
e will overestim
ate up
take m
ore for tha
t age group
. Th
e prob
lem will be most critical fo
r Sen
iors, w
here 29%
don
’t use the
Internet.
We ha
ve cho
sen no
t to correct the
data for this b
ias largely becau
se
crow
dfun
ding
is an Internet-‐based
activity
and
the po
tential users of
crow
dfun
ding
are In
ternet users.
As we will se
e later, he
avier u
sers of the
Internet are m
ore likely to
participate in crowdfun
ding
. With
that fa
ct in m
ind, it is im
portan
t to
unde
rstand
current usage. W
e profiled curren
t usage (see
Exhibit 1.6)
with
a ra
nge of online tran
saction activ
ities: b
anking
, sho
pping, travel
booking, gam
bling an
d bu
ying
investmen
ts. Th
e extent th
at so
meo
ne
engages in more Internet-‐based
tran
sactions is a m
easure of the
ir comfort and
trust o
f the
Internet. As th
e da
ta sh
ows, th
ose en
gaging
in m
ore type
s of Interne
t-‐ba
sed tran
sactions are m
ore likely to be
comfortab
le with
crowdfun
ding
.
3 Omnibu
s Survey, Research Ho
use, Ju
ne 201
2.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
12
• Looking at five online tran
saction activ
ities, w
e fin
d that 9 out of 1
0 respon
dents h
ave used
at least one
of the
se activities in th
e pa
st
year. More than
7 out of 1
0 ha
ve bou
ght p
rodu
cts o
nline an
d pa
id
bills using
online ba
nking over th
e pa
st year. M
ore than
4 out of 1
0 ha
ve bou
ght a
nd paid for travel, while 3 out of 1
0 ha
ve bou
ght
lottery tickets or p
layed on
line games fo
r mon
ey. Fewer th
an 2 out
of 10 bo
ught m
utua
l fun
ds or o
ther investmen
ts online.
•
While not sh
own, we no
te th
at th
e nu
mbe
r of o
nline activ
ities in
the pa
st year rise
s with
both am
ount sa
ved/invested
(up to $25
0k)
and with
hou
seho
ld income. Tied to th
e same un
derly
ing
econ
omics, we fin
d that th
e he
aviest In
ternet users are also the
most likely to own each fina
ncial produ
ct category.
• For tho
se who
wou
ld like a m
ore de
tailed view
of o
nline activ
ity,
Exhibit 1
.7 profiles th
e freq
uency of each on
line activ
ity. As we can
clearly
see, online ba
nking do
minates In
ternet activity
in th
ese five
catego
ries.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
13
• Internet activity
also varie
s with
age (see Exhibit 1.8). Th
ose age
20-‐49 used
3.0 of the
5 listed
activities in th
e pa
st year. This d
rops
to 2.2 fo
r Interne
t users age 50-‐64
and
1.9 fo
r Interne
t users age 65
and olde
r.
1.3
ORG
ANIZAT
ION OF TH
IS REP
ORT
The repo
rt con
tains five chap
ters plus a
n Executive Summary an
d an
Ap
pend
ix with
the stud
y qu
estio
nnaires.
In add
ition
to th
is In
trod
uctio
n, th
e remaining
four cha
pters a
re as
follows.
• Prop
ensity fo
r Business Investing (cha
pter 2) loo
ks at the
factors
that affe
ct willingn
ess to invest in you
ng or n
ew sm
all businesses.
• Investing via Crow
dfun
ding
(cha
pter 3) loo
ks at the
practices th
at
will encou
rage or d
iscourage eq
uity participation via crow
dfun
ding
. •
Not In
terested
in SME Investing (cha
pter 4) loo
ks at the
barrie
rs to
SM
E investmen
t, a well as p
oten
tial investm
ent in un
regu
lated
mutua
l fun
ds.
• Su
mmary & Con
clusions (cha
pter 5) ties tog
ethe
r the
find
ings of
the survey and
con
cisely answers s
ome of th
e qu
estio
ns ra
ised by
the OSC.
As you
read
the survey re
sults, it is im
portan
t not to
over-‐interpret
small d
ifferen
ces. W
hile th
e survey has overall statistical accuracy of
+2.5%, tha
t reflects the
likelihoo
d of gettin
g the same nu
mbe
rs by
asking
the same qu
estio
ns. It do
es not re
flect th
e likelihoo
d that
peop
le will do wha
t the
y say. M
uch of th
e survey asks p
eople to
speculate on
wha
t the
y wou
ld do in re
spon
se to
a com
plex se
t of
alternatives. Th
e simple an
swer is we can’t b
e sure wha
t the
y will do
until th
ey are in th
e situation. N
onethe
less, w
e can be
reason
ably
certain that whe
n a much larger group
expresses interest in one
alternative over ano
ther, the
preferred
alte
rnative will re
main so in
practice. The
immed
iate practical im
pact of this w
arning
is th
at you
shou
ld be reluctan
t to interpret d
ifferen
ces in respon
se unless the
y are
quite
substantial. W
e ha
ve aim
ed to
do this whe
n we select
inform
ation to present and
discuss in th
is re
port.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
14
2.0
PROPE
NSITY
FOR BU
SINESS IN
VESTING
HIGHLIGHTS
• Interest in SME investing an
d interest in crowdfun
ding
are highly
related. O
verall, th
e tw
o grou
ps overla
p by abo
ut 80%
(42.0%
+
37.3%). Som
e three-‐qu
arters of SME investors a
re interested
in
crow
dfun
ding
, and
con
versely, 86%
of tho
se interested
in
crow
dfun
ding
are interested
in SME investing. The
simple grap
hic
below sh
ows h
ow th
e total pop
ulation divide
s up in te
rms o
f interest in SME investing an
d crow
dfun
ding
. •
As we will se
e later, whe
n pe
ople are interested
in one
type
of
investing (SME or crowdfun
ding
) and
not th
e othe
r, the main
diffe
rence is th
eir fam
iliarity
and
com
fort with
the Internet. Th
at
explains m
ost d
ifferen
ces, and
other th
an dem
ograph
ics related
to
Internet usage, o
ther dem
ograph
ic differen
ces a
re largely
immaterial. As a
result, it sh
ould be un
derstood
that a con
clusion
applied to one
of the
two grou
ps of investors wou
ld alm
ost
certainly ap
ply to th
e othe
r group
.
Relatio
nship Be
tween Interest in SME Investing &
Crow
dfun
ding
(% Total)
Crow
dfun
ding
New
/You
ng
Investmen
t Yes
No
Yes
42.0
13.8
55.8
No
6.9
37.3
44.2
48.9
51.1
• Risk to
lerance, age and
gen
der a
re th
e three pe
rson
al
characteristics tha
t are m
ost ind
icative of prope
nsity
for b
usiness
investing, whe
ther we are talking ab
out investin
g in SME or
crow
dfun
ding
.
• Five th
ings have a strong
positive im
pact on willingn
ess to invest in
SME, while lack of information an
d lack of liquidity deter
investmen
t. Th
e po
sitiv
e influ
ences in de
scen
ding
order of n
et
impa
ct are:
o
The bu
siness is in an
indu
stry you
kno
w well.
o
It is a well-‐e
stab
lishe
d bu
sine
ss with
a new
plan for g
rowth.
o
It is a local business tha
t you
might use.
o
It is a start-‐up
com
pany with
an idea th
at so
unds goo
d.
o
You can bu
y it throug
h your fina
ncial adviso
r and
get advice.
• Ro
ughly ha
lf of re
spon
dents a
re not willing to invest in SME or via
crow
dfun
ding
. Ab
out o
ne-‐sixth expressed
strong
interest in SME
investing an
d crow
dfun
ding
. Th
e remaining
one
-‐third were
deem
ed poten
tial investors.
• Re
gression
ana
lysis ide
ntifies fo
ur dem
ograph
ic variables th
at have
a major im
pact on willingn
ess to invest in SME, whe
ther th
roug
h crow
dfun
ding
or n
ot: age (you
nger), gend
er (m
ale), risk ap
petite
(high) and
owne
rship of com
plex investmen
ts. Ag
e ha
s the
greatest influ
ence.
• Be
sides th
e de
mog
raph
ic variables, regression an
alysis iden
tifies
two eq
ually im
portan
t prim
ary influ
ences o
n the crow
dfun
ding
de
cision
: It is easy to buy into th
e compa
ny on the Internet; and
It
has a
n idea th
at so
unds goo
d to you
. “It could take a fe
w years to
fin
d ou
t if the
business is p
rofitab
le” is a negative influ
ence as
powerful as e
ither positive influ
ence.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
15
2.1
RISK
PRO
FILES
Before we discuss p
rope
nsity
for b
usiness investin
g, we shou
ld discuss
risk profiles. In
the survey, w
e asked pe
ople to
cho
ose on
e of th
ree
statem
ents th
at best d
escribes th
eir w
ay of thinking ab
out investin
g.
• 28
% sa
y “I am willing to earn a bit less if I can
be certain I w
on’t
lose any m
oney (low
risk);
• 39
% sa
y “I am willing to accep
t small ups-‐and
-‐dow
ns in m
y investmen
ts if I can earn a bit more (m
edium risk);
• 6%
say “I am willing to accep
t big sw
ings in th
e value of m
y investmen
ts includ
ing losing
my mon
ey, if it g
ives m
e the po
tential
to earn more (high risk); and
•
26% sa
y “I am not su
re”.
As we will se
e later, ris
k tolerance, age and
gen
der a
re th
e three
person
al cha
racteristic
s that are m
ost ind
icative of prope
nsity
for
busine
ss in
vesting, whe
ther we are talking ab
out S
ME or
crow
dfun
ding
. With
this in m
ind, it is im
portan
t to get a
n un
derstand
ing of how
risk cha
nges by age an
d gend
er.
• Th
e high
-‐risk grou
p is abo
ut 8-‐10%
before age 50
and
abo
ut 3-‐4%
thereafter. Th
e prop
ortio
n of low-‐risk pe
aks a
t age 60-‐69
. Uncertainty abo
ut risk grows a
fter age 50, and
by age 70
, alm
ost
half of re
spon
dents a
re ‘n
ot su
re’ abo
ut th
eir risk profile.
• Th
ere are four times as m
any men
(10.3%
) tha
t ide
ntify th
emselves
as high risk compa
red to wom
en (2
.5%). W
omen
are also more
likely to ra
te th
emselves as ‘no
t sure’.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
16
2.2
DECISION IN
FLUEN
CES
As an indicator o
f poten
tial for investing in you
ng com
panies, w
e asked
peop
le abo
ut th
eir p
rior investm
ent in sm
all business. Som
e 16
% have
invested
in th
eir o
wn sm
all business a
nd 5% have invested
in so
meo
ne
else’s. Th
ose who
have invested
in so
meo
ne else’s s
mall business a
re
more likely to be interested
in crowdfun
ding
(61%
versus 4
6%).
As a prelim
inary, we asked tw
o sepa
rate que
stions abo
ut willingn
ess to
invest in unlisted Ca
nadian
com
panies. One
que
stion asked ab
out a
“brand
new
start-‐up
com
pany” an
d the othe
r asked
abo
ut a “youn
g compa
ny”. R
espo
nses on a 1-‐10
scale were compa
rable with
45-‐47
%
not w
illing to invest (1
-‐3), 37
-‐38%
poten
tially interested
(4-‐6) a
nd 14-‐
18% sh
owing willingn
ess to invest (7
-‐10). Th
ere is no
point
distingu
ishing
the an
swers to the tw
o qu
estio
ns, b
ecau
se 90%
of
respon
dents w
ere either “no
t willing to invest” for b
oth qu
estio
ns or
potentially/w
illing to invest fo
r both qu
estio
ns.
We then
asked
abo
ut so
me 14
influ
ences tha
t might m
ake a pe
rson
more or less likely to
invest in SME. W
e ha
ve classified
the respon
ses
on a 1-‐5 sc
ale into less likely (1
-‐2), no
impa
ct (3
) and
more likely (4-‐5)
as you
can
see in Exhibit 2.3. The
14 influ
ences a
re listed
in descend
ing
orde
r starting with
the influ
ence th
at is m
ost likely to encou
rage
investing.
Exhibit 2
.4 sh
ows the
same inform
ation tran
sformed
into a net im
pact
score. N
et im
pact is “% m
ore likely minus % less likely”. Thu
s if w
e look at the
most p
owerful influen
ce, “Th
e bu
sine
ss is an indu
stry you
kn
ow well”, the
net im
pact score is 73%
(77%
-‐4%) m
eaning
that
overall 73%
of p
eople are more likely to invest in an indu
stry th
ey
know
well. It is worth noting that th
is influ
ence has bee
n foun
d in
othe
r studies as w
ell4 .
4 M.J. Rob
inson & T. C
ottrell, “Investm
ent P
attern of Informed
Investors in the Albe
rta Private
Equity M
arket”, J. Small Business M
anagem
ent, 20
07, 45(1), 47-‐67.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
17
Five th
ings have a strong
positive im
pact on willingn
ess to invest in
SME, while lack of information an
d lack of liquidity deter investmen
t. Th
e po
sitive influ
ences in de
scen
ding
order of n
et im
pact are:
• Th
e bu
siness is in an
indu
stry you
kno
w well.
• It is a well-‐e
stab
lishe
d bu
sine
ss with
a new
plan for g
rowth.
• It is a local business tha
t you
might use.
• It is a start-‐up
com
pany with
an idea th
at so
unds goo
d to you
. •
You can bu
y it throug
h your fina
ncial adviso
r and
get th
eir a
dvice.
As with
kno
wing the indu
stry, the
Alberta re
search cite
d earlier also
show
s a bias in favour of local business. Other stud
ies p
oint to
the bias
towards local investin
g5 th
at we see he
re. While we are no
t yet ta
lking
abou
t crowdfun
ding
as a
metho
d of SME investing, it is worth noting
that th
e crow
dfun
ding
research m
entio
ns tw
o ad
ditio
nal m
otivations
for investin
g, nam
ely “the
excite
men
t of a
start-‐up
” an
d the pe
rson
al
recogn
ition
that investors s
ometim
es get
6 . Five th
ings m
ake investing far less likely. Starting with
the most
negativ
e influ
ence th
e things th
at deter investing are as fo
llows.
• Yo
u know
nothing
abo
ut th
e ow
ners of the
business.
• Th
ere is no
way to
predict how
much mon
ey you
will m
ake an
d you
might lose all your m
oney.
• Th
e on
ly th
ing you know
abo
ut th
e compa
ny is wha
t you
can
read
on
the Internet.
• Th
ere won
’t be
a lot o
f information ab
out the
com
pany since it is
youn
g.
• Once you pu
t you
r mon
ey in, you
can
’t get it o
ut fo
r several years.
In sh
ort, lack of information an
d lack of liquidity hinde
r inv
estm
ent
while kno
wledg
e an
d ad
vice encou
rage it.
5 Dr. Allan Riding (E
quinox M
anagem
ent C
onsulta
nts), “Practices and
Patterns o
f Informal
Investors, Indu
stry Can
ada, M
ay 200
1.
6 A. Schwienb
ache
& B. Larralde, “Crow
dfun
ding of Small Entrepren
euria
l Ven
tures”, H
andb
ook of
Entrep
rene
urial Finan
ce, O
xford University
Press, 201
0.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
18
2.3
WILLINGNESS TO
INVE
ST VIA CRO
WDFU
NDING
Review
ing the po
tential decision
influ
ences w
as an im
portan
t prelude
to our critical que
stion ab
out w
illingn
ess to invest via crowdfun
ding
. Be
fore looking at pub
lic willingn
ess, it is im
portan
t to un
derstand
that
these qu
estio
ns will have provoked
more thinking
abo
ut investmen
ts
as usual. It is also im
portan
t to un
derstand
the exact con
text th
at
respon
dents w
ere given be
fore being
asked
to re
spon
d. Our aim
was to
make this ‘con
text’ relatively ne
utral w
ith a balan
ce of p
ositives an
d ne
gativ
es.
“One of the new
investing trends emerging
on the Internet is called
“crowdfun
ding
”. There are so
me exam
ples in th
e U.K. and
it is gettin
g started in th
e US. The basic idea of crowdfun
ding
is th
at a bun
ch of
small investors invest re
lativ
ely sm
all amou
nts o
f mon
ey in new
or
youn
g bu
sine
sses th
at app
eal to them
. Th
is isn
’t a regu
lated market
like a stock market, bu
t it is m
ore like e-‐Ba
y where you
read
a “prod
uct”
descrip
tion on
-‐line and
decide whether you
are going
to buy. Th
e big
diffe
rence here is th
at you
are buying an
investment rather tha
n something
you
can
hold in you
r han
ds. Th
ere is no
gua
rantee th
at you
will m
ake mon
ey on the mon
ey you
invest, and
a very real risk th
at you
will lose all your m
oney. It is up
to you
to decide whether th
e idea is
one you wan
t to supp
ort a
nd one th
at you
think might su
cceed.
Assuming that you
are com
fortab
le with
the am
ount of m
oney involved
and the bu
siness idea ap
peals to you, how
likely wou
ld you
be to invest
in a new
or y
oung
business throu
gh a crowdfun
ding
site on the
Internet? Please rate you
r likelihoo
d of investing on
a 1-‐10 scale where
1 means ‘D
efinite
ly wou
ld NOT invest’ and
10 means ‘D
efinite
ly W
OULD
invest’.”
• More than
half o
f all respon
dents (53%
) are not willing to in
vest
via crow
dfun
ding
(1-‐3 ra
tings) w
ith 30%
of a
ll respon
dents g
iving
the lowest p
ossib
le ra
ting on
the scale. A
bout 14%
expressed
strong
interest and
most o
f tho
se were ratin
gs of 7
on the 7-‐10
pa
rt of the
scale. This 1
4% is th
e real core of crowdfun
ding
investors. The
remaining
33%
show
ed weaker interest a
nd were
deem
ed “po
tential investors” with
ratin
gs of 4
-‐6 on the 1-‐10
scale.
• Re
gression
ana
lysis iden
tifies four dem
ograph
ic variables th
at
have a m
ajor im
pact on willingn
ess to in
vest (4
-‐10 ratin
g) via
crow
dfun
ding
. The
same fin
ding
s app
ly to
SME investing more
gene
rally. A
ge has th
e greatest influ
ence on de
cisio
n-‐making.
Willingn
ess to invest varies a
s follows.
• age: 67%
for a
ges 2
0-‐34
, 53%
for 3
5-‐49
, 38%
for 5
0-‐64
, 23%
for
ages 65 an
d olde
r;
• gend
er: 5
6% of m
en and
39%
of w
omen
; •
risk ap
petite: 43%
at low
risk, 55%
at m
edium, 72%
at h
igh risk;
• ow
n complex investmen
ts: 7
0% versus 4
6% fo
r non
-‐owne
rs.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
19
Relativ
e willingn
ess to invest via crowdfun
ding
is sh
own for several
selected
group
s in Exhibit 2
.6. Yo
u will note that th
e likelihoo
d of
crow
dfun
ding
goe
s dow
n as th
e am
ount sa
ved/ invested
increases.
This is be
cause the am
ount of m
oney sa
ved/invested
increases w
ith
age, while willingn
ess to crow
dfun
d de
clines with
age. Th
e driver here
is age ra
ther th
an m
oney. We includ
ed th
is to
make a po
int tho
ugh,
namely crow
dfun
ding
investors will ty
pically have less m
oney
saved/invested
than
non
-‐investors.
To fo
restall any unw
arranted
assum
ptions, w
e think it is also useful to
iden
tify some de
mog
raph
ic variables th
at have no
relatio
nship to
willingn
ess to crow
dfun
d. The
se includ
e: Lan
guage, Hou
seho
ld
income, owne
rship of m
utua
l fun
ds, and
owne
rship of equ
ities.
Besid
es th
e de
mog
raph
ic variables, regression an
alysis iden
tifies two
equa
lly im
portan
t positive influ
ences o
n the crow
dfun
ding
decision:
“It is e
asy to buy into th
e compa
ny on the Internet”; and
“It ha
s an idea
that so
unds goo
d to you
”. “It could take a fe
w years to
find
out if th
e bu
sine
ss is profitab
le” is a negative influ
ence as p
owerful as e
ither
positiv
e influ
ence.
Sign
ificant se
cond
ary influ
ences a
re fa
miliar from
our earlier a
nalysis
. Th
e first influ
ence is negative. The
other tw
o are po
sitive.
• Th
ere won
’t be
a lot o
f information ab
out the
com
pany since it is
youn
g.
• Th
e bu
siness is in an
indu
stry you
kno
w well.
• It is a well-‐e
stab
lishe
d bu
sine
ss with
a new
plan for g
rowth.
The archetype of a crowdfun
ding
investor will be a well-‐e
ducated male
unde
r the
age of 4
0 with
a high risk tolerance an
d a lot o
f com
fort with
the Internet. While th
e pe
rson
won
’t ha
ve m
uch mon
ey invested
yet,
they will still have bo
ught m
ore complex produ
cts. O
f cou
rse, only a
small portio
n of actua
l buyers w
ould look like th
is in re
ality
, but m
ost
will have some of th
ese elem
ents in th
eir b
ackgroun
d.
As a m
atter w
orth noting in Exhibit 2.6, so
me 12
% of p
eople who
iden
tify them
selves as “
low risk” are strong
ly interested
in
crow
dfun
ding
(7-‐10 ratin
gs). It is unclear why th
is grou
p is strong
ly
interested
in crowdfun
ding
given
the iden
tified risks, b
ut an attractio
n to activities th
at are In
ternet-‐based
is likely at the
heart of it.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
20
2.4
SME INVE
STING AND CRO
WDFU
NDING
Interest in SME investing an
d interest in crowdfun
ding
are highly
related. O
verall, th
e tw
o grou
ps overla
p by abo
ut 80%
(42.0%
+
37.3%).
Some three-‐qu
arters of SME investors a
re interested
in crowdfun
ding
(i.e., 42.0/55
.8=7
5%), an
d conversely, 86%
of tho
se interested
in
crow
dfun
ding
are interested
in SME investing (i.e., 42.0/48
.9=8
6%).
The sim
ple grap
hic be
low sh
ows h
ow th
e total pop
ulation divide
s up in
term
s of interest in SM
E investing an
d crow
dfun
ding.
2.7 Re
latio
nship Be
tween Interest in SME
Investing & Crowdfun
ding
(% Total)
Crow
dfun
ding
New
/You
ng
Investmen
t Yes
No
Yes
42.0
13.8
55.8
No
6.9
37.3
44.2
48.9
51.1
Wha
t the
graph
ic sh
ows is tha
t 42%
of the
gen
eral pop
ulation show
some interest (4
-‐10 ratin
g) in both SM
E investing an
d crow
dfun
ding
. Co
nversely, 37%
show
no interest in eith
er (1
-‐3 ra
ting) ty
pe of
investing. The
roug
hly 20
% re
maining
show
an interest only in
investing in one
of the
two ways.
Whe
n pe
ople are interested
in one
type
of investin
g (SME or
crow
dfun
ding
) and
not th
e othe
r, the main diffe
rence is th
eir
familiarity
and
com
fort with
the Internet. Th
at explains m
ost
diffe
rences, and
other th
an dem
ograph
ics related
to In
ternet usage,
othe
r dem
ograph
ic differen
ces a
re largely im
material. As a
result, it
shou
ld be un
derstood
that with
the exception of th
ings dire
ctly re
lated
to In
ternet usage, a con
clusion ap
plied to one
of the
two grou
ps of
investors (SME or Crowdfun
ding
) wou
ld alm
ost certainly app
ly to
the
othe
r group
. After e
xamining a rang
e of alte
rnative explan
ations usin
g statistical
analysis (i.e., An
alysis of C
hi-‐Squ
are Re
sidu
als), w
e conclude
d that th
e major differen
ce between the tw
o grou
ps is th
eir c
omfort with
the
Internet and
the trust the
y pu
t in bu
ying
on the Internet. For interested
SM
E investors (4-‐10
ratin
g), ease of buying on
line ha
d a ne
t impa
ct of
+18%
. Th
is is very sm
all com
pared to th
e ne
t impa
ct of +
45% fo
r interested
crowdfun
ding
investors. The
eno
rmou
s differen
ce is due
to
the fact th
at th
ose no
t com
fortab
le with
the Internet are not part o
f those interested
in crowdfun
ding. As fu
rthe
r evide
nce, we no
te th
at
those who
are not interested
in investing via crow
dfun
ding
use half a
s man
y internet activities re
gularly
and
are only on
e-‐third
as likely to
have invested
online (11%
versus 3
0%).
Both lo
gically and
statistic
ally, w
e conclude
that com
fort with
doing
bu
sine
ss on the Internet is th
e main differen
tiator b
etwee
n all SME
investors an
d those interested
in crowdfun
ding
. In fa
ct, as Exhibit 2
.7
show
s, th
ere is a small group
of p
eople (6.9%) w
ho will only invest in
sm
all b
usiness if they can
do so via crowdfun
ding
.
SM
E Investors
Crow
dfun
ding
Investors
Investors
80%
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
21
3.0
INVE
STING VIA CRO
WDFU
NDING
HIGHLIGHTS
• Almost h
alf o
f respo
nden
ts expressed
an interest in “Investing via
Crow
dfun
ding
”. H
alf a
lso expressed an
interest in SME investing.
While th
e tw
o grou
ps are not iden
tical, it w
as only the grou
p that
expressed an
interest in crowdfun
ding
that answered
the
questio
ns in th
is se
ction. W
ith th
e exception of issues re
lated to
the Internet, the
differen
ce in re
spon
se betwee
n SM
E investors
and crow
dfun
ding
investors is largely im
material.
• Re
spon
dents w
ere show
n a list o
f nine po
tential risks of investin
g in an un
regu
lated market a
nd asked
which one
s con
cerned
them
. Ro
ughly tw
o-‐third
s of tho
se willing to invest were concerne
d ab
out
Potential for frau
d an
d the Risk of losing their m
oney. R
ough
ly half
of re
spon
dents c
ited ad
ditio
nal reasons re
flecting a concern with
the lack of u
nbiased inform
ation an
d the lack of liquidity.
• More than
one
-‐third of tho
se interested
in investing via
crow
dfun
ding
wou
ld be willing to invest $10
00 or m
ore whe
n provided
with
goo
d inform
ation ab
out the
com
pany and
its p
lans.
Cond
ition
s tha
t increase willingn
ess to invest are: goo
d track
record; h
igh grow
th indu
stry; kno
w th
e ow
ners; an inde
pend
ent
annu
al fina
ncial rep
ort; an
d a high
ly detailed bu
sine
ss plan.
• Whe
n asked ab
out the
impo
rtan
ce of h
aving some seven diffe
rent
type
s of information, th
ree type
s of information were im
portan
t to
three-‐qu
arters: Finan
cial inform
ation ab
out the
com
pany; Yearly
inform
ation ab
out h
ow th
e compa
ny is doing
; and
How
the
compa
ny will use th
e mon
ey it gets from investors.
• Whe
n given a choice abo
ut how
they wou
ld prefer to invest,
respon
ses m
ade it clear tha
t gettin
g ad
vice from
a fina
ncial advisor
is im
portan
t. M
etho
ds involving an
advisor app
ealed to ro
ughly
three tim
es as m
any investors c
ompa
red to m
etho
ds th
at by-‐
passed
an ad
visor. If using an
advisor is not possible, providing
an
Offe
ring Mem
oran
dum slightly increases w
illingn
ess to invest usin
g the Internet.
• Am
ong the grou
p with
an interest in investing via crow
dfun
ding
, some 4 ou
t of 1
0 wou
ld invest und
er $10
00, 2 out of 1
0 wou
ld
invest $10
00-‐199
9, 2 out of 1
0 wou
ld invest $20
00-‐499
9, and
the
remaining
2 out of 1
0 (17%
) wou
ld invest $50
00 or m
ore.
• Focusin
g on
the grou
p willing to invest $50
00 or m
ore, we no
te a
few cha
racteristics tha
t make this group
distin
ct. C
ompa
red to
those willing to invest sm
aller a
mou
nts, th
ey are: H
ighe
r incom
e;
Have more mon
ey sa
ved/invested
; Male; Own more fin
ancial
prod
ucts; H
ave high
er risk to
lerance; and
Are m
ore likely to re
ad
and un
derstand
fina
ncial statemen
ts.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
22
3.1
ASSESSMEN
T OF RISK
S All o
f the
find
ings in
this cha
pter com
e from
the 70
7 respon
dents who
we classifie
d as poten
tial (4-‐6) or w
illing (7-‐10) in
vestors via
crow
dfun
ding
.
Respon
dents interested in crowdfun
ding
were show
n a list o
f nine
potential risks of investin
g in an un
regu
lated market (see Exhibit 3
.1)
and asked which one
s con
cerned
them
. On average, peo
ple chose 4-‐5
risks. Th
ey were then
asked
to iden
tify the tw
o risks th
at are th
eir
biggest con
cerns.
• Ro
ughly tw
o-‐third
s of tho
se willing to invest were concerne
d ab
out
Potential for frau
d an
d the Risk of losing their m
oney.
• As you
can
see in Exhibit 3.1, fo
ur add
ition
al risks w
ere cited by
roug
hly ha
lf of re
spon
dents reflecting a concern with
the lack of
unbiased
inform
ation an
d the lack of liquidity.
• Even
the three remaining
risks w
ere concerns fo
r 3 out of 1
0 •
Only 7%
had
no real con
cerns.
Whe
n asked to se
lect th
e top tw
o risks th
at con
cerned
them
from
am
ong the 4-‐5 typically se
lected
, the
top tw
o choices reflected
the
same concerns as the
y show
ed whe
n all risk
s cou
ld be iden
tified.
• Th
e tw
o do
minan
t risks were the po
tential for frau
d (51%
) and
the ris
k of lo
sing
my mon
ey (4
2%).
• Th
e ne
xt m
ost ide
ntified
risks w
ere cited as a “top tw
o” risk fa
ctor
by fe
wer th
an 20%
: My mon
ey is locked
-‐in and
the Pe
ople
prom
oting the compa
ny m
ay not give me the full picture.
Youn
ger investors have fewer con
cerns tha
n olde
r investors, and
concom
itantly, tho
se with
less sa
ving
s/investmen
t and
less income
show
fewer con
cerns a
bout th
e risks of a
n un
regu
lated market. M
ore
activ
e Internet usage also redu
ces risk concerns.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
23
If we look at the
num
ber o
f finan
cial produ
cts o
wne
d no
w as a
n indicator o
f investm
ent e
xperience, we see a few patterns.
• More expe
rienced
investors s
how m
ore concern ab
out the
inab
ility
to se
ll the investmen
t. •
Those with
out investm
ents now
show
greater con
cern abo
ut
mon
ey being
locked
in and
the un
pred
ictability of re
turns.
If we look at the
age differen
ces in concerns, w
e fin
d several risk
concerns increase m
arkedly with
age. For the
most p
art, concerns
increase at a
ge 50 an
d be
come more accentua
ted.
• Th
e biggest increase is for “No on
going inform
ation ab
out h
ow th
e investmen
t is d
oing
”, which is 38%
for y
oung
adu
lts and
61%
for
seniors.
• “The
peo
ple prom
oting the compa
ny m
ay not give me the full
picture” increases from 46%
for y
oung
adu
lts to
64%
for sen
iors.
• “Poten
tial for frau
d” increases from 63%
to 78%
; and
•
“I can
’t sell this investmen
t to someo
ne else
” increases from 28%
am
ong youn
g ad
ults to
43%
for sen
iors.
3.2
DECISION IN
FLUEN
CES
WHAT
AFFEC
TS AMOUNT INVE
STED
Peop
le were then
asked
wha
t was th
e most the
y wou
ld invest und
er
some nine
differen
t con
ditio
ns. Th
e am
ounts the
y could state were
open
-‐end
ed, elim
inating an
y po
tential con
cern abo
ut lead
ing pe
ople to
a specific an
swer. Exhibit 3
.2 (n
ext p
age) sh
ows the
con
ditio
ns startin
g with
the cond
ition
that wou
ld ra
ise the most m
oney on average an
d then
in descend
ing orde
r of the
mon
ey th
ey wou
ld ra
ise on average.
More than
one
-‐third of tho
se interested
in investing via crow
dfun
ding
wou
ld be willing to invest $10
00 or m
ore un
der the
first five
cond
ition
s. As w
ell, these cond
ition
s sho
w average investmen
ts in th
e $9
50-‐$13
00 ra
nge. G
ood inform
ation is th
e key to greater in
vestmen
t as you
can
see
. Con
ditio
ns th
at increase willingn
ess to invest m
ore
mon
ey are:
• Th
e compa
ny alre
ady ha
s a goo
d track record;
• Th
e compa
ny is in a high grow
th indu
stry;
• Yo
u know
the bu
siness o
wne
rs;
• Each year y
ou get a fina
ncial rep
ort v
erified
by an
inde
pend
ent
accoun
ting firm; and
•
The bu
siness p
lan is high
ly detailed.
The cond
ition
s least likely to
encou
rage investing yield average
investmen
ts of $
400 or less.
• Th
e compa
ny won
’t start u
p un
til fu
nded
; and
•
Your m
oney is invested
perman
ently
– you
can
’t get it o
ut.
Regression
ana
lysis
show
s three
sign
ificant influ
ences h
ere. Of the
three, “Th
e compa
ny alre
ady ha
s a goo
d track record” ha
s the
most
influ
ence Also
sign
ificant are “Th
e bu
siness p
lan is high
ly detailed” and
“The
com
pany won
’t start u
p un
til th
ey get eno
ugh investmen
t mon
ey”.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
24
THE RO
LE OF AD
VICE
& IN
FORM
ATION
Peop
le were asked whe
ther th
ey wou
ld se
ek professiona
l advice
before deciding to invest (see Exhibit 3.3).
• One
-‐qua
rter (2
4%) sim
ply weren
’t sure.
• Th
ree-‐qu
arters of tho
se with
an op
inion said th
ey wou
ld see
k profession
al adv
ice (58%
of a
ll respon
dents).
• Th
e ad
visor m
ost likely to be consulted was an ad
visor licen
sed to
sell stocks (3
9%), followed
by a fin
ancial plann
er (3
0%), accoun
tant
(18%
) and
lawyer (11
%).
Whe
n asked ab
out the
impo
rtan
ce of h
aving some seven diffe
rent
type
s of information using a 1-‐5 scale, all type
s of in
form
ation were
rated im
portan
t (4-‐5 ratin
g) by at least 6
out of 1
0 (see Exhibit 3.4).
Some 3 type
s of information were im
portan
t to three-‐qu
arters:
• Fina
ncial information ab
out the
com
pany;
• Yearly inform
ation ab
out h
ow th
e compa
ny is doing
; and
•
How
the compa
ny will use th
e mon
ey it gets from investors.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
25
In add
ition
, regression an
alysis sho
ws that whe
n investors are
prov
ided
with
better information ab
out “
How
the compa
ny will use
the mon
ey it gets from
investors” th
ey are likely to
invest m
ore
mon
ey.
Looking at Exhibit 3.4, we no
te th
at th
ree-‐qu
arters of investors wan
t fin
ancial inform
ation ab
out the
com
pany, as w
ell as y
early
inform
ation
abou
t how
the compa
ny is doing
.
Amon
g those wan
ting a fin
ancial statemen
t, on
ly one
-‐qua
rter
unde
rstand
s fin
ancial statemen
ts well eno
ugh to ju
dge ho
w
belie
vable they are (see Exhibit 3.5). Most just u
nderstan
d the ba
sics.
In sh
ort, while th
ey m
ay wan
t a fina
ncial statemen
t, most a
re incapa
ble
of re
ally using it.
We also asked
abo
ut th
e type
of information they con
side
r to be
“reliable fin
ancial inform
ation” (see Exhibit 3.6). It is c
lear from
the
respon
ses tha
t peo
ple un
derstand
the principle of ‘ind
epen
dent
inform
ation’, even if they can
’t read
a fina
ncial statemen
t as w
ell as
might be expe
cted
. Finan
cial statem
ents verified
by an
inde
pend
ent
accoun
ting firm were de
emed
most reliable followed
by compa
ny ta
x returns.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
26
So
me 7 ou
t of 1
0 investors also who
wan
t information ab
out the
ow
ners and
promoters of th
e compa
ny (7
1%). Amon
g those who
wan
t information, th
ey ty
pically (8
out of 1
0) wan
t to know
: •
Busin
ess b
ackgroun
d an
d expe
rience;
• A character c
heck includ
ing crim
inal re
cord and
securities law
violations; and
•
Inform
ation ab
out p
rior b
ankrup
tcies a
nd insolven
cies.
METHODS OF INVE
STING
Whe
n given a choice abo
ut how
they wou
ld prefer to invest, respo
nses
mad
e it clear tha
t gettin
g ad
vice from
a fina
ncial advisor is im
portan
t (see Exhibit 3.7). Metho
ds in
volving an
adv
isor were roug
hly three
times m
ore attractiv
e than
metho
ds th
at by-‐pa
ssed
an ad
visor.
With
out b
enefit of an Offe
ring Mem
oran
dum (O
M)7, few
er th
an 2 out
of 10 chose a metho
d that by-‐pa
ssed
the ad
visor a
nd bou
ght d
irectly
7 A legal docum
ent statin
g the ob
jectives, risk
s and
term
s of investm
ent
involved
with
a priv
ate placem
ent. Th
is includ
es item
s such as th
e fin
ancial
over th
e Internet. Even
for c
rowdfun
ding
, the
adviso
r’s advice takes
preced
ence over the
app
eal of the
Internet.
Re
spon
dents w
ere first asked
which m
etho
ds th
ey wou
ld use to
buy
and those respon
ses w
ere show
n in dark blue
in Exhibit 3.7. W
e then
explaine
d the be
nefit of a
n OM and
asked
abo
ut th
eir w
illingn
ess to
buy by previou
sly un
acceptab
le m
etho
ds if an OM was available. The
ad
ditio
n of th
e OM add
ed 8-‐13%
(light blue) to
the ba
se re
spon
se.
statem
ents, m
anagem
ent b
iograp
hies, d
etailed de
scrip
tion of th
e bu
siness,
etc. An offerin
g mem
oran
dum se
rves to
provide
buyers w
ith inform
ation on
the offerin
g an
d to protect th
e sellers from
the liability associated
with
selling
unregistered
securities. Sou
rce: In
vestop
edia
(http://www.in
vestop
edia.com
/terms/o/offerin
gmem
oran
dum.asp )
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
27
3.3
INFO
RMED
PRO
PENSITY
FOR INVE
STING
The logic of th
e survey design led respon
dents to think ab
out the
risks
of SME investing an
d wha
t wou
ld m
itigate th
ose risks. Th
en, for th
ose
who
thou
ght crowdfun
ding
was attractive, we led them
to th
ink ab
out
the risks of crowdfun
ding
and
the kind
s of a
dvice an
d inform
ation that
wou
ld m
itigate th
ose risks. At th
is point in th
e survey, after being
prod
ded to th
ink ab
out the
se issues, w
e wan
ted to get a fina
l sum
mary
judg
men
t of the
ir view
of SME investing. In do
ing so, w
e recogn
ized
that only SM
E investors interested in crowdfun
ding
cou
ld provide
this
inform
ation. A
s we men
tione
d earlier, the
differen
ces b
etween SM
E an
d crow
dfun
ding
investors a
re largely im
material, so we ha
d little
concern ab
out sub
stan
tive diffe
rences in re
spon
se.
Whe
n we asked crow
dfun
ding
investors a
bout th
e riskine
ss of
investing in new
or y
oung
business (see Exhibit 3
.8), some 52
% dee
m it
high
risk (4
-‐5 on a 5-‐po
int scale), 43
% dee
m it m
edium risk, and
only
4% th
ink it is low risk. Th
e risk profile is th
e same for tho
se who
are
potential (4-‐6)an
d core (7
-‐10) crowdfun
ding
investors.
To get a su
mmary judg
men
t on the am
ount peo
ple wou
ld invest after
being inform
ed abo
ut th
e risks, w
e asked the following qu
estio
n an
d gave seven
cho
ices fo
r the
amou
nt th
ey cou
ld cho
ose to invest (see
Exhibit 3
.9).
“And
fina
lly, if you
cou
ld get th
e inform
ation you ha
ve identified as
impo
rtan
t to you ab
out the timing an
d the risks of investin
g in a new
or
youn
g bu
siness, how
much mon
ey wou
ld you
be prepared to
invest at
most? “
Some 4 ou
t of 1
0 wou
ld in
vest und
er $10
00, w
hile fe
wer th
an 2 out of
10 (1
7%) w
ould in
vest $50
00 or m
ore. The
remaining
4 out of 1
0 wou
ld in
vest amou
nts in th
e $1
000-‐49
99 ra
nge.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
28
Usin
g three broa
d grou
ps to
illustrate sm
all (<$
1000
), med
ium ($
1000
-‐49
99) a
nd large am
ounts ($5
000+
) tha
t peo
ple wou
ld be willing to
invest, w
e show
the am
ounts p
eople will invest by the nu
mbe
r of types
of investmen
t produ
cts the
y ow
n no
w and
by age (see Exhibit 3.10
). Statistical ana
lysis
show
s tha
t age is not sign
ificantly re
lated to th
e am
ount investors a
re willing to invest. Prop
ensity to
buy a wider ra
nge
of fina
ncial produ
cts is s
ignifican
t, bu
t especially in te
rms o
f willingn
ess
to invest large am
ounts.
Focusing
on the grou
p willing to in
vest $50
00 or m
ore, in
clud
ing some
demog
raph
ic group
s no
t sho
wn in th
e exhibit, we no
te a fe
w
characteris
tics that distin
guish those willing to in
vest m
ore.
Compa
red to th
ose willing to invest sm
aller a
mou
nts, th
ey are:
• Highe
r incom
e (30%
@$1
00k+ versus 8
% @
<$5
0k);
• Highe
r dollar a
mou
nt sa
ved/invested
(43%
@ $25
0k+ versus 10%
@ less
than
$50
k);
• Male (22%
versus 1
1% fe
male);
• Own more fin
ancial produ
cts (
43% @
4-‐5 produ
cts v
ersus 1
0% with
0);
• Have high
er risk to
lerance (32%
@ high risk versus 12%
@ low risk); an
d
• Are more likely to re
ad and
und
erstan
d fin
ancial statem
ents (2
7% @
can judge be
lievability versus 11%
@ don
’t un
derstand
).
As a fina
l observatio
n, we no
te th
at it is th
e youn
ger investors with
less
income an
d fin
ancial assets tha
t are th
e most e
nthu
siastic abo
ut
crow
dfun
ding
. Bu
t whe
n it comes to
investing sums like $5
000 or
more the em
phasis sh
ifts to fin
ancial cap
ability. It is only those with
more mon
ey from
income or fina
ncial assets tha
t can
affo
rd to
invest
$500
0. A
s our ana
lysis
show
ed, amon
g crow
dfun
ding
investors, age
has n
othing
to do with
willingn
ess to invest large sums.
41%
55%
41%
26%
21% 45%
35%
42%
47%
42% 35%
44%
51%
44%
40%
47%
37%
41%
17%
10%
15%
24%
35% 15%
18%
21%
11%
0% 20% 40% 60% 80% 100%
Overall
No. Produ
cts O
wne
d
Non
e
One
Two
3 or m
ore
Age
Youn
g Ad
ult (20-‐34)
Middle Years (35-‐49)
Mature (50-‐64)
Seniors (65+)
3.10 Amou
nt W
illing to In
vest
by No. Produ
cts O
wne
d & Age
<$1000
$1000-‐4999
$5000+
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
29
4.0
NOT IN
TERE
STED
IN SME IN
VESTING
HIGHLIGHTS
• Th
ose no
t interested in SME investing are olde
r and
less edu
cated.
They are also
more likely to be wom
en. Th
ey own fewer
investmen
t produ
cts o
verall, and
are less likely to
own each
investmen
t produ
ct we surveyed
. The
y also have less m
oney sa
ved
or invested
than
average and
they are lower income. Tho
se not
interested
in SME investing are less com
fortab
le using
the Internet,
and in fa
ct, 4 out of 1
0 did no
t use th
e Internet fo
r any buying
activ
ity in th
e pa
st m
onth. This is typical fo
r the
age, incom
e, and
ed
ucation distrib
ution that cha
racterizes th
ose no
t interested in
SME investing. Tho
se not interested
in SME investing also have
less to
lerance for risk
. •
The sin
gle do
minan
t reason for n
ot investing in new
or y
oung
bu
sine
sses was Risk of losing
their m
oney, w
hich re
flects the
relativ
ely low risk to
lerance we ob
served
in th
eir d
emog
raph
ics.
The Po
tential for frau
d, which is effe
ctively an
othe
r way of losing
mon
ey, w
as th
e second
most com
mon
reason
for u
nwillingn
ess to
invest in SME.
• After a
n explan
ation of th
e im
plications of a
n un
regu
lated mutua
l fund
(hed
ge fu
nd or p
ooled fund
), those no
t interested in SME
investing were asked ab
out w
illingn
ess to invest in an un
regu
lated
mutua
l fun
d. A
bout 9% sh
owed
some interest (4
-‐10 ratin
g), b
ut
only 1% sh
owed
a strong
interest as g
auged by a 7-‐10 ratin
g on
a 1-‐
10 sc
ale. Risk
of losing mon
ey was th
e most com
mon
reason
for
lack of interest, followed
closely by Do
n’t k
now eno
ugh ab
out
unregu
lated fund
s to invest com
fortab
ly, and
Poten
tial for frau
d.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
30
4.1
WHO IS
NOT INTERE
STED
IN SME INVE
STING
A total of 7
94 peo
ple rated their w
illingn
ess to invest via crowdfun
ding
as 1-‐3 on a 1-‐10
point sc
ale. A
fter weigh
ting the da
ta, w
e fin
d that th
is is 53%
of the
gen
eral pop
ulation. O
ut of this g
roup
, we furthe
r selected
those who
said th
ey were no
t willing to invest in new
or y
oung
bu
sine
ss (1
-‐3 ra
ting on
a 1-‐10 scale). Th
is grou
p of 589
respon
dents
(37%
after weigh
ting) is th
e ba
se we used
for this c
hapter.
The fin
ding
s in this chap
ter a
re so
lely based
on the 58
9 pe
ople who
show
ed no interest (1
-‐3 ra
ting) in both SM
E investing an
d crow
dfun
ding
. For sim
plicity
, we will re
fer to this group
as ‘Non
-‐Investors’. Our sa
mpling error for Non
-‐Investors is +
4.0%
some 19
out
of 20 tim
es.
Those no
t interested in SME investing are olde
r and
slightly less
educated
. The
y are also m
ore likely to be wom
en. Th
ey own fewer
investmen
t produ
cts o
verall, and
are less likely to
own each investmen
t prod
uct w
e surveyed
. The
y also have less m
oney sa
ved or invested
than
average and
they are lower income.
Those no
t interested in SME investing are less com
fortab
le using
the
Internet, and
in fa
ct, 4 out of 1
0 did no
t use th
e Internet fo
r any buying
activ
ity in th
e pa
st m
onth. This is typical fo
r the
age, incom
e, and
ed
ucation distrib
ution that cha
racterizes th
ose no
t interested in SME
investing. Tho
se not interested
in SME investing also have less
tolerance for risk
. A more de
tailed an
alysis high
lights s
ome of th
e key diffe
rences.
Taking
the extrem
es to
highlight differen
ces, we compa
red Non
-‐Investors (1-‐3 ra
ting) with
Core Investors (7-‐10 ratin
g) based
on
willingn
ess to invest in SME. W
hat w
e know
abo
ut Non
-‐investors
compa
red to Core Investors is the
following.
• Th
ey are older – 49%
on Non
-‐Investors a
re age 50 or older versus
35% fo
r Core investors.
• Th
ey have less edu
catio
n. Som
e 40
% of N
on-‐In
vestors h
ave a
second
ary scho
ol diploma or less versus 3
4% fo
r Core investors.
• Some 60
% of N
on-‐in
vestors a
re wom
en com
pared to 32%
wom
en
amon
g Co
re In
vestors.
• Th
ey own fewer ty
pes of in
vestmen
t produ
cts. 21%
of N
on-‐
investors o
wn 2 or m
ore prod
ucts com
pared to 39%
of C
ore
Investors. Som
e 58
% of n
on-‐in
vestors o
wn no
investmen
t produ
cts
versus 38%
for C
ore investors.
• 42
% of N
on-‐in
vestors h
ave less th
an $25
k saved/invested
compa
red to 28%
of C
ore investors.
• 49
% of N
on-‐in
vestors h
ave un
der $
50k in pre-‐tax hou
seho
ld
income versus 34%
of C
ore investors.
• Non
-‐investors a
re less com
fortab
le on the Internet. The
y regu
larly
use ha
lf as m
any of th
e five key Internet activities com
pared to
Core In
vestors. D
uring the pa
st year, tw
o-‐third
s of N
on-‐in
vestors
used
0-‐2 of the
five ty
pes o
f transactio
ns we surveyed
com
pared to
32% fo
r Core investors.
• Non
-‐investors are less likely to
invest over the
Internet. Only 25
%
of Non
-‐Investors ha
ve in
vested
over the
Internet versus 55
% of
Core in
vestors.
• Non
-‐investors a
re less su
re abo
ut th
eir risk tolerance with
36%
saying
“Not su
re” versus 14%
of C
ore Investors. W
hen the “N
ot
sure” grou
p is exclud
ed from
percentages, 48%
of N
on-‐in
vestors
show
low to
lerance for risk
versus 3
3% of C
ore Investors.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
31
4.2
REAS
ONS FO
R NOT INVE
STING
As a first stage in und
erstan
ding
those no
t interested in SME investing,
we asked an
ope
n-‐en
ded qu
estio
n ab
out w
hy th
ey were no
t interested
in investing in new
or y
oung
businesses. N
early
40 diffe
rent re
ason
s were given, which we ha
ve com
bine
d into th
e six them
es sh
own in
Exhibit 4
.1. Tw
o reason
s do
minate the respon
ses an
d the third
reason
(don
’t wan
t to lose m
oney) cou
ld easily be seen
as the
same as “too
risky”.
• No mon
ey to
invest/une
mploy
ed (4
1%); an
d •
Too ris
ky /Prefer con
servative investmen
t (40
%).
Respon
dents w
ere then
show
n a list o
f nine po
tential reasons fo
r not
investing in new
or y
oung
businesses a
nd asked
which re
ason
s app
lied
to th
em. On average, peo
ple chose 4-‐5 reason
s. The
y were then
asked
to iden
tify their o
ne m
ain reason
for n
ot investing.
The do
minan
t rea
sons were:
• Th
e ris
k of lo
sing
their m
oney (5
3%); an
d
• Th
e po
tential for frau
d (17%
).
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
32
4.3
UNRE
GULA
TED M
UTU
AL FUNDS
After b
eing
given
some explan
ation ab
out the
implications of a
n un
regu
lated mutua
l fun
d (hed
ge fu
nds/po
oled
fund
s), N
on-‐In
vestors
were asked ab
out w
illingn
ess to invest in an un
regu
lated mutua
l fun
d.
The explan
ation they were given is as fo
llows.
“By an
unregulated fu
nd, w
e mean an
y fund
that m
akes riskier
investments. Th
is means you
are m
ore likely to lose you
r mon
ey, but
you ha
ve th
e po
tential to earn m
ore. A
s well, it is sometim
es difficult to
get y
our m
oney out. The re
gulator d
oes n
ot look at these fu
nds.”
Over 9
out of 1
0 (91%
) gave ratin
gs of 1
-‐3, w
hich re
flects ‘no interest
in in
vesting’ in
unregulated
mutua
l fun
ds (see Exhibit 4.3). Th
e remaining
1 out of 1
0 show
ed so
me interest, b
ut th
e Co
re investor (7
-‐10
ratin
g) fo
r unregulated
mutua
l fun
ds is only 1%
. It is re
ason
able to
expe
ct th
at interest in investing in unregulated
mutua
l fun
ds wou
ld be
high
er amon
g those interested
in SME investing, but since they were
not a
sked
this que
stion, we ha
ve no way to
kno
w th
eir interest w
ith
any certainty.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
33
As you
can
see in Exhibit 4.4, th
ose no
t interested in investing in
unregu
lated mutua
l fun
ds m
entio
n the Risk of losing their m
oney as
the main reason
not to
invest (6
7%). Lack of kno
wledg
e ab
out
unregu
lated mutua
l fun
ds is also an
impo
rtan
t deterrent fo
r more than
ha
lf of th
ose who
respon
ded (55%
). Poten
tial for Fraud
is a con
cern fo
r 4 ou
t of 1
0 as well.
We did ask those with
a Core interest in unregulated
mutua
l fun
ds (7
-‐10
ratin
g) how
they wou
ld invest th
eir m
oney. With
only 8 respon
ses,
no graph
ic is warranted
. With
7 out of 8
preferring to use a m
etho
d that involves th
eir a
dviso
r, the preferen
ce fo
r gettin
g ad
vice is clear.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
34
5.0
SUMMAR
Y & CONCLUSIONS
After c
onsid
erab
le con
sulta
tion an
d consideration of th
e tim
e available
to ask peo
ple qu
estio
ns, the
OSC iden
tified five high
prio
rity research
questio
ns th
at th
is stud
y was designe
d to add
ress. In th
is cha
pter, o
ur
aim is to
provide
con
cise answers to these qu
estio
ns.
1. Wha
t is the
nature of investors’ desire
to invest in start-‐up
s and
SM
Es, including
risk app
etite
and
size of investm
ent?
2. Wha
t are investors’ perceptions of the
risks a
ssociated with
investing in th
e exem
pt m
arket?
3. Wha
t are th
e specific inform
ation ne
eds o
f investors investing in
start-‐up
s and
SMEs?
4. Wha
t is the
role of p
rofessiona
l advisors in investors’ investmen
t de
cision
-‐making process?
In th
is cha
pter we wou
ld like to
com
men
t on each of the
se issues. We
will re
late th
e key fin
ding
s on the issue an
d provide ou
r views a
bout
the meaning
of tho
se find
ings. A
s distinct from
the preced
ing chap
ters,
we will provide
more synthe
sis o
f finding
s here an
d more op
inion
abou
t the
ir meaning
and
implications.
1. Wha
t is the na
ture of inv
estors’ d
esire
to in
vest in
start-‐ups and
SM
Es, including
risk app
etite
and
size of in
vestmen
t?
• Just over h
alf o
f the
gen
eral pop
ulation (56%
) is p
oten
tially willing
to invest in start-‐up
s and
you
ng SMEs (4
-‐10 ratin
g). Just u
nder half
are willing to invest by crow
dfun
ding
(49%
). The
real core of
peop
le (7
-‐10 ratin
g) who
wou
ld be likely to invest with
out
considerab
le persuasion is only ab
out 1
4% fo
r both SM
E an
d crow
dfun
ding
. •
Whe
n pe
ople are interested
in one
type
of investin
g (SME or
crow
dfun
ding
) and
not th
e othe
r, the main diffe
rence is th
eir
familiarity
and
com
fort with
the Internet. With
the exception of
matters re
lated to In
ternet usage, com
men
ts m
ade ab
out e
ither
SME or crowdfun
ding
investors typically app
ly to
the othe
r group
as well.
• If we de
fine a ‘trad
ition
al investor’ as s
omeo
ne who
invests in
stocks, b
onds, m
utua
l fun
ds and
com
plex investmen
ts. Am
ong
trad
ition
al investors, so
me 53
% are poten
tially willingn
ess to invest
in SME with
a core of 16%
that are very likely to invest. For tho
se
who
are not trad
ition
al investors, so
me 42
% are poten
tially willing
to invest with
a core of 12%
that are very likely to invest. This h
as
two major im
plications. First, trad
ition
al investors a
re m
ore likely
to invest via crowdfun
ding
by virtue
of the
ir stated
attitu
de and
be
cause they alre
ady ha
ve experience with
investing. W
hile th
e po
tential for uptake may be as high as 42%
amon
g those who
have
not invested be
fore, the
fact th
at th
ey have no
t invested
constitutes a beh
avioral barrie
r tha
t the
y will need to overcom
e.
• Risk profile plays a
key ro
le in deciding to invest via crowdfun
ding
. Th
ere is no
differen
ce between trad
ition
al investors a
nd others in
these fin
ding
s.
o
Amon
g those with
low risk to
lerance, 43%
are poten
tially
willing to invest includ
ing a core of 1
2% th
at are very likely to
invest;
o
For m
edium risk, 55%
are poten
tially willing with
a core of
16%;
o
For tho
se with
high risk tolerance, 72%
are poten
tially willing
to invest includ
ing a core of 2
7% th
at are very likely to invest.
•
While it is clear th
at investing via crow
dfun
ding
is m
ore likely as
risk tolerance increases, we are concerne
d with
the high
prop
ortio
n of low risk peo
ple who
might poten
tially invest via
crow
dfun
ding
. In our view, the
survey m
ade the risks quite visible
and explicit leaving us to
won
der h
ow th
ey con
clud
ed th
at
crow
dfun
ding
was app
ropriate fo
r the
m.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
35
• Looking solely at the
group
of p
eople who
are poten
tially
interested
in investing via crow
dfun
ding
, som
e 4 ou
t of 1
0 wou
ld
invest und
er $10
00, 2 out of 1
0 wou
ld invest $10
00-‐$19
99, 2 out of
10 wou
ld invest $20
00-‐499
9 an
d roug
hly 2 ou
t of 1
0 wou
ld invest
$500
0 or m
ore.
• Th
e grou
p po
tentially willing to invest $50
00 or m
ore is ab
out 9
%
of th
e gene
ral pop
ulation, but m
ore than
three-‐qu
arters of this
grou
p are trad
ition
al investors. Amon
g pe
ople who
have no
t bo
ught trad
ition
al investmen
ts, w
illingn
ess to invest th
at m
uch is
less th
an half a
s stron
g.
• Focusin
g on
the grou
p willing to invest $50
00 or m
ore, we no
te a
few cha
racteristics tha
t make this group
distin
ct. C
ompa
red to
those willing to invest sm
aller a
mou
nts, th
ey are: H
ighe
r incom
e;
Have more mon
ey sa
ved/invested
; Male; Own more fin
ancial
prod
ucts; H
ave high
er risk to
lerance; and
Are m
ore likely to re
ad
and un
derstand
fina
ncial statemen
ts.
• While not add
ressed
here, one
of the
biggest fa
ctors in
participation in crowdfun
ding
is pub
licity
. Th
is will com
e from
both
mass m
edia and
social m
edia. With
out a
dou
bt Title III of the
UA
JOBS
Act and
local cultural fun
ding
effo
rts w
ill gen
erate bo
th
positiv
e an
d ne
gativ
e stories a
bout crowdfun
ding
and
crow
dsou
rcing. The
gen
eral pub
lic, regardless o
f legal distin
ctions,
will view th
e tw
o term
s as s
ynon
ymou
s. The
nature, sp
eed an
d am
ount of p
ublicity
will play a major ro
le in th
e up
take and
success
of crowdfun
ding
for n
ew and
you
ng businesses.
2. Wha
t are in
vestors’ perceptions of the
risks associated
with
investing in th
e exem
pt m
arket?
• In decision theo
ry, risk is gen
erally defined
as “
decision
-‐making
unde
r con
ditio
ns of u
ncertainty”. The
biggest uncertainty fo
r investing in new
or y
oung
business is the
lack of information for
making a reliable pred
ictio
n ab
out the
value
of the
investmen
t.
More directly, tying
together re
sults from
differen
t parts of the
survey, w
e conclude
that th
e biggest risk
s are deemed
to be:
insufficien
t information ab
out the
investmen
t, an
d its corollary, the
un
certainty of th
e ou
tcom
e of th
e investmen
t including
the risk of
losing
mon
ey. Lack of liqu
idity
is also no
ted.
• Th
e role of information comes th
roug
h first in its impa
ct on
willingn
ess to invest. We fin
d that peo
ple are more pron
e to invest
in new
or y
oung
businesses if the
y know
the indu
stry or its
environm
ent (i.e., local business) and
if th
ey can
read
its p
lan for
grow
th and
find
the idea com
pelling
. At th
e same tim
e, lack of
inform
ation ab
out the
com
pany and
its o
wne
rs is clearly a
deterren
t to investing an
d this covers b
oth initial and
ong
oing
inform
ation.
• In a nearly
iden
tical way, the
amou
nt of information available or
absent affe
cts jud
gmen
ts of the
amou
nt of m
oney it is worth
investing. Regression an
alysis sh
ows tha
t information ab
out “How
the compa
ny will use th
e mon
ey it gets from investors” is th
e main
driver of the
amou
nt of m
oney likely to
be invested
. To
put it
anothe
r way, in an
hon
est e
ffort to
raise mon
ey, enlighten
ed se
lf-‐interest dictates tha
t a com
pany sh
ould provide
as m
uch
inform
ation as possible ab
out h
ow th
ey will use th
eir investors’
mon
ey.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
36
• Th
e un
certainty of outcome an
d the risk of losin
g mon
ey are
iden
tified in se
veral differen
t ways. First, most p
eople recogn
ized
that uncertainty is part o
f investin
g in new
or y
oung
business.
With
that com
es less predictab
ility of return on
investmen
t, if an
y.
But in ad
ditio
n, th
ere is a recogn
ized
risk of fraud
and
mislead
ing
inform
ation from
the prom
oters tha
t raises the
risk of losing
mon
ey. Pa
rticularly (b
ut not exclusively) for Non
-‐investors, th
is
same concern is man
ifest by their d
istrust of d
oing
business o
ver
the Internet. Co
nversely, tho
se who
are th
e most a
ctive users o
f the Internet fo
r purchases, w
hose beh
aviour su
ggests m
ore trust o
f the Internet, are also
the most likely to do bu
siness v
ia
crow
dfun
ding
. The
y see on
e less sign
ificant risk.
• Bridging
the concerns just m
entio
ned, we no
ted that one
of the
three prim
ary drivers o
f the
decision
to (n
ot) invest v
ia
crow
dfun
ding
is th
at “It could take a fe
w years to
find
out if th
e bu
sine
ss is profitab
le”. This a
gain re
cogn
izes th
e un
certainty of th
e situa
tion.
• Lack of liquidity is ra
nked
fifth am
ong po
tential risks, b
ut
none
theless, half o
f investors iden
tify the risk of th
eir m
oney being
locked
-‐in and
possibly no
t gettin
g it ba
ck. A much sm
aller g
roup
, ab
out o
ne-‐third, recog
nize th
at th
e inab
ility to
sell the investmen
t to so
meo
ne else
is ano
ther aspect o
f lack of liqu
idity
. From
our
analysis of factors influ
encing
willingn
ess to invest, it is c
lear th
at a
real likelihoo
d of a steady income stream
from
an investmen
t can
offset its lack of liqu
idity
. Whe
n we looked
at d
ecision factors,
“Can
’t get m
oney back bu
t investm
ent w
ill give you a steady
stream
of incom
e if it succeeds” ha
d a po
sitive im
pact on
willingn
ess to invest. Th
is is a fa
miliar m
arketin
g ap
peal fo
r man
y lim
ited pa
rtne
rships and
royalty
trusts.
3. Wha
t are th
e specific inform
ation ne
eds of in
vestors investing in
start-‐up
s an
d SM
Es?
• Th
is qu
estio
n ha
s two type
s of a
nswers. The
first is w
hat spe
cific
inform
ation is con
side
red essential for investing. The
second
is
wha
t kinds of information will increase th
e likelihoo
d of investing
and the am
ount invested
. •
In th
e survey we asked ab
out seven
kinds of information that m
ight
be helpful whe
n de
ciding
to invest. Six of th
e seven type
s of
inform
ation were de
emed
‘Essen
tial’ (4-‐5 on a 1-‐5 scale) by 7 ou
t of 10 investors w
ith little discrim
ination am
ongst the
m. Th
e seventh ite
m was not fa
r beh
ind (64%
). Ideally, investors wan
t regu
lar finan
cial inform
ation ab
out the
com
pany and
wha
t it is
doing with
their m
oney. Th
ey also wan
t information ab
out the
risks of investin
g. Clearly, information ab
out the
probity and
track
record of the
owne
rs is also very desira
ble, and
to a lesser exten
t, so is th
eir c
ompe
nsation.
• While th
ree-‐qu
arters wan
t finan
cial inform
ation, only on
e-‐qu
arter
of th
is group
und
erstan
ds fina
ncial statemen
ts well eno
ugh to
assess th
eir c
redibility. The
vast m
ajority
just und
erstan
ds th
e ba
sics. Non
ethe
less, investors und
erstan
d the value of
inde
pend
ence and
fewer th
an 2 out of 1
0 de
em a fina
ncial
statem
ent p
repa
red by th
e compa
ny’s accou
ntan
t to be
reliable
inform
ation. A
fina
ncial statemen
t verified
by an
inde
pend
ent
accoun
ting firm is th
e ‘gold stan
dard’ for re
liability, but fa
iling
that,
the tax return filed with
CRA
will do.
• Our que
stions abo
ut Offe
ring Mem
oran
dum (O
M) a
lso be
ar on the
kind
of information pe
ople nee
d with
the qu
estio
n indicatin
g that
an OM wou
ld provide
both ba
sic compa
ny inform
ation an
d inform
ation on
investor righ
ts. Th
e ad
ditio
n of an OM ra
ised
the
prop
ortio
n of poten
tial investors by 8-‐13
% und
er fo
ur differen
t
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
37
scen
arios. B
ased
on ou
r und
erstan
ding
from
related research on
use of prospectuses a
nd given
the more soph
isticated
profile of
trad
ition
al Exempt m
arket investors
8 , it is our se
nse that fe
w
investors w
ill kno
w wha
t an OM is and
that it is available.
• Our answer to
que
stion 2 (“Wha
t are th
e risks associated with
investing in th
e exem
pt m
arket”) ind
icates th
e kind
s of information
that will encou
rage crowdfun
ding
investmen
t, bo
th in te
rms o
f the
nu
mbe
r of p
articipan
ts and
how
much they will invest. Th
e on
ly
point w
e wou
ld like to
emph
asize is th
at th
e most d
ecisive
inform
ation for fosterin
g investmen
t is a
detailed explan
ation of
how th
e compa
ny will use th
e mon
ey it gets from investors.
4. Wha
t is the role of p
rofessiona
l adv
isors in in
vestors’ in
vestmen
t de
cision
-‐making process?
• Startin
g with
willingn
ess to invest th
roug
h crow
dfun
ding, w
e fin
d there is a clear p
reference for g
ettin
g ad
vice from
a fina
ncial
advisor b
efore bu
ying
an investmen
t. M
etho
ds th
at use an ad
visor
are 3-‐4 tim
es m
ore acceptab
le th
an m
etho
ds th
at bypass a
n ad
visor.
• Th
e be
st indicatio
ns from
this su
rvey are th
at 60-‐75
% of
crow
dfun
ding
investors w
ould se
ek advice if it were available.
Most w
ould se
ek advice from
a re
gistered
dealer o
r adviser, b
ut
accoun
tants a
nd lawyers also played
a sm
all role.
8 Adviso
r Rep
ort, Investor Edu
catio
n Fund
, 200
3; Adviso
r Relationships and
Investor Decision
-‐Making, In
vestor Edu
catio
n Fund
, 201
2; Perform
ance
Repo
rting & Cost D
isclosure, O
SC, 201
0; Exempt M
arket Investors, O
SC, 201
2;
and Focus G
roup
with
Retail Investors on Investor Rights &
Protection, OSC
Investor Adviso
ry Pan
el, 201
1.
• Th
e fact re
mains th
at fina
ncial adviso
rs provide
investors w
ith
guidan
ce and
com
fort abo
ut th
eir d
ecisions. If fin
ancial advisors
are no
t allowed
to play a role, the
uptake of crowdfun
ding
as a
n investmen
t wou
ld likely be lower th
an with
their involvemen
t. The
caveat abo
ut th
is is th
at advisors m
ay be more motivated
to advise
investmen
t in regu
lated markets, and
by do
ing so, m
ay delay th
e grow
th of crowdfun
ding
. Th
e trad
e-‐off h
ere is not one
that we can
evalua
te from
the eviden
ce here, but it is certainly worth noting if
crow
dsou
rcing is to
be an
effe
ctive means of increasing the capital
available to new
or y
oung
businesses.
While we did no
t dire
ctly assess the
experiences of E
xempt M
arket
Investors, we do
have some ob
servations th
at are re
levant.
Wha
t is kn
own ab
out the
exp
eriences of tho
se in
vestors that do or
have con
side
red investing in securities th
roug
h the exem
pt m
arket
(EM)?
• As a prelude
to th
is stud
y, we estim
ated
the incide
nce of exempt
market investin
g in Can
ada ba
sed on
the Co
ttrell & Rob
inson stud
y cited earlier in th
is re
port, as w
ell as E
xempt M
arket (EM
) Studies
done
for the
OSC (see
footno
tes 4
& 8). Based
on the low
incide
nce of exempt m
arket investin
g (<½%) w
e estim
ated
, we
knew
we could no
t get su
fficien
t respo
nse from
EM investors, so
we did no
t include
any dire
ct que
stions abo
ut th
eir e
xperience.
Non
ethe
less, in this stud
y we asked ab
out o
wne
rship of “complex
investmen
ts”, which were de
scrib
ed as “
Complex investmen
ts like
optio
ns, forwards, h
edge fu
nds, exempt m
arket investm
ents or
limite
d pa
rtne
rship un
its”. W
hile im
perfect, we can use this group
as a proxy since it is a very sm
all and
select part o
f the
gen
eral
popu
latio
n an
d ou
r survey sample (6%).
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
38
• Be
fore doing
that, let us loo
k at th
e grou
p who
are now
considering investing in se
curities throu
gh th
e exem
pt m
arket b
y crow
dfun
ding
. Co
mpa
red to th
e gene
ral pop
ulation, th
ey are:
youn
ger (<5
0); m
ore likely male; better e
ducated; and
have a
high
er risk to
lerance. The
y are more likely to own (now
or p
ast 5
years) com
plex investmen
ts, b
onds and
GICs. The
y are also likely
to be very com
fortab
le with
buying things on the Internet,
includ
ing investmen
ts. By
virtue
of the
ir youn
ger a
ge, the
y ha
ve
less m
oney sa
ved or invested
than
the olde
r group
, but have go
od
breadth of produ
ct experience. It sho
uld be
und
erstoo
d that while
this is the profile th
at best d
escribes th
e grou
p, fe
w peo
ple will
embo
dy all of th
ese prop
ertie
s.
• Looking at th
e po
tential EM investors (as indicatin
g by
crow
dfun
ding
respon
ses) who
will invest $50
00 or m
ore shifts the
focus from enthu
siasm and
risk to
lerance to fina
ncial cap
ability.
Those that can
affo
rd to
invest th
is much are high
er income an
d ha
ve m
ore mon
ey sa
ved or invested
than
is ty
pical for th
eir c
ohort.
They also
own a wider variety of finan
cial produ
cts, and
as s
uch,
they are likely to
be more know
ledg
eable ab
out finan
cial produ
cts
than
average. Co
nfirm
ing this is the fact th
at th
ey are m
ore likely
to be ab
le to
read
and
und
erstan
d fin
ancial statem
ents, alth
ough
this capa
bility is still a m
inority
. Not su
rprisingly, th
is grou
p is the
most d
eman
ding
with
regard to
gettin
g de
tailed inform
ation ab
out
how th
e compa
ny plans to
use investors’ m
oney. Overall, th
e profile is one
that is su
itable for this type of investing, alth
ough
suita
bility at th
e individu
al level is in no
way certain.
• Th
ose curren
tly buying complex investmen
ts are our proxy fo
r curren
t EM investors, while th
ose interested
in buying exem
pt
market investm
ents via crowdfun
ding
are th
e po
tential m
arket.
Those who
buy com
plex investmen
ts differ from
the gene
ral
popu
latio
n in se
veral w
ays. In man
y ways the
y are like the profile
of poten
tial EM investors (i.e., crow
dfun
ding
investors) we just
describ
ed, b
ut even more so.
o
Owne
rs of com
plex investmen
t produ
cts o
wn more type
s of
investmen
t produ
cts.
o
They are m
ore likely to have a un
iversity edu
catio
n, especially
a grad
uate degree.
o
They do far m
ore activ
ities on the Internet, especially buying
investmen
ts. Some 60
% of tho
se with
com
plex investmen
ts
have bou
ght investm
ents over the
Internet versus 1
5% of
othe
rs.
o
Those with
com
plex investmen
ts have a much high
er risk
tolerance – 25
% high risk versus 5% fo
r others.
o
They are fa
r more likely to have alread
y invested
in eith
er
someo
ne else
’s sm
all business o
r the
ir ow
n.
o
They are m
ore likely to se
ek out advice from
a fina
ncial adviso
r be
fore buying.
Our overall assessmen
t is tha
t EM investors, both actual and
poten
tial,
have th
e kind
of p
rofile that is su
ited to m
ore risky investmen
t.
Non
ethe
less, n
ot everyon
e in th
e grou
p of buyers fits th
is profile. It is
unclear h
ow to
deter th
ose who
shou
ldn’t b
e investing in th
is market
from
taking
part. It is likely th
at a better strategy will be lim
iting
the
amou
nt th
ey can
invest to
limit the im
pact of a
poo
r decision.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
39
APPE
NDIX
A.
ONLINE SU
RVEYS
ALL INVE
STORS
-‐-‐ EXE
MPT
MAR
KET IN
VESTMEN
T OPP
ORT
UNITIES (Part O
ne, 12-‐Mar-‐13)
This survey is being
don
e on
beh
alf o
f a governm
ent a
gency that is
respon
sible for som
e special types of con
sumer fina
ncial protection
and ed
ucation. The
survey will ta
ke abo
ut 15-‐20
minutes of you
r tim
e an
d your re
spon
ses w
ill be kept com
pletely confiden
tial. W
hat y
ou te
ll us can
make a major differen
ce to
the kind
s of investm
ent
oppo
rtun
ities th
at will be available to peo
ple like you in th
e future.
Before we be
gin the survey, the
re are a fe
w que
stions we ne
ed to
ask.
A.
SCRE
ENER
1.
Wha
t is y
our c
urrent age?
__
__ <En
ter a
ge, terminate if less th
an 20 years o
ld>.
2a.
Have you ever held an
y type
of securities-‐related
registratio
n?
That is, h
ave you be
en re
gistered
with
any provincial securities
commission
s, fo
r example as a dealer o
r a fina
ncial adviser?
1
Yes, I am
currently re
gistered
. [Terminate]
2
Yes, I was re
gistered
in th
e pa
st but am no long
er
registered
[Terminate]
3
No, I ha
ve never been registered
.
2b.
Please indicate which of the
following fin
ancial produ
cts y
ou
own no
w includ
ing prod
ucts inside
an RR
SP. If you do
n’t o
wn
the prod
uct n
ow, p
lease indicate if you
have ow
ned this
finan
cial produ
ct in th
e pa
st five years <rand
omize orde
r of
prod
ucts>?
Own
Owne
d Not
Not
Now
Past 5y
Owne
d Sure
1 2
3
9
Mutua
l fun
ds (o
r other
investmen
t fund
s)
1
2
3
9
Stocks (e
quities) n
ot in a m
utua
l
fund
1
2
3
9
Governm
ent o
r corpo
rate bon
ds
(excluding Can
ada Savings B
onds)
1
2
3
9
Term
dep
osits, G
ICs o
r Can
ada
Savings B
onds
1
2
3
9
Complex investmen
ts like options,
forw
ards, h
edge fu
nds, exempt
market investm
ents or lim
ited
pa
rtne
rship un
its
<Con
tinue
if any produ
ct is “ow
n no
w” or “ow
ned pa
st 5y”. If no
t, accept 400
who
don
’t qu
alify by ow
nership an
d then
term
inate all
othe
rs. Re
port on rate of termination. >
3.
Are you…
? <set q
uotas for gen
der to 50
+/-‐2%>
1
Male
2
Female
4.
In wha
t region do
you
live? <Ba
lance region
al re
presen
tatio
n by 201
1 census>
1
Atlantic
2
Que
bec
3
Ontario
4
Prairie
s (M
B, SK)
5
Albe
rta (in
clud
ing NWT, NU)
6
British Colum
bia (in
clud
ing YT)
9
Outsid
e Ca
nada
<Term
inate survey>
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
40
B.
CLAS
SIFIER
S – De
mograph
ics+
1a.
Wha
t is the
highe
st level of e
ducatio
n that you
have
completed
?
1 Elem
entary and
/or som
e second
ary scho
ol
<Skip to B2>
2 A second
ary scho
ol (h
igh scho
ol) d
iploma
<Skip to B2>
3 A college diploma or certificate prog
ram
<Skip to B2>
4 An
und
ergrad
uate degree from
a university
5
A grad
uate degree from
a university
1b
. Which of the
following de
gree
s or p
rofessiona
l designa
tions do
you ho
ld? [Che
ck all that app
ly]
1
MBA
2 CFA
3
Accoun
ting (CA, CGA, CMA)
4
Law (LL.B, JD
)
5 Ch
artered Investmen
t Man
ager (C
IM)
6
Bachelor of C
ommerce (B
.Com
m.)
9
Non
e of th
e ab
ove
2.
Considering all savings and
investmen
ts (w
hether in an RR
SP or
not) but excluding
you
r hom
e, w
hat is the
total amou
nt you
ha
ve currently sa
ved an
d/or invested
?
1 Less th
an $25
,000
2 At least $
25,000
but less th
an $50
,000
3 At least $
50,000
but less th
an $10
0,00
0
4 At least $
100,00
0 bu
t less tha
n $2
50,000
5 $2
50,000
or m
ore
9
Don’t k
now/D
on’t wan
t to say
3.
Wha
t is y
our h
ouseho
ld income be
fore ta
xes? Is it…
1
Less th
an $25
,000
2 $2
5,00
0 -‐ $
49,999
3 $5
0,00
0 -‐ $
74,999
4 $7
5,00
0 -‐ $
99,999
5 $1
00,000
-‐ $1
49,999
6 $1
50,000
or m
ore
8
Don’t w
ant to say
4.
Over the
past y
ear, roug
hly ho
w often
did you
use th
e Internet
for e
ach of th
e following activ
ities? <ran
domize orde
r of
activ
ities>
<C
reate scale with
(1) Several times per m
onth, (2) 1-‐4 times
every three mon
ths (3) 1-‐4 times in th
e pa
st year, (4) U
sed bu
t no
t in the pa
st year, (5) N
ever>
a. Bo
oked
and
paid for travel
b. Bo
ught lottery tickets or p
layed on
line games fo
r mon
ey
c. Pa
id bills u
sing on
line ba
nking
d. Bo
ught produ
cts o
nline (e.g., Am
azon
, e-‐Bay, Kob
o,
compa
ny web
site, etc.)
e. Bo
ught m
utua
l fun
ds or o
ther investmen
ts
5.
Which of the
following statem
ents best d
escribes you
r way of
thinking
abo
ut investing.
1
I am willing to earn a bit less if I can
be certain I w
on’t
lose any m
oney
2
I am willing to accep
t small ups-‐and
-‐dow
ns in m
y
investmen
ts if I can earn m
ore
3
I am willing to accep
t big sw
ings in th
e value of m
y
investmen
ts includ
ing losing
m
oney, if it gives m
e the po
tential to earn m
ore
9 I am not su
re
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
41
C.
PROPE
NSITY
FOR BU
SINESS INVE
STING
1.
Have you ever invested
in a sm
all business?
1
Yes, m
y ow
n bu
siness
2
Yes, so
meo
ne else
’s business
3
No
9
Don’t k
now/N
ot su
re
2.
The go
vernmen
t is thinking ab
out m
aking it easie
r for peo
ple
to invest in Can
adian compa
nies. Assuming that you
are
comfortab
le with
the am
ount of m
oney involved
and
the risks,
how likely wou
ld you
be to invest in a brand
new
start-‐up
compa
ny th
at is not listed
on an
y stock market? Please rate
your likelihoo
d of investing on
a 1-‐10 scale whe
re 1 m
eans
‘Definite
ly wou
ld NOT invest’ and
10 means ‘D
efinite
ly W
OULD
invest’.
__
___
Ratin
g: W
illing to invest
3.
Usin
g the same 1-‐10
scale, how
likely wou
ld you
be to invest in
a yo
ung compa
ny th
at is n
ot listed
on an
y stock market?
__
___
Ratin
g: W
illing to invest <If ratin
g is 1-‐3, skip to B5>
4.
There are a nu
mbe
r of thing
s abo
ut a com
pany th
at m
ight
make you more or less likely to
invest in th
e compa
ny. For
each of the
descriptio
ns below
, please rate how
this wou
ld
affect you
r willingn
ess to invest using
a 1-‐5 sc
ale whe
re 1
means ‘M
uch LESS likely to
invest’, 5 means ‘M
uch MORE
likely
to invest’ and
3 m
eans ‘N
o im
pact on your willingn
ess to
invest’. <R
ando
mize orde
r – Add
a “Not Sure” colum
n>
a. It is a local business tha
t you
might use
b. Once you pu
t you
r mon
ey in, you
can
’t get it o
ut fo
r several years
c. It is a well-‐e
stab
lishe
d bu
sine
ss with
a new
plan for
grow
th
d. It is a start-‐up
com
pany with
an idea th
at so
unds goo
d to you
e.
Yo
u know
nothing
abo
ut th
e ow
ners of the
business
f. Th
e bu
siness is in an
indu
stry you
kno
w well
g. Yo
u can bu
y it throug
h your fina
ncial adviso
r and
get
their a
dvice
h. Yo
u can’t g
et you
r mon
ey back, but you
r investm
ent
will give you a steady stream
of incom
e if the bu
sine
ss
succeeds
i. Th
e bu
siness m
ight not m
ake much mon
ey, b
ut it is a
worthy cause
j. Th
ere won
’t be
a lot o
f information ab
out the
com
pany
since it is you
ng
k. It could take a fe
w years to
find
out if you
r investm
ent
is profitab
le.
l. It is easy to buy into th
e compa
ny on the internet
m. Th
ere is no
way to
predict how
much mon
ey you
will
make an
d you might lose all your m
oney
n. Th
e on
ly th
ing you know
abo
ut th
e compa
ny is wha
t you can read
on the internet.
One of the new
investing trends emerging
on the Internet is called
“crowdfun
ding
”. There are so
me exam
ples in th
e U.K. and
it is gettin
g started in th
e US. The basic idea of crowdfun
ding
is th
at a bun
ch of
small investors invest re
lativ
ely sm
all amou
nts o
f mon
ey in new
or
youn
g bu
sine
sses th
at app
eal to them
. Th
is isn
’t a regu
lated market
like a stock market, bu
t it is m
ore like e-‐Ba
y where you
read
a “prod
uct”
descrip
tion on
-‐line and
decide whether you
are going
to buy. Th
e big
diffe
rence here is th
at you
are buying an
investment rather tha
n something
you
can
hold in you
r han
ds. Th
ere is no
gua
rantee th
at you
will m
ake mon
ey on the mon
ey you
invest, and
a very real risk th
at you
will lose all your m
oney. It is up
to you
to decide whether th
e idea is
one you wan
t to supp
ort a
nd one th
at you
think might su
cceed.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
42
5.
Assuming that you
are com
fortab
le with
the am
ount of m
oney
involved
and
the bu
sine
ss idea app
eals to
you
, how
likely
wou
ld you
be to invest in a new
or y
oung
business throu
gh a
crow
dfun
ding
site on the Internet? Please rate you
r likelihoo
d of investing on
a 1-‐10 scale whe
re 1 m
eans ‘D
efinite
ly wou
ld
NOT invest’ and
10 means ‘D
efinite
ly W
OULD
invest’.
__
___
Ratin
g: W
illing to invest
<If rating is 1-‐3, sk
ip to
section E (Part 3
), ELSE sk
ip to
section D
(Part 2
)>
BUSINESS INVE
STORS
– EXE
MPT
MAR
KET IN
VESTMEN
T OPP
ORT
UNITIES (Part 2
, 12-‐Mar-‐13)
D.
INVE
STING VIA CRO
WDF
UNDING
1a.
There are several poten
tial risk
s whe
n you invest in a com
pany
in an un
regu
lated market like this. Whe
n we talk abo
ut an
unregu
lated market, we mean a market w
ith riskier
investmen
ts. Th
is m
eans you
are m
ore likely to lose you
r mon
ey, b
ut you
have the po
tential to earn m
ore. A
s well, it is
sometim
es difficult to get y
our m
oney out. The
regu
lator d
oes
not loo
k at unregulated
markets. U
sing
the list o
f risks below
, please iden
tify the risks th
at con
cern you
abo
ut investing in
unregu
lated markets th
roug
h crow
dfun
ding
. <rand
omize
orde
r>
1b.
Which TWO of the
se risks a
re th
e biggest con
cerns for you
?
1
1 My mon
ey is locked
-‐in – I may not be ab
le to
get it b
ack
2
2 I can
’t sell this investmen
t to someo
ne else
3
3 Po
tential for frau
d
4
4 Th
e pe
ople promoting the compa
ny m
ay not
give m
e the full picture
5
5 Risk of losing my mon
ey
6
6 I kno
w very little
abo
ut th
e compa
ny
7
7 Th
ere is no
way to
predict how
much mon
ey I
will m
ake, if any
8
8 Th
ere is no
ong
oing
inform
ation ab
out h
ow th
e
investmen
t is d
oing
9 9
I don
’t trust d
oing
business o
ver the
internet
0
Non
e of th
e ab
ove
2.
Assuming you like the compa
ny's ideas for growth and
you
think it ha
s goo
d po
tential, wha
t is the
most y
ou wou
ld be
willing to invest using
crowdfun
ding
und
er each of th
e following circum
stan
ces. Please en
ter a
num
ber o
n each line
iden
tifying
the most y
ou wou
ld be willing to invest. Do
not use
commas, d
ecim
al points o
r dollar signs whe
n you en
ter the
nu
mbe
r."
a. Yo
u know
the bu
siness o
wne
rs
b. Friend
s have invested
and
recommen
d it
c. Th
e bu
siness p
lan is high
ly detailed
d. Yo
ur m
oney is invested
perman
ently
– You
can
’t get it
out
e. Th
e compa
ny is ta
ckling a cause you be
lieve in
f. Th
e compa
ny alre
ady ha
s a goo
d track record
g. Th
e compa
ny is in a high grow
th indu
stry
h. Each year y
ou get a fina
ncial rep
ort v
erified
by an
inde
pend
ent a
ccou
nting firm
i. Th
e compa
ny won
’t start-‐up
until they get eno
ugh
investmen
t mon
ey
3a.
Considering the sum of m
oney poten
tially involved
, wou
ld you
seek professiona
l advice be
fore deciding to invest?
1
Yes
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
43
2
No
<Skip to D4>
3 Not su
re
<Skip to D4>
3b
. Who
wou
ld you
be most likely to ask fo
r advice? Cho
ose on
e.
1
An adviso
r who
is licensed
to se
ll stocks
2 An
adviso
r/fin
ancial plann
er who
sells m
utua
l fun
ds
and GICs (bu
t not stocks)
3
Accoun
tant
4
Lawyer
5
Other (p
lease de
scrib
e)
4.
Please ra
te th
e im
portan
ce of e
ach of th
e following type
s of
inform
ation for h
elping
you
decide whe
ther to
invest in a
compa
ny. Please ra
te using
a 1-‐5 sc
ale whe
re 1 m
eans th
e inform
ation is ‘N
ot neede
d at all’, 3 m
eans it is ‘N
ice to have’
and 5 means it is ‘Essential’. <rand
omize orde
r>
a. Fina
ncial information ab
out the
com
pany
b. De
tailed bu
sine
ss plan includ
ing key prod
ucts/services
c. Inform
ation ab
out the
owne
rs and
promoters o
f the
compa
ny, including
crim
inal re
cord che
cks a
nd che
cks
on se
curities law
violatio
ns
d. Yearly inform
ation ab
out h
ow th
e compa
ny is doing
e. How
much ow
ners & executiv
es will be pa
id fo
r the
ir work
f. How
the compa
ny will use th
e mon
ey it gets from
investors
g. Risks related
to investing in th
e compa
ny
5a.
Wha
t best d
escribes you
r ability to und
erstan
d a compa
ny
fin
ancial statem
ent? [che
ck one
]
1 I d
on’t know
wha
t a fina
ncial statemen
t is
2.
I don
’t un
derstand
them
3 I u
nderstan
d the ba
sics
4 I u
nderstan
d them
well eno
ugh to judg
e ho
w
believable they are
5b.
<Ask ONLY if D4a is ra
ted 4 or 5> Which of the
following type
s of fina
ncial information do
you
con
side
r to be
“reliable
finan
cial inform
ation”? Please check all tha
t app
ly.
1
A fin
ancial statem
ent p
repa
red by th
e compa
ny’s
accoun
tant
2
A fin
ancial statem
ent v
erified
by an
inde
pend
ent
accoun
ting firm
3
A compa
ny ta
x return filed with
the Ca
nada
Reven
ue
Agen
cy (C
RA)
4
Non
e of th
e ab
ove
5c.
<Ask only if D4
c is rated 4 or 5> Which of the
following type
s of
inform
ation ab
out the
owne
rs and
/or p
romoters o
f the
compa
ny do you wan
t to see be
fore deciding to invest? Ch
eck
all tha
t app
ly.
1
Busin
ess b
ackgroun
d an
d expe
rience
2
Prior b
ankrup
tcies o
r insolvencies
3 Ch
aracter c
heck includ
ing crim
inal re
cord and
securities law
violatio
ns
4
Non
e of th
e ab
ove
6.
Which of the
following metho
ds wou
ld you
be willing to use to
invest in a new
or y
oung
business? <Yes, No, Not su
re –
Rand
omize orde
r of m
etho
ds>
a.
Over the
Internet with
out a
dvice using the web
site of
the compa
ny se
eking investmen
t
b.
Over the
internet with
out a
dvice using a web
site that
offers investmen
t in several
differen
t com
panies
c.
Over the
internet, b
ut with
advice from
a fina
ncial
advisor
d.
Throug
h my regu
lar finan
cial advisor with
out u
sing
the
internet
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
44
7.
<ONLY present m
etho
ds th
at were marked ‘No’ or ‘Not sure’
in D6>
An ‘Offe
ring Mem
oran
dum’ (OM) p
rovide
s basic
inform
ation ab
out a
com
pany. It a
lso gives y
ou a num
ber o
f rig
hts to take action if the compa
ny m
isrepresen
ts itself, but
you will proba
bly ne
ed to
hire
a lawyer to do
this. Assum
ing an
offerin
g mem
oran
dum was available, wou
ld you
then
be
willing to invest by each of the
following metho
ds.
a.
Over the
Internet with
out a
dvice using the web
site of
the compa
ny se
eking investmen
t
b.
Over the
internet with
out a
dvice using a web
site that
offers investmen
t in several
differen
t com
panies
c.
Over the
internet, b
ut with
advice from
a fina
ncial
ad
visor
d.
Throug
h my regu
lar finan
cial adviso
r with
out u
sing the
internet
8.
How
risky do
you
think it is to
invest in new
or y
oung
bu
sine
sses? Please rate using
a 1-‐5 sc
ale whe
re 1 m
eans ‘Low
risk’, 3 m
eans ‘M
edium risk’ and
5 m
eans ‘H
igh risk’?
__
__ R
isk Rating
9.
And fin
ally, if you
cou
ld get th
e inform
ation you ha
ve iden
tified
as im
portan
t to you ab
out the
timing an
d the risks of investin
g in a new
or y
oung
business, how
much mon
ey wou
ld you
be
prep
ared
to invest at m
ost? W
ould you
say…
.
0 Nothing
at a
ll 1
$1-‐499
2 $5
00-‐999
3 $1
,000
-‐1,999
4 $2
,000
-‐3,499
5 $3
,500
-‐4,999
6 $5
,000
-‐9,999
7
$10,00
0 or m
ore
9
Don’t k
now/N
ot su
re
<Add
closin
g an
d than
k you>
NON-‐IN
VESTORS
– EXE
MPT
MAR
KET IN
VESTMEN
T OPP
ORT
UNITIES (Part T
hree, 12-‐Mar-‐13)
E.
NOT INTERE
STED
IN SME INVE
STING
1.
Wha
t are th
e three main reason
s why you
aren’t interested in
investing in new
or y
oung
businesses? <Note: Use E2 for
coding
. We will provide
add
ition
al cod
es fo
r other categories>
a. __
____
____
____
____
____
____
____
____
____
____
____
__
b. __
____
____
____
____
____
____
____
____
____
____
____
__
c. __
____
____
____
____
____
____
____
____
____
____
____
__
2a.
Which of the
reason
s listed be
low explain why you
are not
willing to invest in new
or y
oung
businesses? Please choo
se all
that app
ly. <rand
omize orde
r>
2b.
Which ONE of th
ese reason
s BEST explains why you
are not
willing to invest?
1
1 My mon
ey is locked
-‐in – I may not be ab
le to
get it b
ack
2
2 I can
’t sell this investmen
t to someo
ne else
3
3 Po
tential for frau
d
4 4
The pe
ople promoting the compa
ny m
ay not
give m
e the full picture
5
5 Risk of losing my mon
ey
6
6 I kno
w very little
abo
ut th
e compa
ny
7
7 Th
ere is no
way to
predict how
much mon
ey I
will m
ake, if any
8
8 Th
ere is no
ong
oing
inform
ation ab
out h
ow th
e
investmen
t is d
oing
9 9
I don
’t trust d
oing
business o
ver the
internet
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
45
0
Non
e of th
e ab
ove
3.
Please ra
te you
r interest in investing in unregulated
mutua
l fund
s or investm
ent fun
ds using
a 1-‐10 scale whe
re 1 m
eans
‘No interest at a
ll’ and
10 means ‘V
ery interested
’. By an
un
regu
lated fund
, we mean an
y fund
that m
akes riskier
investmen
ts. Th
is m
eans you
are m
ore likely to lose you
r mon
ey, b
ut you
have the po
tential to earn m
ore. A
s well, it is
sometim
es difficult to get y
our m
oney out. The
regu
lator d
oes
not loo
k at th
ese fund
s.
__
___ Ra
ting (1-‐10)
4.
<Ask only if E3 is ra
ted 7-‐10
, Else Skip to
E5>
Wou
ld you
be
comfortab
le investing in unregulated
fund
s in the following
ways. Please check all tha
t app
ly.
1
Over the
Internet with
out a
dvice using the web
site of
the fund
2 Over the
internet with
out a
dvice using a web
site that
offers investmen
t in several
diffe
rent fu
nds
3
Over the
internet but with
advice from
a fina
ncial
advisor
4
Throug
h my regu
lar finan
cial adviso
r with
out u
sing the
internet
8
Non
e of th
e ab
ove
<Skip to Closing
> 5.
<Ask only if E3 is ra
ted 1-‐4>
Which of the
reason
s listed
below
explain why you
are not interested
in investing in unregulated
fund
s? Please choo
se all that app
ly. <rand
omize orde
r>
1
It may be ha
rd to
get m
y mon
ey out
2
I don
’t know
eno
ugh ab
out u
nregulated
fund
s to invest
comfortab
ly
3
Potential for frau
d 4
The pe
ople promoting the fund
may not give me the
full picture
5
Risk of losing my mon
ey
7
There is no
way to
predict how
much mon
ey I will
make, if any
8 Other re
ason
s (please describe)
____
____
____
____
____
____
____
____
____
___
<A
dd closing
and
than
k yo
u>
NOTE: P
ROGRA
MMING IN
STRU
CTIONS IN THE FR
ENCH
VER
SION ARE
IN ENGLISH
. ONLY THE QUESTION TEX
T IS TRA
NSLAT
ED.
RESP
ONDEN
TS DO NOT SEE TH
E PR
OGRA
MMING IN
STRU
CTIONS.
TOUS LES INVE
STISSEURS
– POSSIBILITÉS DE PLAC
EMEN
TS
EXONÉR
ÉS SUR LE M
ARCH
É (partie
1, 12 mars 2
013)
Ce so
ndage est m
ené au
nom
d’un organism
e go
uverne
men
tal qui est
respon
sable de
certains types sp
éciaux de protectio
n et d’édu
catio
n fin
ancières des con
sommateu
rs. Le sond
age pren
dra en
viron 15
-‐20
minutes de votre temps et v
os ré
ponses se
ront gardé
es stric
temen
t confiden
tielles. L’in
form
ation qu
e vous nou
s com
mun
ique
z pe
ut fa
ire
une gran
de différen
ce pou
r les ty
pes d
e po
ssibilités d
e placem
ents qui
seront offe
rts a
ux personn
es com
me vous dan
s le futur.
Avan
t de commen
cer le sond
age, voici que
lque
s que
stions que
nou
s de
vons vou
s poser.
A.
PRÉ-‐SÉLECT
ION
1.
Que
l âge avez-‐vous?
__
__ <En
ter a
ge, terminate if less th
an 20 years o
ld>.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
46
2a.
Avez-‐vou
s déjà dé
tenu
un type
d’in
scrip
tion lié aux valeu
rs
mob
ilières? C’est-‐à-‐dire, vou
s êtes-‐vous inscrit aup
rès d
e commission
s des valeu
rs m
obilières provinciales, par exemple :
une firme de
cou
rtage ou
un conseiller finan
cier?
1
Oui, je suis présen
temen
t inscrit.
[Terminate]
2
Oui, j’étais inscrit dan
s le pa
ssé, m
ais je ne
le su
is plus
[Terminate]
3
Non
, je n’ai jamais é
té inscrit.
2b.
Veuillez ind
ique
r lesqu
els d
es produ
its fina
nciers su
ivan
ts vou
s po
sséd
ez m
ainten
ant, y compris les p
rodu
its inclus dan
s un
REER
. Si vou
s ne po
sséd
ez pas le produ
it mainten
ant, veuillez
indiqu
er si vou
s l’avez po
sséd
é au
cou
rs des cinq de
rnières
anné
es <rand
omize orde
r of p
rodu
cts>?
Po
sséd
er Po
sséd
er au cours
Ne pa
s Pas
Mainten
ant des 5 dernières ann
ées p
osséde
r certain
1 2
3
9
Fond
s com
mun
s de placem
ent
(ou d’au
tres fo
nds d
e placem
ent)
1
2
3
9
Actio
ns qui ne sont pas dan
s un
fond
s com
mun
de placem
ent
1
2
3
9
Obligations d’État o
u de
société
(sau
f les obligations d’épa
rgne
du
Cana
da)
1
2
3
9
Dépô
ts à te
rme, CPG
ou
ob
ligations d’épa
rgne
du Ca
nada
1
2
3
9
Placem
ents com
plexes, com
me
Les o
ptions, les con
trats à
term
e
de gré à gré, les fo
nds s
péculatifs,
les p
lacemen
ts exoné
rés s
ur le
marché ou
les p
arts de société en
comman
dite.
<C
ontin
ue if any produ
ct is “ow
n no
w” or “ow
ned pa
st 5y”. If
not, accept 400
who
don
’t qu
alify by ow
nership an
d then
term
inate all others. Rep
ort o
n rate of termination. >
3.
Êtes-‐vou
s de sexe…? <set q
uotas for gen
der to 50
+/-‐2%>
1
Masculin
2
Féminin
4.
Dans que
lle ré
gion
hab
itez-‐vous? <Ba
lance region
al
represen
tatio
n by 201
1 census>
1
Atlantique
2 Qué
bec
3
Ontario
4
Prairie
s (M
an., Sask.)
5
Albe
rta (y com
pris les T
erritoires d
u Nord-‐Oue
st, N
t)
6
Colombie-‐Brita
nnique
(y com
pris Yn)
9
À l’extérieur du Ca
nada
<Term
inate survey>
B.
CLAS
SIFICA
TEURS
– Don
nées dém
ograph
ique
s et p
lus
1a.
Que
l est le niveau supé
rieur d’édu
catio
n qu
e vous avez
atteint?
1
Étud
es prim
aires o
u un
e pa
rtie des étude
s secon
daire
s
<Skip to B2>
2 Un diplôm
e d’étud
es se
cond
aires
<Skip to B2>
3 Un diplôm
e d’étud
es collégiales ou un
program
me de
certificat
<Skip to B2>
4 Un grad
e de
premier c
ycle d’une
université
5
Un diplôm
e d’étud
es su
périe
ures d’une
université
1b
. Lesque
ls de
s diplômes ou titres p
rofessionn
els a
vez-‐vous?
[Coche
z toutes les rép
onses q
ui correspon
dent]
1
MBA
2 An
alyste fina
ncier a
gréé
3 Co
mptab
ilité (C
A, CGA, CMA)
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
47
4
Droit (LL.B, JD)
5
Gestio
nnaire de placem
ent a
gréé (C
IM)
6
Baccalau
réat en commerce (B
.Com
.)
2.
En prena
nt to
utes les é
pargne
s et tou
s les investiss
emen
ts en
considération (dan
s un RE
ER ou pa
s), m
ais e
n exclua
nt votre
maison, que
l est le m
ontant to
tal actue
l que
vou
s avez é
pargné
ou
investi?
1
Moins de 25
000
$
2
Au m
oins 25 00
0 $, m
ais m
oins de 50
000
$
3
Au m
oins 50 00
0 $, m
ais m
oins de 10
0 00
0 $
4
Au m
oins 100
000
$, m
ais m
oins de 25
0 00
0 $
5
250 00
0 $ ou
plus
9
Ne sais pa
s/Ne veux pas le dire
3.
Que
l est le re
venu
de votre foyer a
vant les impô
ts? Est-‐ce…
1
Moins de 25
000
$
2
25 000
$ -‐ 49
999
$
3
50 000
$ -‐ 74
999
$
4
75 000
$ -‐ 99
999
$
5
100 00
0 $ -‐ 1
49 999
$
6
150 00
0 $ ou
plus
8
Ne veux pas le dire
4.
Au cou
rs de l’ann
ée dernière, à que
lle fréq
uence
approxim
ative avez-‐vou
s utilisé
l’Internet pou
r cha
cune
des
activ
ités s
uivantes? <ran
domize orde
r of a
ctivities>
<C
reate scale with
(1) P
lusie
urs fois p
ar m
ois, (2
) De 1 à 4 fois
tous les trois mois (3) De 1 à 4 fois au
cou
rs de l’an de
rnier, (4)
Jamais>
f. Ré
server et p
ayer pou
r des dép
lacemen
ts
g. Ac
heter d
es billets d
e loterie
ou joue
r à des jeux d’argen
t en
lign
e
h. Pa
yer d
es fa
ctures en utilisant les s
ervices b
ancaire
s en
ligne
i.
Ache
ter d
es produ
its en ligne
(p. ex. : Am
azon
, e-‐Bay,
Kobo
, site
Web
d’entreprise, etc.)
j. Ac
heter d
es fo
nds c
ommun
s de placem
ent o
u d’au
tres
placem
ents
5.
Lequ
el des éno
ncés su
ivan
ts décrit le m
ieux ce qu
e vous
pensez des placemen
ts?
1 Je su
is prêt à
gagne
r un pe
u moins d’argen
t si je pe
ux
être certain de ne
pas en pe
rdre
2 Je su
is prêt à
accep
ter d
es petite
s baisses et d
es petite
s ha
usses d
ans m
es placemen
ts si je peu
x gagn
er plus
d’argent
3 Je su
is prêt à
accep
ter d
es fo
rtes variatio
ns de la valeu
r de
mes placemen
ts, y com
pris des pertes d
’argen
t si
j’ai la chan
ce d’en gagn
er plus
9
Je ne suis pas certain
C.
PROPE
NSION POUR LES PLAC
EMEN
TS COMMER
CIAU
X 1.
Avez-‐vou
s déjà investi dan
s une
petite
entreprise?
1
Oui, m
a prop
re entreprise
2 Oui, l’entreprise
de qu
elqu
’un d’au
tre
3
Non
9 Ne sais pa
s/pa
s certain
2.
Le gou
vernem
ent son
ge à fa
ciliter l’investiss
emen
t des gen
s da
ns des entreprises can
adienn
es. En
supp
osan
t que
le
mon
tant d’argen
t impliqué
et les risque
s vou
s paraissen
t raison
nables, q
uelle est la proba
bilité qu
e vous investissiez
dans une
toute no
uvelle entreprise en
dém
arrage qui n’est
pas c
otée
en bo
urse? À l’aide d’un
e éche
lle de 1 à 10
, où 1
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
48
signifie
« n’in
vestir DÉ
FINTIVE
MEN
T PA
S » et 10 sig
nifie
«
investir DÉ
FINITIVEM
ENT », veu
illez évaluer la proba
bilité qu
e vous investiss
iez.
__
___
Classemen
t : désire
r investir
3.
À l’aide de
la m
ême éche
lle de 1 à 10
, ind
ique
z la proba
bilité
que vous investissiez dan
s une
jeun
e en
trep
rise qu
i n’est pas
cotée en
bou
rse.
__
___
Classemen
t : désire
r investir <If ratin
g is 1-‐3, skip to
B5>
4.
Il y a plusieurs é
lémen
ts d’une
entreprise qu
i peu
vent vou
s inciter p
lus o
u moins à investir da
ns celle-‐ci. Po
ur cha
cune
des
descrip
tions énu
mérée
s ci-‐d
essous, veu
illez évaluer à que
l po
int e
lles p
ourraien
t affe
cter votre volon
té d’in
vestir à l’aide
d’un
e éche
lle de 1 à 5, où 1 sign
ifie « be
aucoup
MOINS
suscep
tible d’in
vestir », 5 sign
ifie « be
aucoup
PLU
S suscep
tible
d’investir » et 3 sign
ifie « au
cun im
pact su
r votre volon
té
d’investir ». <Ra
ndom
ize orde
r – Add
a “Sans objet” column>
o.
Il s’agit d’un
e en
trep
rise locale qui pou
rrait v
ous ê
tre
utile
p. Une
fois qu
e votre argent est investi, vous ne po
uvez
pas le retirer avant plusieu
rs ann
ées
q. Il s’agit d’un
e en
trep
rise bien
établie qui a un no
uveau
plan
de croissan
ce
r. Il s’agit d’un
e en
trep
rise en
dém
arrage qui a une
idée
qui vou
s plaît
s. Vo
us ne savez rien de
s propriétaire
s de l’entreprise
t. Vo
us con
naissez b
ien le se
cteu
r d’activité
de
l’entreprise
u. Vo
us pou
vez investir par l’en
trem
ise de
votre
conseiller finan
cier et o
bten
ir ses c
onseils
v. Vo
us ne po
uvez pas re
tirer votre argen
t, mais v
otre
investissemen
t vou
s procurera une
source de
finan
cemen
t stable si l’en
trep
rise réussit
w. Il se peu
t que
l’en
trep
rise ne
rapp
orte pas beaucou
p d’argent, m
ais il s’agit d
’une
nob
le cau
se
x. Il n’y au
ra pas beaucou
p d’inform
ation sur l’entreprise
parce qu
’elle est jeun
e y.
Il se peu
t que
vou
s deviez attend
re que
lque
s ann
ées
pour sa
voir si votre investissemen
t est re
ntab
le.
z. Il est facile d’acheter des parts de l’entreprise sur
l’Interne
t aa. Il n’y a au
cun moyen
de savoir combien
d’argen
t vou
s gagn
erez et v
ous risq
uez de
tout le perdre
bb. T
out ce qu
e vous sa
vez sur l’entreprise
se trou
ve su
r l’Interne
t
L’un
e des n
ouvelles tenda
nces d’investiss
ement sur l’Internet s’ap
pelle
le « fina
ncem
ent collectif ». Il y a quelques e
xemples de fin
ancement
collectif au
RU et il est su
r sa lancée aux É.-‐U
. L’idée de ba
se du
finan
cement collectif est q
u’un
group
e de petits investiss
eurs
investiss
ent d
es so
mmes d’argent relativem
ent p
etite
s dan
s des
nouv
elles o
u jeun
es entreprises qui leur plaise
nt. Il ne s’ag
it pa
s d’un
marché réglem
enté com
me le m
arché bo
ursie
r, mais il ressemble plus à
e-‐Ba
y où
vou
s pou
vez v
oir u
ne descriptio
n du
« produ
it » en lign
e et
décider d
e l’acheter. La gran
de différence, c’est que vou
s achetez un
placem
ent p
lutôt q
u’un
objet que vou
s pou
vez tenir d
ans v
os m
ains. Il
n’est p
as garan
ti qu
e vous gag
niez de l’argent a
vec celui que vou
s avez
investi et il y a un risqu
e bien ré
el que vou
s le perdiez en entier. Vo
us
êtes libre de décider si vou
s vou
lez a
ppuyer l’idée parce que vou
s pensez que l’entreprise réussira.
5.
En su
pposan
t que
le m
ontant d’argen
t impliqué
vou
s paraît
raison
nable et que
l’idée
de l’entreprise vous plaît, que
lle est la
prob
abilité que
vou
s investissiez dan
s une
nou
velle ou jeun
e
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
49
entrep
rise pa
r l’entremise d’un
site de fin
ancemen
t collectif
sur l’In
ternet? Ve
uillez évalue
r la prob
abilité que
vou
s investissiez su
r une
échelle de 1 à 10
, où 1 sign
ifie « n’investir
DÉFINITIVEM
ENT PA
S » et 10 sign
ifie « investir
DÉFINITIVEM
ENT ».
__
___
Classemen
t : désire
r investir
<If rating is 1-‐3, sk
ip to
section E (Part 3
), ELSE sk
ip to
section D (Part 2
)
INVE
STISSEURS
DU SEC
TEUR DES
AFFAIRE
S – PO
SSIBILITÉS
DE PLAC
EMEN
TS EXO
NÉR
ÉS SUR LE M
ARCH
É (partie
2, 12 mars 2
013)
D.
INVE
STIR PAR
LE BIAIS DU
FINAN
CEMEN
T CO
LLEC
TIF
1a.
Investir da
ns une
entreprise da
ns un marché no
n réglem
enté
comme celui-‐ci com
porte plusieurs risqu
es poten
tiels. Q
uand
no
us parlons de marché no
n réglem
enté, n
ous v
oulons dire
un
marché de
placemen
ts plus risqu
és. C
ela sign
ifie qu
e vous êtes
plus su
scep
tible de pe
rdre votre argen
t, mais v
ous a
vez la
possibilité d’en gagn
er plus. Aussi, il est parfois difficile de
retirer votre argen
t. L’organism
e de
réglem
entatio
n ne
surveille pas les m
archés non
réglem
entés. À l’aide
de la liste
des risqu
es énu
mérés ci-‐d
essous, veu
illez iden
tifier c
eux qu
i vous préoccupe
nt en ce qui a trait à
l’investiss
emen
t dan
s des
marchés non
réglem
entés p
ar le biais du fin
ancemen
t collectif.
<ran
domize orde
r>
1b.
Que
ls sont les D
EUX risqu
es qui vou
s préoccupe
nt le plus?
1
1 Mes fo
nds s
ont immob
ilisés –
Il se
peu
t que
je
ne
puisse pa
s les re
tirer
2
2 Je ne pe
ux pas ven
dre cet investissemen
t à
qu
elqu
’un d’au
tre
3
3 Po
ssibilité de frau
de
4
4 Les g
ens q
ui fo
nt la promotion de
l’en
trep
rise
peuven
t ne pa
s me do
nner
l’ape
rçu glob
al
5
5 Risque
de pe
rdre m
on argen
t
6 6
J’en sais très peu
sur l’entreprise
7
7 Il n’y a pa
s moyen
de savoir combien
d’argen
t
je gagne
rai, si j’en
gagne
rai
8
8 Au
cune
inform
ation n’est com
mun
iqué
e sur
l’état d
e l’investissemen
t 9
9 Je ne fais pas con
fiance au
x affaire
s con
clue
s
sur l’In
ternet
2.
L’éche
lle ci-‐d
essous m
ontre le m
ontant que
vou
s seriez prêt à
investir en
utilisan
t le fin
ancemen
t collectif. En supp
osan
t que
vous aim
ez les idé
es de l’entreprise po
ur fa
voriser sa
croissan
ce et p
ensez qu
’elle offre un
bon
poten
tiel, qu
elle est
la so
mme maxim
ale qu
e vous se
riez prêt à investir da
ns
chacun
e de
s circ
onstan
ces s
uivantes? <U
se th
ree diffe
rent
slide
r bars w
ith peo
ple assig
ned rand
omly: 0
$ -‐ 2 00
0 $; 0 $ -‐ 4
000 $; and
0 $ -‐ 6 00
0 $. A
llow any value
to be selected
but put
visual m
arkers in as a
ppropriate. R
ando
mize orde
r of a
-‐i>
j. Vo
us con
naissez les propriétaire
s de l’entreprise
k. De
s amis ont investi dan
s l’entreprise et la
recomman
dent
l. Le plan d’affaire
s est très détaillé
m. Vo
tre argent est investi de façon pe
rman
ente – Vou
s ne
pou
vez pa
s le retirer
n. L’en
trep
rise s’attaqu
e à un
e cause en
laqu
elle vou
s croyez
o. L’en
trep
rise a dé
jà d’excellents a
ntécéd
ents
p. Le se
cteu
r d’activité
de l’entreprise
est en pleine
croissan
ce
q. Ch
aque
ann
ée, vou
s recevez un rapp
ort finan
cier
vérifié par un cabine
t com
ptab
le indé
pend
ant
r. L’en
trep
rise ne
dém
arrera pas avant d’avoir accumulé
suffisammen
t de capitaux de placem
ent
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
50
3a.
En con
sidéran
t la somme d’argent poten
tiellemen
t impliqué
e,
deman
derie
z-‐vous des con
seils professionn
els a
vant de
pren
dre la décision d’investir?
1 Oui
2
Non
<Skip to D4>
3 Pa
s certain
<Skip to D4>
3b
. À laqu
elle des personn
es su
ivan
tes s
eriez-‐vous le plus
suscep
tible de de
man
der d
es con
seils?
Choisissez une
répo
nse.
1
Un conseiller q
ui est autorisé
à ven
dre de
s actions
2
Un conseiller/plan
ificateur fina
ncier q
ui ven
d de
s fon
ds
commun
s de placem
ent e
t des
CPG (m
ais p
as des actions)
3
Comptab
le
4
Avocat
5
Autre (veu
illez décrire)
4.
Veuillez é
valuer l’im
portan
ce de chacun
des ty
pes
d’inform
ation suivan
ts pou
r vou
s aider à décider d’in
vestir
dans une
entreprise. Utilisez une
échelle de 1 à 5, où 1 sign
ifie
que l’information « n’est p
as du tout nécessaire
», 3 sign
ifie «
qu’il est bien de
l’avoir »
et 5
sign
ifie qu
’elle est « essen
tielle ».
<ran
domize orde
r>
h. Inform
ation fin
ancière sur l’entreprise
i. Plan
d’affa
ires d
étaillé, y com
pris les p
rodu
its/services
clés
j. Inform
ation sur les propriétaire
s et les promoteu
rs de
l’entreprise, y com
pris des vérificatio
ns des casiers
judiciaires e
t des infractio
ns aux lois su
r les valeu
rs
mob
ilières
k. Inform
ation fournie an
nuellemen
t sur l’état de
l’entreprise
l. Le m
ontant que
les p
ropriétaire
s et les dirigean
ts
recevron
t pou
r leu
r travail accompli
m. Ce
que
l’en
trep
rise fera de l’argen
t obten
u de
s investisseurs
n. Risque
s liés à
l’investiss
emen
t dan
s l’entreprise
5a.
Lequ
el des éno
ncés su
ivan
ts décrit le m
ieux votre cap
acité
à
compren
dre l’état finan
cier
d’un
e en
trep
rise? [coche
z un
e répo
nse]
1
Je ne sais pas ce qu
’est un état fina
ncier
2.
Je ne les c
ompren
ds pas
3
Je com
pren
ds les b
ases
4
Je les c
ompren
ds assez bien po
ur juger à
que
l point ils
sont crédibles
5b.
<Ask ONLY if D4a is ra
ted 4 or 5> Lesque
ls de
s types su
ivan
ts
d’inform
ation fin
ancière considérez-‐vou
s être de
«
l’information fin
ancière fia
ble »? Coche
z toutes les rép
onses
qui correspon
dent.
1
Un état fina
ncier p
répa
ré par le com
ptab
le de
l’entreprise
2
Un état fina
ncier v
érifié pa
r un cabine
t com
ptab
le
indé
pend
ant
3
Une
déclaratio
n de
revenu
s de l’entreprise présen
tée à
l’Agence du
revenu
du Ca
nada
(ARC
)
4 Au
cune
de ces rép
onses
5c.
<Ask only if D4
c is rated 4 or 5> Lesque
ls de
s types
d’inform
ation suivan
ts su
r les propriétaire
s ou prom
oteu
rs de
l’entreprise dé
sirez-‐vous voir a
vant de dé
cide
r d’in
vestir?
Co
chez to
utes les rép
onses q
ui correspon
dent.
1
Antécéde
nts e
t expérience de
l’en
trep
rise
2
Faillite
s ou insolvab
ilités p
récéde
ntes
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
51
3
Vérification de
s antécéd
ents, y com
pris le casier
judiciaire et les infractio
ns aux lois su
r les v
aleu
rs m
obilières
4
Aucune
de ces rép
onses
6.
Lesque
ls de
s moyen
s suivants s
eriez-‐vous prêt à
utilise
r pou
r investir da
ns une
nou
velle ou jeun
e en
trep
rise? <Oui, N
on, Pas
certain – Ra
ndom
ize orde
r of m
etho
ds>
a.
Sur l’In
ternet sa
ns dem
ande
r de conseils en utilisant le
site Web
de l’entreprise
qui
cherche de
s fon
ds d’in
vestissemen
t
b.
Sur l’In
ternet sa
ns dem
ande
r de conseils en utilisant le
site Web
qui offre
l’investissemen
t dan
s plusie
urs e
ntreprise
s différen
tes
c.
Sur l’In
ternet, m
ais e
n de
man
dant les c
onseils d’un
conseiller finan
cier
d.
Par l’entremise
de mon
con
seiller fina
ncier h
abitu
el
sans utilise
r l’In
ternet
7.
<ONLY present m
etho
ds th
at were marked ‘Non
’ or ‘Pa
s certain’ in
D6>
Une
« notice d’offre » fournit d
es
renseign
emen
ts de ba
se su
r une
entreprise. Elle don
ne aussi
plusieurs d
roits de pren
dre de
s mesures si l’en
trep
rise se
représen
te fa
ussemen
t, mais il est proba
blem
ent n
écessaire
d’en
gager u
n avocat dan
s ce cas-‐ci. En supp
osan
t qu’un
e no
tice d’offre était d
ispo
nible, se
riez-‐vous prêt à
investir en
utilisant cha
cun de
s moyen
s suivants?
a.
Sur l’In
ternet sa
ns dem
ande
r de conseils en utilisant le
site Web
de l’entreprise
qui
cherche de
s fon
ds d’in
vestissemen
t
b.
Sur l’In
ternet sa
ns dem
ande
r de conseils en utilisant le
site Web
qui offre
l’investissemen
t dan
s plusieu
rs entreprises différen
tes
c.
Sur l’In
ternet, m
ais e
n de
man
dant les c
onseils d’un
conseiller finan
cier
d.
Par l’entremise
de mon
con
seiller fina
ncier h
abitu
el
sans utilise
r l’In
ternet
8.
À qu
el point pen
sez-‐vous qu’il est risq
ué d’in
vestir da
ns des
nouvelles o
u jeun
es entreprises? Utilisez une
échelle de 1 à 5,
où 1 sign
ifie « faible risque
», 3 sign
ifie « risqu
e moyen
» et 5
sig
nifie
« risque
élevé »?
__
__ Classem
ent d
u risqu
e
9.
Et fina
lemen
t, si vous pou
viez obten
ir l’information qu
e vous
avez iden
tifiée comme étan
t impo
rtan
te re
lativ
emen
t au choix
du m
omen
t et a
ux risque
s liés à
l’investissemen
t dan
s une
no
uvelle ou jeun
e en
trep
rise, que
l mon
tant se
riez-‐vous prêt à
investir?
Diriez-‐vou
s...
0
Rien
du tout
1 1 $ -‐ 5
00 $
2
500 $ -‐ 9
99 $
3
1 00
0 $ -‐ 1
999
$
4
2 00
0 $ -‐ 3
499
$
5
3 50
0 $ -‐ 4
999
$
6
5 00
0 $ -‐ 9
999
$
7
10 000
$ ou plus
9
Ne sais pa
s/pa
s certain
<Add
closin
g an
d than
k you>
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
52
NON-‐IN
VESTISSEURS
– POSSIBILITÉS DE PLAC
EMEN
TS
EXONÉR
ÉS SUR LE M
ARCH
É (partie
3, 12 mars 2
013)
E.
PAS INTÉRE
SSÉ À INVE
STIR DAN
S LES PE
TITES OU
MOYENNES ENTR
EPRISES
1.
Que
lles s
ont les trois raisons prin
cipa
les p
our lesqu
elles v
ous
n’êtes pas intéressé à investir da
ns les n
ouvelles o
u jeun
es
entrep
rises? <N
ote: Use E2 for c
oding. W
e will provide
ad
ditio
nal cod
es fo
r other categories>
a. __
____
____
____
____
____
____
____
____
______
____
____
b.
__
____
____
____
____
____
____
____
____
____
____
____
_ c.
__
____
____
____
____
____
____
____
____
____
____
____
__
2a.
Lesque
lles d
es ra
isons su
ivan
tes e
xplique
nt pou
rquo
i vou
s n’êtes pas prêt à
investir da
ns des nou
velles o
u jeun
es
entrep
rises? Ch
oisissez to
utes les rép
onses q
ui correspon
dent.
<ran
domize orde
r>
2b.
LAQUELLE de ces raisons explique
LE MIEUX po
urqu
oi vou
s n’êtes pas prêt à
investir?
1 1
Mes fo
nds s
ont immob
ilisés –
Il se
peu
t que
je
ne
puisse pa
s les re
tirer
2
2 Je ne pe
ux pas ven
dre cet investissemen
t à
qu
elqu
’un d’au
tre
3
3 Po
ssibilité de frau
de
4
4 Les g
ens q
ui fo
nt la promotion de
l’en
trep
rise
peuven
t ne pa
s me do
nner
l’ape
rçu glob
al
5
5 Risque
de pe
rdre m
on argen
t
6 6
J’en sais très peu
sur l’entreprise
7
7 Il n’y a pa
s moyen
de savoir combien
d’argen
t
je gagne
rai, si j’en
gagne
rai
8
8 Au
cune
inform
ation n’est com
mun
iqué
e sur
l’état d
e l’investissemen
t
9
9 Je ne fais pas con
fiance au
x affaire
s par
l’entremise de
l’Internet
3.
Veuillez é
valuer votre intérêt à
investir da
ns les fon
ds
commun
s de placem
ent o
u fond
s de placem
ent n
on
réglem
entés à
l’aide
d’une
échelle de 1 à 10
, où 1 sign
ifie « pa
s du
tout intéressé » et 10 sign
ifie « très intéressé ». Par fo
nds
non réglem
enté, n
ous v
oulons dire
tout fo
nds q
ui présente de
s risqu
es plus é
levés. Cela sign
ifie qu
e vous êtes p
lus s
usceptible
de perdre votre argent, m
ais v
ous a
vez la possibilité d’en
gagn
er plus. Aussi, il est parfois difficile de retirer votre argen
t. L’organism
e de
réglem
entatio
n ne
surveille pas ces fo
nds n
on
réglem
entés.
__
___ Classemen
t (1-‐10
) 4.
<Ask only if E3 is ra
ted 7-‐10
, Else Skip to
E5>
Vou
s paraîtrait-‐il
raison
nable d’investir da
ns des fo
nds n
on ré
glem
entés d
es
façons su
ivan
tes? Coche
z toutes les rép
onses q
ui
correspo
nden
t.
1 Sur l’In
ternet sa
ns dem
ande
r de conseils en
utilisa
nt le
site Web
du fond
s 2
Sur l’In
ternet sa
ns dem
ande
r de conseils en
utilisa
nt le
site Web
qui offre l’investissemen
t dan
s plusie
urs
fond
s différen
ts
3
Sur l’In
ternet, m
ais e
n de
man
dant les c
onseils d’un
conseiller finan
cier
4
Par l’entremise
de mon
con
seiller fina
ncier h
abitu
el
sans utilise
r l’In
ternet
8
Aucune
de ces rép
onses
<Skip to Closing
> 5.
<Ask only if E3 is ra
ted 1-‐4>
Lesqu
elles d
es ra
isons énu
mérée
s
ci-‐dessous explique
nt pou
rquo
i vou
s n’êtes p
as intéressé à
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
53
investir da
ns des fo
nds n
on ré
glem
entés? Cho
isissez toutes les
répo
nses qui correspon
dent. <rand
omize orde
r>
1
Je peu
x avoir d
e la difficulté à re
tirer m
on argen
t
2 Je ne conn
ais p
as assez bien les fon
ds non
réglem
entés
po
ur m
e sentir à l’aise d’investir
3
Possibilité de frau
de
4
Les g
ens q
ui fo
nt la promotion du
fond
s peu
vent ne
pas
me do
nner l’ap
erçu globa
l
5 Risque
de pe
rdre m
on argen
t
7 Il n’y a pa
s moyen
de savoir combien
d’argen
t je
gagn
erai, si j’en gagn
erai
8
Autres ra
isons (veu
illez les d
écrire)
__
____
____
____
____
____
____
____
__
<A
dd closing
and
than
k yo
u>
>
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
54
APPE
NDIX B.
CROWDF
UNDING – LITER
ATURE
REV
IEW – 01-‐28
-‐2013
The literature review
was con
ducted
during the mon
th of Jan
uary 201
3 on
the topic of ‘crowdfun
ding
’. Crowdfun
ding
is quite a new
area of acade
mic
research and
stud
y on
ly dating ba
ck to
a cou
ple of years. Most o
f the
research th
at has bee
n cond
ucted so fa
r, concen
trates predo
minately on
the topic
of crowdsou
rcing. The
literature includ
ed in th
is re
view
is fo
cused on
‘equ
ity-‐based
’ crowdfun
ding
. Tw
o clear a
nd con
cise definition
s of crowdfun
ding
are:
the “practice of m
any (i.e. crowds of) peop
le investing sm
all amou
nts o
f mon
ey over the Internet in early-‐stage businesses in exchan
ge fo
r equ
ity interests
that are not re
gistered with
the Securities a
nd Excha
nge Co
mmiss
ion (an exchan
ge com
miss
ion)”.
i
“The use of the internet to
raise
mon
ey th
roug
h sm
all con
tributions from
a large nu
mber o
f investors”ii
Amon
g the literature review
it is gen
erally accep
ted that crowdfun
ding
will provide
small business a
nd entrepren
eurs with
an alternative metho
d to
raise capital outside
of traditio
nal ban
k loan
s and
credit, an
d relying on
friend
s and
family. Crow
dfun
ding
introd
uces an en
tirely ne
w m
etho
d of ra
ising
capital tha
t offe
rs investing op
portun
ities to
peo
ple ou
tside of th
e accred
ited investor exemption an
d provides investmen
t opp
ortunitie
s tha
t have
form
erly not bee
n available to th
em. It is also accepted
that crowdfun
ding
will attract a num
ber o
f unsop
histicated
and
novice investors s
igna
lling
the
need
for full and
fair disclosure stan
dards e
specially th
ose pe
rtaining
to risk and
investor protection. A
t the
same tim
e, re
gulatio
ns can
not b
e overly
burden
some an
d costly th
at entrepren
eurs and
small businesses a
re barred from
participating in crowdfun
ding
. Th
e literature is organ
ized
und
er fo
ur
main them
es:
1. Inform
al Investors;
2. Crow
dfun
ding Overview;
3. Re
gulatory; and
4.
Ad
ditio
nal sou
rces of interest from th
e med
ia and
acade
mia.
To highlight a fe
w key points from th
e literature review
, the
re are tw
o markets fo
r crowdfun
ding
: seed mon
ey outsid
e of friend
s/family and
the gap
betw
een an
gel investors and
ven
ture cap
italists. Some sectors m
ay be more suita
ble to crowdfun
ding
than
others, in particular con
sumer-‐fa
cing
prod
ucts versus tho
se with
com
plex intellectua
l prope
rty an
d specialized
techno
logy.
The Bron
desbury Group Exempt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
55
For the
crowdfun
ding
investor, the
re are intrinsic
and
extrin
sic m
otivators involved. Intrin
sic m
otivators relates to
pleasure of doing
a certain ta
sk. (i.e.
recogn
ition
, persona
l satisfaction, excite
men
t in be
ing involved
in a start-‐up
). Extrin
sic motivators a
re externa
l rew
ards. In th
e case of e
quity
crow
dfun
ding
this is profit-‐driv
en and
can
also includ
e bu
ilding ne
tworks and
relatio
nships. M
otivators to pa
rticipate in crowdfun
ding
, as a
n en
trep
rene
ur/small business o
wne
r, includ
e the fin
ancial statem
ent (raising capital/finan
cial goa
l); pub
lic atten
tion that arises aroun
d the project; an
d ob
taining feed
back abo
ut th
e prod
uct/service offered. A
gain, w
e see bo
th intrinsic an
d extrinsic motivators a
t play.
Success o
f traditio
nally-‐fu
nded
ven
tures is o
ften
linked
to geo
grap
hy. Bo
th ang
el investors a
nd VC invests in a bu
sine
ss th
at is on average 50
km close to
ho
me or office. Wha
t role will th
e geog
raph
y of investors p
lay in crowdfun
ding
? Ac
cording to th
e literature, locatio
n proxim
ity se
ems to be
the case
amon
g crow
dsou
rcing projects.
From
a re
gulatory point of view, a m
ain challeng
e will be ba
lancing the interests o
f the
entrepren
eur/SM
E an
d the crow
dfun
ding
investor. Setting
disclosure re
quire
men
ts th
at are fu
ll, fa
ir an
d cost efficien
t while protecting investors from th
e inhe
rent risks involved in crowdfun
ding
investing will be
key. Interm
ediarie
s can
play a role with
com
pliance. Self-‐p
olicing capa
bilities o
f crowd may also play an im
portan
t role in oversight via fo
rums,
discussion
s boa
rds, re
view
s, and
project ra
ting sche
mes th
at will help wee
d ou
t fraud
ulen
t players.
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
56
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
INFO
RMAL
INVE
STORS
Investmen
t Pattern of Informed
Investors in the Albe
rta Private
Equity M
arket
http://w
ww.ic.gc.ca/eic/site
/061
.nsf
/vwap
j/Practicesan
dPatterns_e.pd
f/$FILE/Practicesan
dPatterns_e.pd
f
Robinson
, Micha
el J. and
Th
omas J. Cottrell
Journa
l of Small B
usiness
Man
agem
ent 2
007
45(1), pp
.47-‐67
“This s
tudy identifies three m
ain types o
f inform
al investors in private equity m
arkets:
relatio
nship investors, opp
ortunity-‐based
investors, and
ang
el investors. W
e fin
d evidence
that th
e first tw
o investor ty
pes a
re a m
ajor
total sou
rce of cap
ital and
they prefer to invest sm
aller a
mou
nts c
lose to
ho
me an
d in th
e context o
f existing
relatio
nships. W
ith re
spect to an
gel investors,
we fin
d evidence of stratificatio
n in th
eir d
esire
d investment a
mou
nt which is con
sistent with
a
mod
el where th
eir investm
ents evolve thou
gh a
life cycle of investing. W
e also find
evidence that
chan
ges to capital m
arket regulations th
at
allow fo
r low
er investment a
mou
nts b
y this type
of investor increase th
e am
ount of cap
ital
available for e
arly-‐stage firm
s.”
• Co
mpa
nies th
at ra
ise cap
ital throu
gh priv
ate
equity te
nd to
be in early-‐stage of b
usiness.
• Risks to investors include
: techn
olog
ical risk
(cap
ability of firm
to brin
g prod
uct to market);
market risk
(customer dem
and, ado
ption an
d compe
tition); agency risk (in
form
ation
asym
metry between man
agem
ent a
nd its
investors).
• Form
al investors (institu
tiona
l) are be
lieved to
care m
ore ab
out m
arket risk
than
agency risk.
To m
itigate m
arket risk
, investors sp
ecialize in
certain indu
strie
s. Inform
al investors a
re less
concerne
d with
weaker m
anagem
ent /marketin
g expe
rtise
of firm
as c
ompa
ny can
hire
these as
firm m
atures and
business n
eed de
velops.
Preferen
ce is to
invest with
entrepren
eurs with
strong te
chno
logy sk
ills. A
pproach: “bu
y an
d grow
” •
Inform
al investors s
creen more on
agency than
market risk
and
rely m
ore on
their n
etwork to
gather inform
ation ab
out investin
g op
portun
ities. Th
ey put m
ore diligen
ce on
assessing man
agerial skills vs. te
chno
logical
soph
istication. A
pproach: “bu
y an
d watch”
• An
othe
r type of inform
al investor is th
e “buy
an
d ho
pe”. This type of investor has less
investmen
t cap
ital tha
n the typical angel
investor and
doe
s not actively seek out
investmen
t opp
ortunitie
s but th
ey do represen
t an
impo
rtan
t poo
l of cap
ital available.
• Re
lativ
ely little
research has been do
ne on the
investmen
t beh
aviour of e
arly-‐stage investors .
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
57
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
This is th
e type
of inv
estor c
rowdfun
ding
will
target.
• Inform
al investors p
refer to invest close to
hom
e •
Inform
al investors p
refer to invest whe
re th
ere is
an existing relatio
nship.
• Inform
al investors p
refer to invest in indu
strie
s they und
erstan
d.
• Inform
al investors p
refer to invest in firm
s with
more tangible assets.
• Early
-‐stage angel investors c
ontribute sm
aller
amou
nts to diversify agency risk .
• Governm
ent regulations th
at lower m
inim
um
investmen
t for inform
al investors w
ill increase
the nu
mbe
r of ind
ividua
ls in th
e marketplace
and total cap
ital invested.
• Inform
al investors a
re a larger so
urce of cap
ital
at early-‐stage firm
s tha
n institu
tiona
l (form
al)
investors.
• An
overlo
oked
category of inform
al investor is
the no
vice angel. Th
ey to
o invest in early stage
but a
re not as b
ias tow
ards firm
s in ho
me
province.
Practices and
Patterns o
f Informal
Investors
http://w
ww.ic.gc.ca/eic/site
/061
.nsf
/vwap
j/Practicesan
dPatterns_e.pd
f/$FILE/Practicesan
dPatterns_e.pd
f
Riding, D
r. Allan
Principa
l, Eq
uino
x Professor o
f Finan
ce
Scho
ol of B
usiness
Carle
ton University
Ottaw
a, ON
Stud
y looks a
t cha
racteristics, practices,
patterns and
perspectiv
e of Can
adian inform
al
investors (private eq
uity investors). Provides
upda
ted profile of typical individu
al investor
(age, edu
catio
n, occup
ation, fina
ncial traits);
private eq
uity investmen
t patterns (siz
e, se
ctor,
stage, freq
uency); investors’ experience of
private eq
uity investmen
t opp
ortunitie
s in
Cana
da. Special focus on SM
E’s. Total of 6
1 pa
rticipan
ts across C
anad
a.
• M
ajority
of informal investors h
ave a po
st/and
or
unde
rgradu
ate de
gree. Most com
mon
professio
nal designa
tions amon
g pa
rticipan
ts are
C.A.s a
nd professiona
l engineers.
• It is likely that inform
al investors a
re “repe
at”
private eq
uity investors. O
ver 7
0% invest in at
least o
ne inform
al investmen
t every tw
o or th
ree
years a
nd one
-‐third invest se
veral tim
es ann
ually.
On average, investors rep
ort h
aving slightly
less
than
$1M
M available for e
ach private eq
uity
investmen
t. • Software de
als a
re m
ost p
opular, b
ut average size
of each de
al te
nds to be
small. De
als in fin
ance
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
58
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
and real estate sector accou
nt fo
r a
dispropo
rtiona
te amou
nt invested
. • Investors invest in multip
le se
ctors.
• Investmen
ts m
ade pred
ominately at se
ed and
start-‐up
stages.
• Investmen
ts te
nd to
be local. 68%
of d
eals located
with
in 50km to
investor’s hom
e or office.
• Po
tential investm
ent o
pportunitie
s com
e mainly
through referrals from business a
ssociates
(accou
ntan
ts, b
ankers, law
yers, o
ther investors).
Investors a
re often
app
roache
d with
op
portun
ities.
• Investors a
re looking for o
pportunitie
s with
the
right peo
ple; with
market p
oten
tial and
whe
re
they can
add
significant value
.
• Inform
ation/du
e diligen
ce investors p
erform
includ
e review
of finan
cial statem
ents;
projectio
ns; m
eet w
ith prin
cipa
ls; con
duct
inform
al re
ference checks on principa
ls’ track
record. Others h
ire te
am of legal, accou
ntan
ts to
scrutin
ize de
als.
• Investors h
ave expe
ctation of high rate of returns
and exit tim
e expe
ctations. Th
e majority
will look
to exit investm
ent w
ithin 3 – 5 years. Po
tential
exit type
s are IPOs; acquisitions; b
uy-‐backs;
second
ary sale; and
write-‐offs.
• SM
Es are ill-‐p
repa
red to attract priv
ate
investmen
t. •
They have un
derdevelop
ed business p
lans.
• Po
orly develop
ed ideas a
bout m
arkets and
revenu
e stream
s.
• Inab
ility to
man
age commercialization
process.
• Th
ey te
nd to
have un
willingness to relinqu
ish
control and
expect tha
t large investmen
ts
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
59
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
from
outsid
e will com
e with
little
interferen
ce from
investors.
• En
trep
rene
urs ten
d to overvalue
the idea and
un
dervalue
fina
ncial and
non
-‐fina
ncial m
eans
requ
ired to grow and
develop
a business.
CR
OWDFU
NDING OVE
RVIEW
The Ve
nture Crow
d: Crowdfun
ding
Equity In
vestmen
t Into Bu
siness
http://w
ww.nesta.org.uk/library/do
cumen
ts/The
VentureC
rowd.pd
f
Collin, Liam and
Yan
nis
Pierrakis
Nesta Ope
ratin
g Co
mpa
ny
Nesta 201
2
Crow
dfun
ding is big business. The
idea of
finan
cing projects o
r businesses w
ith sm
all
contrib
utions from
large nu
mbe
rs of p
eople is
catching on in a big way and
now
accou
nts for
significan
t amou
nts. In 20
11 alone
, $1.5 billion
was ra
ised through crow
dfun
ding fo
r projects
and bu
sinesses in ne
ed of fun
ds. Not only do
es
the mod
el provide
fina
nce bu
y also access to a
large nu
mbe
r of p
eople who
can
test and
market a
n idea. Crow
dfun
ding ta
kes a
num
ber
of differen
t forms, th
e most successful of w
hich
has b
een the reward-‐ba
sed mod
el whe
re
participan
ts re
ceive no
n-‐fin
ancial re
wards in
exchan
ge fo
r don
ating to a project. Th
e mod
el
effectively ha
rnesses n
ot only the contrib
utors’
desire for the
reward bu
t also
the intrinsic
or
social m
otivation to back a project. Other fo
rms
of th
e mod
el are, h
owever, also
growing
rapidly. The
most recen
t of the
se is equ
ity
crow
dfun
ding, w
here individu
als receive sm
all
stakes in a priv
ately ow
ned youn
g bu
siness in
return fo
r investm
ent.
While equ
ity crowdfun
ding sh
ares m
any
features of the
reward mod
el, o
ne significant
diffe
rence is the combina
tion of both fin
ancial
• Tw
o markets fo
r crowdfun
ding are se
ed m
oney
outside of friend
s/family and
the gap be
tween
angel investors and
ven
ture cap
. •
First step of crowdfun
ding process is gettin
g on
to
platform
. Platform
ope
rators re
view
plan an
d some level of vettin
g is do
ne. Some vetting
dimen
sions are likelihoo
d of frau
d, re
putatio
n of
entrep
rene
ur(s), an
d suita
bility to crowdfun
d.
Some platform
s will con
duct due
diligence on
ce
target fu
nding ha
s been reache
d bu
t before
release of cap
ital. Pitche
s are th
en uploa
ded for
prospe
ctive investors to brow
se. Usually video
or
text explains b
usiness m
odel, o
wne
r backgroun
d,
how m
uch capital is s
ought, pu
rpose of cap
ital for
and ho
w m
uch eq
uity is being offe
red.
• Increased interaction be
tween en
trep
rene
ur and
po
tential investors m
ay be via forums o
n platform
, em
ails, m
eetin
gs to
upd
ate fund
raising progress.
• Th
e ‘all-‐or-‐nothing’ m
odel – com
pany se
ts fu
nding
date (fun
ding windo
w) to meet target o
f raisin
g capital. If deadline is no
t met, receives n
othing
and mon
ey is re
turned
to investors. Cap
ital raised
cann
ot exceed target amou
nt.
• Fees th
at are cha
rged
are m
ost d
epen
dent on
success o
f fun
ding. A fixed
percent is cha
rged
if
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
60
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
and no
n-‐fin
ancial m
otives fo
r investin
g. The
mod
el also
differs form other fo
rms o
f equ
ity
finan
cing. Crow
dfun
ded bu
sinesses d
o no
t have
to adh
ere to th
e stric
t accou
nting stan
dards
requ
ired of pub
lic com
panies and
unlike othe
r risk capital provide
rs, crowdfun
ding investors
may have no
experience in m
aking such
investmen
ts.
Repo
rt Con
tents:
1.
The rise of crowdfun
ding
2.
Wha
t is e
quity
crowdfun
ding?
3.
The market o
pportunity fo
r equ
ity
crow
dfun
ding
4.
Th
e crow
dfun
ding m
odel fa
ces s
everal
challenges
5.
The future fo
r the
mod
el
6.
Endn
otes
target is re
ache
d. Som
e platform
s also
cha
rge an
investor fe
e.
• Tran
sfer of m
oney to
entrepren
eur is throu
gh
escrow
accou
nt. Som
e platform
s (i.e. Seedres)
operate a no
minee and
man
agem
ent system
represen
ting interests o
f investors.
• Th
ere is varia
tion across sites in term
s of investor
votin
g rig
hts.
• Some sectors m
ay be more suita
ble to
crow
dfun
ding th
an others. (i.e. con
sumer –facing
busin
ess v
s. com
plex IP or v
ery high-‐tech).
• Difficult to se
t valua
tions as a
ssets m
ay be in fo
rm
of intellectua
l prope
rty an
d valuations based
on
future of m
arket size, com
petition, re
venu
e etc.
Idea is to
ben
chmark valuations against similar
busin
esses o
n the platform
. •
German
platform (Inn
ovestm
ent) ope
rates o
n market-‐driven
app
roach. Investors bid fo
r sha
res
wha
t the
y are willing to pay. Th
ose that pay th
e most g
et in on the de
al.
• Frau
d de
tection metho
ds includ
e platform
pre-‐
vets business b
efore laun
ching; staggered release
of fu
nds linked to m
ileston
es; crowd vetting via
discussio
n forums to commen
t on qu
ality
and
validity
of lau
nche
d prop
osals.
• Signalling an
d he
rding is a prob
lem with
group
-‐ba
sed de
cisio
n system
. Visib
ility of investor type
and motivation to invest cou
ld offs
et th
is.
Potential a
reas fo
r future research:
• How
effe
ctive is the crow
d at evaluating po
tential
of you
ng business?
• Wha
t types of b
usiness d
oes the
crowdfun
d mod
el
work be
st fo
r?
• Wha
t is b
alan
ce between fin
ancial and
non
-‐fin
ancial m
otivations of e
quity
crowdfun
ders and
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
61
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
how doe
s this a
ffect th
e op
eration of th
e mod
el?
• Wha
t ran
ges o
f fun
ding can
equ
ity crowdfun
ding
raise
for b
usiness?
• Wha
t levels o
f return can eq
uity crowdfun
ding
deliver?
• Wha
t are th
e be
st ways o
f harne
ssing the crow
d of
investors to assis
t with
business d
evelop
men
t?
• How
successful are business a
t raisin
g follow-‐on
capital after crowdfun
ding?
•
CROWDFU
NDING OF SM
ALL
ENTR
EPRE
NEU
RIAL
VEN
TURE
S http://pap
ers.ssrn.com
/sol3/pa
pers.
cfm?abstract_id=1
6991
83
Schw
ienb
ache
, Arm
in
and Be
njam
in Larralde
Book cha
pter, H
andb
ook
of Entrepreneuria
l Fina
nce (Oxford
University
Press)
Septem
ber 2
8, 201
0
In th
is chap
ter, we discuss c
rowdfun
ding as a
n alternative way of finan
cing projects, with
a
focus o
n sm
all, en
trep
rene
urial ven
tures. The
structure of th
e remaining cha
pter is as follows.
The ne
xt se
ction provides a descriptio
n of
crow
dfun
ding and
disc
usses e
xisting research
on th
e topic. The
follow-‐up section pu
ts
crow
dfun
ding into perspectiv
e of
entrep
rene
urial finan
ce and
thereb
y de
scrib
es
factors a
ffecting en
trep
rene
urial preferences
for c
rowdfun
ding as s
ource of fina
nce.
Thereafter, w
e elab
orate diffe
rent business
mod
els u
sed to ra
ise m
oney from
the crow
d, in
particular with
respect to the structure of th
e crow
dfun
ding process. B
uilding on
this
discussio
n, we presen
t and
disc
uss e
xten
sively a
case stud
y, nam
ely Media No Mad
(a French
start-‐up
). Fina
lly we conclude
with
recommen
datio
ns fo
r entrepren
eurs se
eking to
make use of crowdfun
ding and
with
suggestio
ns
for researche
rs abo
ut yet une
xplored aven
ues
of re
search.
• Crow
dfun
ding is fina
ncing of a project or a
ven
ture
by a group
of ind
ividua
ls instead professio
nal
parties (ba
nks, ven
ture cap
italists or b
usiness
angels). Th
e typical m
ode of com
mun
ication in
crow
dfun
ding is via internet.
• Intrinsic
and
extrin
sic m
otivators for investing in
crow
dfun
ding projects. Intrin
sic m
otivation
relates to pleasure of d
oing a certain ta
sk. (i.e.
recognition
, persona
l satisfactio
n, excite
men
t in
being involved
in a start-‐up
) Extrin
sic m
otivator
is external re
ward such as m
oney or g
oods or
building ne
twork/relatio
nships.
• Other m
otivators for ra
ising m
oney via
crow
dfun
ding is th
e pu
blic atten
tion an
d validation for p
rodu
ct before bringing it to
market.
• “W
isdom
of crowd” m
eans th
at crowds m
ay be
more efficient th
an individu
als to offer solutions.
These are aggregated
by crow
d an
d offer b
etter
solutio
ns (‘collective intelligence’). Kno
wledge
becomes m
ore im
portan
t as c
ommun
ities sh
are
it.
• Investors w
ill need access to
same level of
inform
ation to base investing de
cisio
ns.
• Vo
ting po
wer can
be given to crowdfun
ders fo
r
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
62
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
specific de
cisio
ns abo
ut produ
ct
desig
n/corporate strategies. Not likely to
be
man
ageable for a
ny kind of m
anagerial decision
. •
Not-‐fo
r-‐profit organizatio
ns te
nd to
be more
successful (focus m
ore on
qua
lity than
profit
alon
e) in achieving fu
ndraising ta
rgets tha
n for-‐
profit compa
nies.
• Th
ere are concerns re
latin
g to intellectua
l prop
erty rights. En
trep
rene
ur will have to
disclose ideas to pu
blic/crowd in advan
ce,
creatin
g IP risks –
will th
is de
ter som
e from
tapp
ing the crow
d, especially in sp
ecialized
, highly te
chnical com
panies?
Crow
dfun
ding:
The New
Frontier for Finan
cing
Entrep
rene
urship?
http://pap
ers.ssrn.com
/sol3/pa
pers.
cfm?abstract_id=2
1574
29
Giudici, G
iancarlo,
Riccardo
Nava,
Cristina Ro
ssi Lam
astra
and
Chiara Verecon
do
Depa
rtmen
t of
Man
agem
ent,
Prod
uctio
n an
d Indu
stria
l Engineerin
g Po
litecnico di M
ilano
Via Lambruschini 4 –
2015
6 Milano
ITAL
Y
Purpose: This p
aper aim
s to take stock of th
e extant kno
wledge on
an em
erging practice in
the en
trep
rene
urial finan
ce land
scap
e:
crow
dfun
ding
, which se
ems to play an
increasin
g im
portan
t role for the
seed
fina
ncing
of entrepren
euria
l projects. W
e provide a
system
atization of wha
t it is k
nown on
this
them
e, which can
be useful to
scho
lars,
practitione
rs, and
policym
akers interested in
the ph
enom
enon
from
differen
t angles.
Design/metho
dology/app
roach: Ado
pting a
phen
omen
on-‐based
app
roach, which is deemed
to be ap
prop
riate whe
n investigating ne
w and
rather une
xplored ph
enom
ena, we first re
view
the em
ergent literature on the them
e to single
out the
aspects th
at so
far h
ave attracted the
bulk of scholarly interest. The
n, we compa
re th
e crow
dfun
ding with
other fo
rms o
f en
trep
rene
urial finan
ce. Finally, w
e offer a
first
survey on Ita
lian crow
dfun
ding
platform
s.
Orig
inality
/value
: The
pap
er will add
value
to
• Crow
dfun
ding is “an
ope
n call, essen
tially
through the internet, for th
e provision
of
finan
cial re
sources e
ither in fo
rm of d
onation or
in excha
nge for som
e form
of rew
ard an
d/or
votin
g rig
hts in orde
r to supp
ort initia
tives fo
r specific pu
rposes.”
• “G
ettin
g large grou
p of peo
ple to fina
nce a
project b
y using a web
site or other online tool to
solicit fund
s.”
• Crow
dfun
ding is m
oving from
embryonic stage
to growth stage.
• Ex post facto crowdfun
ding is whe
n fin
ancial
supp
ort is g
iven
in excha
nge for a
produ
ct.
• Ex ante crow
dfun
ding is whe
n fin
ancial su
pport
is given at fron
t end
to assist in achieving a
mutua
lly desire
d result.
• Success o
f crowdfun
ding so
far is d
ue to
the
shortage of cap
ital invested as a re
sult of th
e glob
al fina
ncial crisis an
d cred
it crun
ch in lend
ing
(deb
) to sm
all business. Evolutio
n of W
eb 2.0
techno
logies also
a fa
ctor.
• M
ain reason
s entrepren
eur e
ngage in
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
63
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
entrep
rene
urial finan
ce field by sy
stem
atizing
extant kno
wledge on
crowdfun
ding, w
hich
appe
ars to be
fragmen
ted an
d still in a pre-‐the
oretical stage.
Practic
al im
plications: The
outcomes of the
pa
per m
ight be useful fo
r perspectiv
e en
trep
rene
urs, who
are con
sidering
crow
dfun
ding to
fina
nce their v
entures, to
po
licym
akers tha
t are called to re
gulate
crow
dfun
ding (B
ellefla
mme et al, 20
11) a
re th
e fin
ancing statem
ent; pu
blic atten
tion that arises
arou
nd th
e project; feed
back abo
ut th
e prod
uct/service offered.
• Ad
ditio
nal m
otivators (Gerger e
t al, 20
11)
includ
e estab
lishing re
latio
nships; receiving
legitim
acy; re
plicating successful experiences,
and increasin
g aw
aren
ess a
bout crowdfun
ders’
work through social m
edia.
• Crow
dfun
ding platforms (CFPs) a
re m
ulti-‐sid
ed
platform
s tha
t are “en
abling organizatio
ns” by
conn
ectin
g en
trep
rene
urs a
nd investors. The
re is
direct interaction with
investors. Platforms
provide inform
ation an
alysis, ra
ting or re
view
by
specialists.
• CFPs im
portan
t an role in start-‐up
ven
tures b
ut
don’t rep
lace VC. V
Cs offe
r add
ition
al value
to
entrep
rene
ur by offerin
g man
agem
ent sup
port,
marketin
g efforts, networking, and
post-‐fin
ance
mon
itorin
g.
• At th
e presen
t mom
ent, crow
dfun
ding has
emotiona
l and
social value
. Th
e Dy
namics o
f Crowdfun
ding:
Determ
inan
ts of Success and
Failure
http://pap
ers.ssrn.com
/sol3/pa
pers.
cfm?abstract_id=2
0882
98
Mollick, Ethan
Th
e Wha
rton
Schoo
l of
the University
of
Penn
sylvan
ia
July 25, 201
2
Crow
dfun
ding allows fou
nders o
f for-‐profit,
artistic, and
cultural ven
tures to fund
their
efforts b
y draw
ing on
relativ
ely sm
all
contrib
utions from
a re
lativ
ely large nu
mbe
r of
individu
als u
sing the internet, w
ithou
t stand
ard
finan
cial interm
ediarie
s. Crowdfun
ding has
been
drawing substantial atten
tion from
policy
makers, m
anagers, and
entrepren
eurs, b
ut
relativ
ely little
notice from
acade
mics, even
thou
gh it to
uche
s on man
y topics of impo
rtan
ce
to sc
holars of e
ntrepren
eurship, includ
ing the
determ
inan
ts of ven
ture su
ccess a
nd th
e geog
raph
y of entrepren
eurship. Drawing on
a
• Projects ra
nge in goa
ls an
d magnitude
, from
small artistic projects to en
trep
rene
urs s
eeking
seed
cap
itals as alte
rnative to ven
ture cap
ital
investmen
t.
• Unclear if crowdfun
ding effo
rts reinforce or
contradict existing theo
ries a
bout ra
ising cap
ital
and achieving success. Also unclear whe
ther
projects deliver produ
cts p
romise
d over th
e long-‐term.
• Social networks of fou
nders s
eem to
play a large
role in su
ccess o
f new
ven
tures a
nd access to
capital. High qu
ality
pitche
s also
predict su
ccess.
• Success o
f traditio
nally-‐fu
nded
ven
tures is o
ften
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
64
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
dataset o
f nearly
47,00
0 projects with
combine
d fund
ing over $19
8M, this p
aper
offers an initial descriptio
n of th
e un
derly
ing
dyna
mics o
f success and
failure amon
g crow
dfun
ded ventures. It suggests tha
t pe
rson
al networks and
und
erlying project
quality
help pred
ict the
success o
f crow
dfun
ding effo
rts, and
that geo
grap
hy plays
a role in both the type
of p
rojects p
ropo
sed an
d successful fu
ndraising. Finally, I find
that th
e vast m
ajority
of fou
nders m
ake serio
us effo
rts
to fu
lfill their o
bligations to
fund
ers, but th
at
over 75%
deliver produ
cts later th
an expected,
with
the de
gree of d
elay predicted
by the level
and am
ount of fun
ding a project re
ceives.
linked to geo
grap
hy.
• Project m
ix of crowdfun
ding re
flects c
ultural
prod
ucts of city
. i.e. N
ashville (m
usic); San
Fran
cisco (gam
e an
d de
sign prod
ucts)
• Highe
r propo
rtion of creative individu
al in th
e foun
der’s city
, highe
r cha
nce of su
ccess.
• Majority
of p
rojects w
ere de
layed, close to
25%
were de
livered
on tim
e.
• Larger projects h
ave more de
lays th
an sh
orter
ones.
• Projects gen
erally su
cceed by sm
all m
argins or
fail by big one
s.
• Social cap
ital and
project qua
lity increase
chan
ces o
f project su
ccess.
Commun
ity Finan
cing Options
http://arbri.atha
bascau
.ca/hinton
-‐gc/docum
ents/H
intonG
rand
eCache
Sum
marySustainab
ilityRe
port3-‐15
-‐12
Dr. M
ike Gism
ondi,
Atha
basca University
“With
the increasin
g difficulty
of a
ccessin
g trad
ition
al fo
rms o
f finan
cing and
investmen
t, commun
ities have be
gun to look to
inno
vativ
e ideas a
nd initiatives to
help in ra
ising
local cap
ital. To
a greater exten
t, commun
ities
are looking inward to create a
clim
ate of investmen
t and
coo
peratio
n with
in
the po
pulatio
n. As m
ore commun
ity m
embe
rs
participate, th
ey sh
are bo
th th
e risk an
d rewards in creating stronger local
econ
omies. The
re is also
a greater emph
asis on
local empo
wermen
t becau
se th
e control of the
fund
s, sc
hedu
le and
outcomes
stays w
ithin th
e commun
ity and
is not ced
ed to
ou
tside control. A circuit o
f local cap
ital is
diffe
rent th
an th
at of the
globa
l investm
ent
market. It is ba
sed on
raising poo
ls of cap
ital
from
a se
lf-‐de
signa
ted
commun
ity to
invest in a local business o
r
• Local investor b
ehaviour sh
are common
value
s an
d commun
ity vision
. •
Local finan
cing and
investmen
t mecha
nism
s:
• Credit U
nion
s – The
y arecctive in com
mun
ity
and tend
to have go
od und
erstan
ding of
commun
ity needs. Bu
siness loa
n are the ba
sic
form
of local lend
ing bu
t reflect least sen
se of
commun
ity owne
rship.
• Crow
dsou
rcing – En
trep
rene
ur posts business
online with
requ
est for start-‐up
fund
ing an
d those
interested
don
ate. N
o ow
nership.
• Exem
ptions fo
r Accredited an
d Eligible
Investors -‐ ind
ividua
ls of a certain income level
and ne
t worth to
purchase exem
pt m
arket sha
res
in a local business w
ithou
t tha
t business h
aving to
provide an
offe
ring do
cumen
t. •
Commun
ity In
vestmen
t Fun
ds (C
IFs) -‐
Investors p
urchase shares in an investmen
t fun
d which is th
en invested
into a local business.
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
65
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
infrastructure. R
esiden
ts can
invest by
purcha
sing local securities in th
e form
of sha
res
(equ
ity; essen
tially owning a part o
f the
firm
) or
bond
s (de
bt; loa
ning th
e firm a fixed am
ount
over an agreed
up
on duration of time an
d interest ra
te)
• Co
mmun
ity Bon
ds -‐ Co
mmun
ity Bon
ds are a
debt instrumen
t tha
t ena
bles com
mun
ities, as w
ell
as not-‐fo
r-‐profits and
cha
rities, to
raise
cap
ital.
typically used to fina
nce the pu
rcha
se of a
large
capital asset su
ch as a
building.
RE
GULA
TORY
The JOBS
Act of 2
012: Balan
cing
Fund
amen
tal Securities Law
Principles W
ith th
e De
man
ds of the
Crow
d http://pap
ers.ssrn.com
/sol3/pa
pers.
cfm?abstract_id=2
0409
53
Martin
, Tho
mas A.
Willam
ette University
Co
llege of Law
, 201
2.
I examine the JOBS
Act of 2
012, especially its
crow
dfun
ding provisio
ns. In Section II., I disc
uss
the main areas o
f the
JOBS
Act, spe
cifically
crow
dfun
ding, emerging growth com
panies,
chan
ges to the sm
all issue
s exemption, and
the
repo
rting compa
ny th
reshold. I no
te a strong
shift to
wards deregulation, in con
trast w
ith
Sarban
es-‐Oxley (2
002) and
the Do
dd Frank Act
(201
0). In Section III., I ana
lyze th
e principles
behind
the U.S. securities laws, especially th
e Securities A
ct of 1
933 an
d the Securities
Exchan
ge Act of 1
934. The
specific po
licies
exam
ined
are as follows: investor protection,
market stability, and
maintaining th
e integrity
of U.S. cap
ital m
arkets. W
ith re
gards to specific
provision
s of the
JOBS
Act, I ask whe
ther th
e be
nefits o
f the
JOBS
Act, m
ost n
otab
ly th
e po
tential for econo
mic growth, exceed its risks,
includ
ing an
increased risk of frau
d an
d increased market u
ncertainty. In Section IV., I
explain eq
uity-‐based
crowdfun
ding as a
new
an
d un
ique
mod
el fo
r raisin
g capital. I examine
elem
ents of the
crowdfun
ding structure,
namely a relativ
ely sm
all amou
nt of m
oney
raise
d from
a large nu
mbe
r of ind
ividua
ls, m
any
of who
m are non
-‐accredited. I exam
ine the
• Crow
dfun
ding -‐ “the
use of the
internet to
raise
mon
ey th
rough sm
all con
tributions from
a large
numbe
r of investors.”
• Und
er th
e JOBS
Act, the
issuer m
ust p
rovide
to
the Co
mmiss
ion, interm
ediary and
poten
tial
investors the
following:
• 1. Basic iden
tifying inform
ation of issuer;
• 2. Nam
es of d
irectors, offices a
nd each pe
rson
ho
lding more than
20%
of sha
re of the
issuer;
• 3.De
scrip
tion of business a
nd anticipated
bu
siness p
lan;
• 4.De
scrip
tion of fina
ncial con
ditio
n of issuer;
• 5. Descriptio
n of stated
purpo
se and
intend
ed
use of cap
ital raised
• 6. Targetin
g offerin
g am
ount, d
eadline an
d regular u
pdates re
garding iss
uer m
eetin
g these;
• 7. Pric
e to pub
lic of securities;
• 8. Descriptio
n of owne
rship an
d capital structure
of issuer.
• Type
of finan
cial inform
ation disclosed de
pend
s on
target amou
nt of cap
ital to be
raise
d.
• Crow
dfun
ding interm
ediarie
s have du
ty to
ed
ucate investors a
nd re
view
s investor
education inform
ation in accorda
nce with
stan
dards e
stab
lishe
d by Com
miss
ion.
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
66
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
wisd
om of the
crowd theo
ry, q
uestion the
continue
d ne
ed fo
r accreditatio
n requ
iremen
ts,
and no
te th
e crow
d's p
roclivity
towards fu
nding
social goo
d projects, w
ith poten
tial or
significan
t positive externa
lities o
n the
commun
ity. I con
clud
e that alth
ough th
e JOBS
Ac
t con
tains a
swath of m
easures lim
iting
governmen
t oversight of this n
ew m
arket, these
risks are outweighed
by the substantial
econ
omic ben
efits th
at accom
pany th
e de
struction of m
arket e
ntry barrie
rs to
the
entrep
rene
ur.
Interm
ediarie
s must m
akes su
re investor
unde
rstand
s risk
of losing en
tire investmen
t and
that th
ey cou
ld bear such a loss. Also m
ust
ensure th
at investor und
erstan
ds level of risk
investing in start-‐up
s, emerging businesses a
nd
small issue
rs; and
und
erstan
d of risk illiquidity.
• How
ever, com
pliance with
these requ
iremen
ts is
ambiguou
s.
• Crow
dfun
ding is similar to sm
all issue
s exem
ptions but differen
t in the greater n
umbe
r of non
-‐AI investors.
• Uniqu
e aspe
cts to crow
dfun
ding m
odel:
1. Large investmen
t class with
no distinction
betw
een AI and
non
-‐AI investors;
2. Relatively low investmen
ts amou
nts tha
t are
pooled
together;
3. N
atural bias tow
ards pop
ular projects a
nd a
large po
rtion focussed
on social goo
d.
• Crow
d represen
ts both po
tential investors and
consum
ers.
• Crow
d usua
lly invest in so
mething th
ey wan
t for
them
selves. Ve
sted
interest in su
ccess o
f compa
ny.
• Crow
d acts as q
uasi-‐market research tool.
• Th
ere is contrast between those that believe
that th
e ‘crowd’ m
akes bad
decision
and
shou
ld
not b
e trusted to m
ake wise
fina
ncial decision
s (i.e. herding beh
aviour) a
nd th
ose that su
pport
‘wisd
om of crowd’ th
eory th
at su
ggests
collective intelligence make wise
r cho
ices th
an
individu
al.
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
67
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
The JOBS
Act of 2
012: The
Struggle
Betw
een Ca
pital
Form
ation an
d Investor Protections
http://pap
ers.ssrn.com
/sol3/pa
pers.
cfm?abstract_id=2
1497
44
Whitbeck, Britton
SMU Dedman
Schoo
l of
Law
This Article details at th
e provision
s of the
JOBS
Ac
t and
ana
lyzes the
ir im
pact on capital
form
ation an
d investor protection. Part I
discusses the
Reo
pening American
Cap
ital
Markets to
Em
erging Growth Com
panies Act, examining
the em
erging growth com
pany status and
the
impa
ct on iss
uers and
investors. Part II d
iscusses
Access to
Cap
ital for Jo
b Creators Act, w
hich
lifts th
e ba
n on
gen
eral so
licita
tion for o
fferin
g mad
e up
solely of a
ccredited investors o
r qu
alified
institu
tiona
l buyers. Part III discusses
the Ca
pital R
aisin
g Online While Deterrin
g Frau
d an
d Une
thical Non
-‐Disc
losure Act, w
hich
legalizes equ
ity crowdfun
ding. Part III will
exam
ine the crow
dfun
ding provisio
n an
d the
requ
iremen
ts fo
r issue
rs, intermed
iarie
s, and
investors. Part IV discusses the
Small Com
pany
Capital Formation Ac
t, which increases the
cap
on
Regulation A offerin
gs from
$5 million to $50
million. In
con
clusion, Part V
disc
usses b
oth
Private Co
mpa
ny Flexibility an
d Growth Act and
Ca
pital Expan
sion Ac
t, which increase th
e shareh
olde
r lim
it for p
rivate compa
nies and
ba
nks.
• Man
y crow
dfun
ding investors m
ay lack
soph
istication to und
erstan
d risks. Including risk
of frau
d, fa
ilure by sm
all business a
nd th
e liquidity of securities purchased
.
• Exem
ptions provide
means of finan
cing to
majority
of e
ntrepren
eurs th
at lack ability to
raise
cap
ital throu
gh ban
ks, V
C firms o
r IPO
s.
• Most start-‐ups lack so
phistication or re
sources
to m
eet b
urde
n an
d costs o
f securities
regulatio
n. VCs are m
ore interested
in
busin
esses w
ith high grow
th poten
tial in certain
sectors (i.e. Techn
olog
y, biomed
ical)
• Crow
dfun
ding exemptions includ
e a maxim
um
on amou
nt of cap
ital raised; re
stric
tions on total
investmen
t amou
nt based
on an
nual income of
investors o
r net worth; lim
it on
aggregate
amou
nt of securities issuer can
offe
r or sell to
investors; re
stric
tions on sale and
tran
sfer of
crow
dfun
ding sh
ares by investors.
• Issuers m
ust d
isclose inform
ation ab
out the
compa
ny, its fina
ncial con
ditio
n, th
e offerin
g,
owne
rship an
d capital. Issuer m
ust d
isclose
names of d
irector, o
fficers and
any person
holding 20
% of issue
r’s sh
ares. M
ust d
isclose
busin
ess a
nd anticipated
business plan
. Fina
ncial disc
losure varies d
epen
ding on am
ount
of ta
rget cap
ital raised.
• Tax returns p
rovide
little fina
ncial disc
losure
inform
ation to investor.
• Issuer m
ust d
isclose ta
rget offe
ring am
ount,
dead
line for reaching the target and
regular
upda
tes o
n prog
ress in m
eetin
g offerin
g am
ount.
• Issuer m
ust d
isclose pric
e or m
etho
d for
determ
ining price an
d this po
ses c
hallenges
arou
nd valua
tion.
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
68
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
• Issuer m
ust d
isclose how
crowdfun
ding
securities m
ay be “m
aterially limite
d, diluted or
qualified
by rig
hts o
f any other class of security
” includ
ing minority
owne
rship, corpo
rate actions,
additio
nal issue
s, sa
le of the
issuer or its assets
and related tran
sactions”.
• With
tran
sactions online there is an
ease an
d conven
ience of investing plus app
eal of g
reater
returns a
nd excite
men
t of investin
g in start-‐up
s all pose risks to
crowdfun
ding investor.
• Need to develop
stan
dard langua
ge abo
ut
issue
rs’ d
isclosure re
garding risks, and
provide
a
checklist or list of q
uestions designe
d to guide
the iss
uer h
ow to
disc
lose risks.
• Ad
vertising offe
rings is limite
d to dire
cting
investors to iss
uer’s interm
ediary.
• Th
ose prom
oting iss
ue m
ust d
isclose
compe
nsation.
• Ru
les o
n prom
otion, advertising, ann
ual
repo
rting requ
iremen
ts are not clear.
• Interm
ediarie
s must p
rovide
risk disc
losure and
investor edu
catio
n inform
ation to investors.
• Fund
ing po
rtals m
ust n
ot offe
r advice or
recommen
datio
ns, solicit pu
rcha
se, sale or offe
r to buy th
e securities o
n its web
site. Fun
ding
portals m
ust n
ot com
pensate pe
rson
s for
solicita
tion or sa
le of securities on its web
site.
They can
not h
old, m
anage, possess or h
andle
investor fu
nds o
r securities.
• Investor m
ust “po
sitively affirm” that th
ey
unde
rstand
the risk of losin
g en
tire investmen
t an
d can sustain such a loss. Investor m
ust
answ
er que
stions th
at dem
onstrates
unde
rstand
ing the level of risk
related to start-‐
up and
small issue
rs, risk
of illiqu
idity
.
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
69
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
• De
velop stan
dards for re
view
and
selection of
issue
rs th
at m
ay includ
e op
erating history,
technical expertise, indu
stry experience, so
me
type
of e
valuation of offe
ring an
d bu
siness p
lan.
• Th
ere is a po
ssibility of “blurrin
g line be
tween
full an
d fair disclosure and
assessin
g merits of
the investmen
t. “
CROWDF
UNDING OR
FRAU
DFUNDING? SO
CIAL
NETWORK
S AN
D TH
E SECU
RITIES
LAWS—
WHY TH
E SPEC
IALLY
TAILORE
D EX
EMPT
ION M
UST BE
CONDITIONED
ON M
EANINGFU
L DISCLO
SURE
http://pap
ers.ssrn.com
/sol3/pa
pers.
cfm?abstract_id=1
9540
40
HAZ
EN, THOMAS
LEE
NORT
H CA
ROLINA LA
W
REVIEW
[Vol. 90], p
ages
1735
-‐177
0.
Social networks have be
en used as a m
edium
for finan
cing film
s and
other perform
ing arts, as
well as for cha
ritab
le so
licita
tions.
Crow
dfun
ding can
also
be used
to fina
nce sm
all
busin
ess e
nterprise
s, which, in contrast to
other
crow
dfun
ding effo
rts, is a highly regulated
activ
ity by virtue
of the
securities law
s.
Securities law
s are designe
d to provide
investor
protectio
n. This A
rticle provide
s an overview
of
the ap
plicab
le se
curities law
s and
evaluates th
e vario
us propo
sals an
d the recently ena
cted
JOBS
Act which purpo
rted
ly provide
s a
workable exem
ption for crowdfun
ding th
at
wou
ld not und
uly comprom
ise investor
protectio
n. The
Article examines th
e prop
osals
and en
suing legisla
tion an
d conclude
s tha
t the
on
ly app
ropriate exemption for crowdfun
ding is
one cond
ition
ed on meaningful disc
losures
abou
t the
com
pany and
the term
s of the
offerin
g.
• Re
quire
d disclosures include
purpo
se of o
fferin
g,
targeted
amou
nt to
be raise
d, deadline for
reaching ta
rget, o
fferin
g price, inform
ation ab
out
the compa
ny’s business including business p
lan,
capital structure and
fina
ncial con
ditio
n.
• Au
dited fin
ancial statem
ents are re
quire
d for
offerin
gs over 5
00k.
• Interm
ediary (fun
ding portal or b
roker) will be
requ
ired to ‘take step
s to en
sure th
at investor has
review
ed disc
losure, answers q
uestions and
un
derstand
s risk
s of loss, includ
ing risk of losin
g all
investmen
t.
• Interm
ediary also
requ
ired to m
ake sure
compa
ny’s officers, d
irectors a
nd m
ajor
shareh
olde
rs are in com
pliance with
regulator.
• Limiting offe
rings to sm
all amou
nts p
er investor
will not deter sc
ammers. Small investors m
ay be
the least a
ble to bear the
risks o
f the
ir low
investmen
ts.
• Social m
edia te
chno
logies increase ra
ther th
an
decrease poten
tial for frau
d.
• Crow
dfun
ding investors w
ill not likely “know
” the
compa
ny excep
t for wha
t is v
isible an
d available
abou
t the
com
pany on its web
site. Unlike an
gels
and VC
’s, w
ho have a more pe
rson
al re
latio
nship
with
com
pany and
officers.
• Likely to
attract unsop
histicated
investors.
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
70
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
PROTECT
ING THE CR
OWD AN
D RA
ISING CAP
ITAL
THRO
UGH THE
JOBS
ACT
http://pap
ers.ssrn.com
/sol3/pa
pers.
cfm?abstract_id=2
0460
51
Fink, A
ndrew C.
University
of
Conn
ecticut -‐ Scho
ol of
Law
April 25, 201
2
The Crow
d ha
s incredible commercial fo
rce,
eviden
ced by th
e fact th
at th
e internet is now
on
e the largest g
loba
l econo
mies T
he JO
BS Act
effectively ha
rnesses the
cap
ital-‐raisin
g po
wer
of th
e Crow
d an
d po
tentially re
volutio
nizes the
way we think ab
out cap
ital m
arkets. C
oncerns
abou
t how
to balan
ce investor protection an
d free-‐flow
ing capital-‐raisin
g chan
nels were
paramou
nt in re
aching th
e JOBS
Act. This A
rticle
highlights the
passage of the
JOBS
Act and
its
effects o
n the Crow
dfun
ding indu
stry. It w
arns
of SEC
rulemaking an
d makes propo
sals for h
ow
to best e
xecute a re
liable Crow
dfun
ding
platform
or fun
ding portal. The
states can
play
a crucial role in helping to
sustain confiden
ce in
the Crow
dfun
ding m
arket.
•
Crow
dfun
ding – “Ra
ising of cap
ital throu
gh a
large nu
mbe
r of small ind
ividua
l investm
ents to
a sin
gle en
trep
rene
ur or small business.”
• It is a convergence of m
icrofin
ance and
crow
dsou
rcing an
d is often de
scrib
ed as a
blend
of so
cial m
edia and
ven
ture cap
ital.
• Crow
dfun
ding is like inverse of m
icrofin
ancing
(which m
akes available nu
merou
s loa
ns to
thou
sand
s of ind
ividua
l throu
gh one
institu
tion).
• Crow
d consists o
f ind
ividua
ls conn
ected to other
individu
als throu
gh th
e internet. C
rowd
expe
cted
to grow at h
igh pa
ce. B
y 20
12 internet
is projected to be the world’s fifth largest
econ
omy.
• Prior to JOBS
Act equ
ity-‐crowdfun
ding m
odel not
perm
itted
. Start-‐ups limite
d to angel investors
and VC
firm
s.
• En
trep
rene
urs a
nd start-‐up
s lim
ited to ban
k loan
s, fa
mily and
friend
s mon
ey. Also isolated
by th
eir location. V
C firms typically closer
geog
raph
ically to
their investm
ents (a
verage 70
miles b
etween lead
ven
ture cap
firm
and
target
firm). Crow
dfun
ding con
nects to investors
glob
ally and
poten
tial to stim
ulate job grow
th
internationa
lly,.
• As ban
ks tighten lend
ing stan
dards (cred
it crun
ch) finan
cing sm
all business takes a hit an
d crow
dfun
ding is se
en as v
iable alternative to
depe
nden
ce on ba
nk lend
ing.
• Crow
dfun
ding will be ap
pealing to lower net
worth investors a
s typically th
ese investmen
ts
are on
ly available to th
e wealth
y.
• As well, interest in crowdfun
ding is com
parable
to investor attraction to th
e IPO m
arket ; an
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
71
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
excitin
g idea th
ey wan
t to be
part o
f and
see
grow
. May be a lack of p
rofessiona
l investors
attracted to crowdfun
ding and
with
this, an
absence of so
phisticated
investors w
ho also
act
as m
entors th
at often
help en
trep
rene
urs a
nd
small businesses g
row th
e bu
siness.
• Investor-‐based
crowdfun
ding includ
es
expe
ctation of profit by investor. Investors c
are
less abo
ut entrepren
eur’s well-‐b
eing and
likely
wan
t to little
to do with
entrepren
euria
l process.
This is in con
trast to do
natio
n ba
sed
crow
dfun
ding whe
re investors d
o no
t expect R
OI
and more an
alog
ous to charita
ble contrib
ution
mostly
motivated
by intrinsic
aspects of social
capital/c
ultural goo
d.
• Cu
rren
tly cap
ital m
arkets fram
ework an
d securities regulation is inconsisten
t cross-‐borde
r. •
Challenge is to stim
ulate early
-‐stage cap
ital but
not impo
se to
o man
y restric
tions th
at lead
s to
barrier to en
try.
• Self-‐po
licing capa
bilities o
f crowd will play
impo
rtan
t role in oversight. User reviews (eB
ay,
Amazon
) to po
lice against fraud
and
misleading
inform
ation. Rating system
is ano
ther fe
ature
that m
ay be effective in weeding out frau
d.
Forums c
an also
be he
lpful isolatin
g risky se
llers,
prom
oting qu
ality
participan
ts and
soun
d investmen
t opp
ortunitie
s.
• Crow
dfun
ding Accreditatio
n for P
latform
Stan
dards (CA
PS) –
“review
s awards
accred
itatio
n to fu
nding po
rtals b
ased
on
interviews a
nd re
view
s of the
ir tran
saction
processes.”
• Co
nsisten
t and
uniform
stan
dards (establish
ed
by re
gulator) can
help stream
line process a
nd
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
72
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
build m
arket con
fiden
ce.
• Failing crowdfun
ding portals will be forced
out
and trusted platform
s will becom
e market
lead
ers for crowdfun
ding tran
sactions.
Th
e Social Network an
d the
Crow
dfun
d Ac
t: Zuckerberg, Savern,
and Ve
nture Ca
pitalists Dilu
tion of
the Crow
d http://pap
ers.ssrn.com
/sol3/pa
pers.
cfm?abstract_id=2
1410
15
Wroldsen, Jo
hn S.
15 VAN
D. J. ENT. &
TECH
. L., Jan. 201
3,
Forthcom
ing
By virtue
of T
itle III of the
JOBS
Act, signe
d into
law on Ap
ril 5, 201
2, crowdfun
ding cou
ld
become a po
werful, even
revolutio
nary, force
to fina
nce start-‐up
com
panies. It d
emocratizes
entrep
rene
urs’ access to seed
cap
ital and
converts th
e masses o
f Interne
t users into
potential retail ven
ture cap
italists. M
any ha
ve
cautione
d, th
ough, tha
t crowdfun
ding poses
serio
us investmen
t risk
s of start-‐up compa
nies
failing, com
mitting frau
d, and
being
mism
anaged
. Accordingly, the
JOBS
Act includ
es
numerou
s disc
losure obligations designe
d to
mitigate su
ch dow
nside risks.
But w
hat h
as been overlooked
, and
wha
t this
Article ana
lyzes from a ven
ture cap
italist
perspe
ctive, is th
at even if a crow
dfun
ded start-‐
up com
pany is su
ccessful, crowdfun
ding
investors c
an lose th
e value of th
eir investm
ent
if they lack ven
ture cap
ital legal protections.
Whe
n successful start-‐up
com
panies ra
ise
additio
nal fun
ds from
professiona
l ven
ture
capitalists, the
value
of g
roun
d-‐flo
or
investmen
ts can
be severely diluted, as
colorfully dramatized
in The
Social N
etwork. In
ad
ditio
n, whe
n crow
dfun
ded compa
nies are
acqu
ired in priv
ate tran
sactions, crowdfun
ders
are at risk of b
eing left out.
Therefore, und
er a “qu
alita
tive man
dates”
• Crow
dfun
ding – “practice of m
any (i.e. crowds of)
peop
le investing sm
all amou
nts o
f mon
ey over the
Internet in early-‐stage businesses in exchan
ge fo
r eq
uity interests tha
t are not re
gistered
with
the
Securities a
nd Excha
nge Co
mmiss
ion”.
• Pape
r focuses on up
side, horizon
tal risk
s crow
dfun
ders m
ay fa
ce from
other investors, su
ch
as VC whe
n crow
dfun
ded bu
siness is s
uccessful.
• JOBS
Act – cap
s cap
ital raisin
g via crow
dfun
ding at
$1 m
illion over 12 mon
th period. Amou
nt investor
can invest is cap
ped according to ann
ual incom
e or
net w
orth. Investor cap
app
lies to aggregate
crow
dfun
ding investmen
ts in any 12 mon
th
perio
d.
• Crow
dfun
ding investmen
ts m
ust o
ccur th
rough
web
site registered
with
the commiss
ion. M
ust
disclose inform
ation relatin
g to risks investin
g in
start-‐up
s, ensure investor und
erstan
ds th
e risks
and ob
taining ba
ckgrou
nd che
ck of key com
pany
person
nel. Crowdfun
ded compa
ny m
ust p
rovide
its fina
ncial statemen
t and
repo
rt on results of
compa
ny’s ope
ratio
ns. De
gree of finan
cial
disclosure dep
ends on target amou
nt of cap
ital
raise
d.
• Que
stion on
ability of unsop
histicated
investor to
effectively judge qu
ality
of securities offe
red.
Inform
ation overload
. •
Issue of M
erit Re
view
– issuer su
bmits inform
ation
to re
gulator for re
view
and
app
roval in ad
vance of
security offerin
gs. Ju
dges ‘sub
stan
tive qu
ality
of
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
73
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
regulatory philosoph
y that m
oves beyon
d securities law
’s status-‐quo
disc
losure
requ
iremen
ts, this A
rticle propo
ses s
ubstan
tive
venture capitalist p
rotections fo
r crowdfun
ding
investors, su
ch as d
own-‐roun
d an
ti-‐dilutio
n,
tag-‐alon
g, and
preem
ptive rig
hts, to
help
safeguard the value of early-‐stage investmen
ts
in su
ccessful start-‐up
com
panies. Especially
because man
y crow
dfun
ding investors a
re likely
to be inexpe
rienced
and
unsop
histicated
in
start-‐up
-‐com
pany investing, crowdfun
ding laws
and regulatio
ns sh
ould go be
yond
disc
losure
requ
iremen
ts th
at warn investors o
f dan
ger (to
the extent investors e
ven read
or u
nderstan
d the disclosures) to
help crow
dfun
ders obtain
market-‐ba
sed econ
omic protections
characteristic of ven
ture cap
italist investm
ent
contracts.
security’. M
erit-‐review
s – costly
, tim
e-‐consum
ing,
may create ‘m
arket ine
fficien
cies by supp
lanting
judgem
ent o
f market w
ith th
at of regulator.’
•
Horizon
tal risk
s – add
ition
al fina
ncing roun
ds and
ne
w investors c
an im
pact existing shareh
olde
rs
(crowdfun
ders).
• Qua
litative Man
dates: (like VC
protections in start-‐
ups) includ
e:
• Dilutio
n of crowdfun
ders owne
rship
percen
tages w
hen compa
ny issues new
shares.
• Exclusion of crowdfun
ders whe
n othe
r stockholde
rs re
sell shares to
new
investors.
• Risk of p
rice dilutio
n (dow
n-‐roun
d) – VC
protect the
mselves with
preferred
-‐sha
red
investmen
t con
tracts.
• Risk of sha
re-‐based
dilutio
n.
• Tag-‐alon
g rig
hts (co-‐sale rig
hts) help avoid
being exclud
ed from
a profitab
le exit e
vent.
• Preemptive rig
hts “allow th
e shareh
olde
rs to
pa
rticipate in any issuan
ce of sha
re pro-‐rata
to th
eir p
ercentage ho
lding”. Sha
reho
lders
avoid dilutio
n of th
eir o
wne
rship po
sition
whe
n compa
ny issues sh
ares to
new
investors.
• VC
deal terms a
nd protections need to be presen
t by defau
lt in crowdfun
ding –investmen
t con
tract
templates. Th
e un
soph
isticated
investor wou
ld
not k
now how
to negotiate th
ese an
d they wou
ld
allow crowdfun
ders a point of com
parison
for
othe
r crowdfun
ding investmen
ts.
• Disclosure ta
bles th
at are clear and
easy to re
ad
are suggested. The
se wou
ld highlight investor
protectio
n the iss
uer is o
fferin
g an
d be
based
on
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
74
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
term
s VCs negotiate whe
n investing in start-‐up
s.
Table wou
ld provide
list of terms a
nd descriptio
n an
d if each protection is available. Suggested
list
includ
es com
mon
stock; preferred
stock; warrants;
shares-‐based
dilutio
n; pric
e-‐ba
sed dilutio
n; ta
g-‐alon
g rig
hts; drag-‐alon
g rig
hts; preem
ptive rig
hts;
pay-‐to-‐play; cum
ulative divide
nds; re
gistratio
n rig
hts; re
demption rig
hts; liqu
idation preferen
ce.
• Term
s in disclosure ta
ble likely be
disc
ussed
amon
g crow
dfun
ding investors improving an
d expa
nding the “w
isdom
of the
crowd”.
• Ab
sence of VC protectio
ns leave crow
dfun
ding
investors v
ulne
rable.
• Crow
dfun
ding investmen
t can
be ‘emotiona
l’ (excite
d by inno
vativ
e ideas w
ith poten
tial of large
profit)
Ad
ditio
nal Sou
rces from
Med
ia and
Press
The Crow
dfun
ding
Crowd Is Anxious
Corteste, A
my
The New
York Times
Jan 5, 201
3
http://w
ww.nytim
es.com
/201
3/01
/06/bu
siness
/crowdfun
ding
-‐for-‐sm
all-‐b
usiness-‐is-‐still-‐an-‐
unclear-‐pa
th.htm
l?pa
gewan
ted=
all&_r=0
Shou
ld Equ
ity-‐Based Crowd Fund
ing
Be Legal?
Lavinsky, D
ave
The Wall Street Jou
rnal,
March 8, 201
2.
http://online.wsj.com
/article/SB1
0001
4240
529
7020
3370
6045
7726
5512
7660
0993 8.htm
l
Five Key Points to know
abo
ut equ
ity
crow
dfun
ding
Prive, Tan
ya
Forbes, Jan
uary 15,
2013
.
http://w
ww.fo
rbes.com
/site
s/tanyap
rive/20
13/
01/15/5-‐key-‐po
ints-‐to-‐know
-‐abo
ut-‐equ
ity-‐
crow
dfun
ding/2/
Equity crowdfun
ding
source of
inno
vatio
n, cap
ital for start-‐up
s
Casey, Que
ntin.
Fina
ncial Post,
Octob
er 22, 201
2.
http://business.fin
ancialpo
st.com
/201
2/10
/22/
equity-‐crowdfun
ding
-‐sou
rce-‐of-‐in
novatio
n-‐capital-‐for-‐startup
s/
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
75
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
THRE
E TH
INGS BR
OKE
N IN
INVE
STMEN
T CR
OWDF
UNDING
THAT
SEC
REG
ULA
TIONS WON'T FIX
CARLETON, W
ILLIAM
JANUAR
Y 7, 201
3.
CROWDSO
URC
ING.ORG
http://w
ww.crowdsou
rcing.org/ed
itoria
l/three-‐
things-‐broken-‐in-‐in
vestmen
t-‐crow
dfun
ding
-‐that-‐sec-‐regulations-‐w
ont-‐fix/230
32/500
WHY CR
OWDF
UNDING W
ILL
EXPLODE
IN 201
3
Thorpe
, Devin
Forbes, O
ctob
er 15,
2012
.
http://w
ww.fo
rbes.com
/site
s/de
vintho
rpe/20
12/10
/15/get-‐read
y-‐he
re-‐it-‐com
es-‐
crow
dfun
ding
-‐will-‐explode
-‐in-‐201
3/
N.Y.C. small businesses a
re
turning to crowdfun
ding
sites like
CircleUp to ra
ise m
oney
Furm
an, Phyllis
NYD
ailyNew
s.com
Janu
ary 21
, 201
3.s
http://w
ww.nydailyne
ws.com/new
-‐york/n-‐y-‐
small-‐b
usinesses-‐turning-‐crow
dsou
rcing-‐sites-‐
circleup
-‐raise-‐m
oney-‐article-‐
1.12
4446
3#ixzz2Iop
B4KY
l
https://circleup
.com
/press/
Excellent so
urce fo
r recen
t med
ia stories a
nd
press releases o
n crow
dfun
ding
Additio
nal A
cade
mic Pap
ers
CROWDF
UNDING AND TH
E FEDE
RAL
SECU
RITIES LAW
S http://pap
ers.ssrn.com
/sol3/pa
pers.
cfm?abstract_id=1
9161
84
Brad
ford, Steven C.
Crow
dfun
ding—the use of th
e Internet to
raise
mon
ey th
rough sm
all con
tributions from
a large
numbe
r of investors—could cause a revolutio
n in sm
all-‐b
usiness finan
cing. Throu
gh
crow
dfun
ding, smaller e
ntrepren
eurs, w
ho
trad
ition
ally have ha
d great d
ifficulty obtaining
capital, ha
ve access to an
yone
in th
e world with
a compu
ter, Internet access, and
spare cash to
invest. C
rowdfun
ding sites s
uch as Kiva,
Kickstarter, an
d IndieG
oGo ha
ve proliferated
, an
d the am
ount of m
oney ra
ised through
crow
dfun
ding has grown to billions of d
ollars in
just a fe
w years. C
rowdfun
ding poses tw
o iss
ues
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
76
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
unde
r fed
eral se
curities law
. First, crow
dfun
ding
sometim
es involves th
e sale of securities,
triggerin
g the registratio
n requ
iremen
ts of the
Securities A
ct of 1
933. Registratio
n is
proh
ibitively expen
sive for the
small offe
rings
that crowdfun
ding fa
cilitates, and
non
e of th
e curren
t exemptions from
registratio
n fit th
e crow
dfun
ding m
odel. Secon
d, th
e web
sites
that fa
cilitate
crow
dfun
ding m
ay be treated as brokers or
investmen
t ad
visers und
er th
e am
biguou
s stand
ards
applied by th
e SEC.
This article con
siders the
costs and
ben
efits of
crow
dfun
ding and
propo
ses a
n exem
ption that
wou
ld free crowdfun
ding from
the registratio
n requ
iremen
ts, b
ut not th
e an
tifraud
provisio
ns,
of fe
deral securities law. Securities offe
rings fo
r an
amou
nt less th
an $25
0,00
0–50
0,00
0 wou
ld
be exempted
if (1
) each investor invests n
o more than
the greater o
f $50
0 or 2% of the
investor’s ann
ual incom
e; and
(2) the
offe
ring is
mad
e on
an Internet crowdfun
ding site th
at
meets th
e exem
ption’s req
uiremen
ts.
To qua
lify for the
exemption, crowdfun
ding
sites wou
ld
have to
: (1) be op
en to
the gene
ral pub
lic; (2)
provide pu
blic
commun
ication po
rtals for investors a
nd
potential investors;
(3) req
uire investors to fulfill a sim
ple ed
ucation
requ
iremen
t be
fore investing; (4
) prohibit certain con
flicts o
f interest; (5)
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
77
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
offer n
o investmen
t advice or
recommen
datio
ns; and
(6) n
otify
the SEC that th
ey are hostin
g crow
dfun
ding
offerin
gs. Site
s that m
eet the
se re
quire
men
ts wou
ld not be
treated as brokers
or investmen
t advise
rs.
CROWDF
UNDING: FLEEC
ING THE
AMER
ICAN
MAS
SES
http://pap
ers.ssrn.com
/sol3/pa
pers.
cfm?abstract_id=2
0300
01
Griffin
, Zacha
ry J
J.D. C
ase Western
Reserve University
Scho
ol of Law
. March 14, 201
2
As our econo
my continue
s to sputter a
long like
a be
at-‐up station wagon
, politician
s in
Washington are searching for n
ew ways to
boost its prospects. M
any, includ
ing Presiden
t Ba
rack Oba
ma, are looking to sp
ur sm
all
busin
ess g
rowth as a
solutio
n to our econo
mic
woe
s. How
ever, such grow
th is stym
ied by th
e lack of cap
ital available to sm
all businesses. As
Represen
tativ
e McH
enry stated
, “lend
ing to job
creators and
entrepren
eurs re
mains dism
al,
[and
] we must find ne
w and
mod
ern means fo
r capital formation to ignite our sp
utterin
g econ
omy.” Such “ignitio
n” will com
e from
crow
dfun
ding, o
r at least politician
s seem to
think so.
Crow
dfun
ding is a m
eans of cap
ital formation
that con
nects e
ntrepren
eurs with
investors o
ver
the In
ternet. Entrepren
eurs can
post the
ir bu
siness p
lans on crow
dfun
ding web
sites, and
an
ybod
y conn
ected to th
e Internet can
contrib
ute, or invest, in th
ese compa
nies.
How
ever, the
re is catch; investors are limite
d in
the type
s of returns th
ey can
receive from
their
capital con
tributions. C
urrently, investors
cann
ot re
ceive an
y form
of security
, becau
se
“crowdfun
ding doe
s not m
esh with
fede
ral
securities regulation[s].” The
Securities Act of
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
78
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
1933
makes it illegal to offer o
r sell any se
curity
unless th
e iss
uer h
as com
plied with
the
registratio
n requ
iremen
ts und
er se
ction 5 of th
e Ac
t or h
as m
et a re
gistratio
n exem
ption.
“Entrepren
eurs se
eking de
bt or e
quity
fina
ncing
through crow
dfun
ding will often
be selling
[unregistered
] securities,” as c
ompliance with
the registratio
n process is too
expen
sive for
most e
ntrepren
eurs and
the Ac
t’s exemptions
do not fit w
ith th
e crow
dfun
ding m
odel. A
s such, the
re is a trem
endo
us push in W
ashington
to create a ne
w exemption for securities issued
through crow
dfun
ding.
Unfortuna
tely, the
movem
ent to exem
pt
crow
dfun
ded securities o
verlo
oks the
de
vastating conseq
uences of such an
exem
ption. This a
rticle disc
usses w
hy se
curities
offerin
gs usin
g crow
dfun
ding sh
ould not be
exem
pted
from
the registratio
n requ
iremen
ts
of th
e fede
ral securities laws. First, the article
introd
uces th
e concep
t of crowdfun
ding and
the five diffe
rent categories o
f crowdfun
ding.
Then
it disc
usses the
registratio
n requ
iremen
ts
unde
r the
Securities Act of 1
933, why
registratio
n is no
t feasib
le fo
r most
crow
dfun
ded ventures, and
the conflicts
betw
een crow
dfun
ding and
the curren
t registratio
n exem
ptions. Finally, the
article
discusses w
hy crowdfun
ding sh
ould not be
exem
pted
from
the registratio
n requ
iremen
ts,
specifically fo
cusin
g on
how
such an exem
ption
wou
ld se
verely weaken investor protections
and op
en th
e do
or fo
r fraud
to permeate th
e market.
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
79
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
CR
OWDF
UNDING M
ICRO
STAR
TUPS:
IT’S TIM
E FO
R TH
E SECU
RITIES AND
EXCH
ANGE
COMMISSION TO APP
ROVE
A SMAL
L OFFER
ING
EXEM
PTION
http://pap
ers.ssrn.com
/sol3/pa
pers.
cfm?abstract_id=1
9169
85
Pope
, Nikki D.
U. O
F PE
NNSYLVAN
IA
JOURN
AL OF BU
SINESS
LAW, V
ol. 13:4, pages
101 – 12
9.
As so
cial networking web
sites and
crowd-‐ba
sed
prob
lem-‐solving initiatives gain po
pularity,
entrep
rene
urs h
ave be
gun to con
sider th
em as
possible to
ols in a fund
raising m
etho
d, kno
wn
as “crow
dfun
ding”. Current fe
deral and
state
securities regulations, h
owever, lim
it the ways
in which su
ch fu
ndraising m
etho
ds can
be
employed
by en
trep
rene
urs a
nd early-‐stage
compa
nies. This a
rticle fo
cuses o
n fede
ral
securities rules and
regulatio
ns and
recommen
ds cha
nges th
e Securities a
nd
Exchan
ge Com
miss
ion (the
“Co
mmiss
ion”) can
im
plem
ent in fede
ral securities ru
les
and regulatio
ns to
foster su
ch fu
nding initiatives
and facilitate capital formation, while achieving
its m
ission to protect investors from frau
dulent
investmen
t practices.
Crow
dfun
ding: Tap
ping th
e Right
Crow
d http://pap
ers.ssrn.com
/sol3/pa
pers.
cfm?abstract_id=1
5781
75
Bellefla
mme, Pau
l; Th
omas Lam
bert and
Armin Schwienb
ache
r Februa
ry 13, 201
1
The pa
per first a
ims a
t ide
ntifying a nu
mbe
r of
stylized
facts related
to crowdfun
ding th
at are
worth stud
ying from
an econ
omic perspectiv
e.
On the ba
sis of a
uniqu
e, han
d-‐collected
da
taset, we iso
late im
portan
t features o
f crow
dfun
ding. The
second
objectiv
e is to
prop
ose a mod
el of crowdfun
ding th
at
encompa
sses se
veral of the
se key fe
atures. W
e de
rive a mod
el th
at associates c
rowdfun
ding
with
pre-‐ordering an
d price discrim
ination, and
we stud
y the cond
ition
s und
er which
crow
dfun
ding is preferred
to trad
ition
al fo
rms
of externa
l fun
ding. The
mod
el highlights
the im
portan
ce of com
mun
ity-‐based
experience
for c
rowdfun
ding
The Bron
desbury Group
Exem
pt M
arket Investor S
urvey – Ontario Securities Com
miss
ion
80
Title
and
Sou
rce Link
Author
Abstract/Executiv
e Su
mmary
Key Po
ints
to be a viab
le so
urce. A
lso, it sho
ws tha
t crow
dfun
ding is optim
al only for low
er levels of
finan
ce, since otherwise
it lead
s to excessive
price distortio
ns between crow
dfun
ders and
othe
r con
sumers.
The Geo
grap
hy of C
rowdfun
ding
http://pap
ers.ssrn.com
/sol3/pa
pers.
cfm?abstract_id=1
6926
61
Agrawal, A
jay , C
hristian
Catalini, Av
i Goldfarb
University
of T
oron
to,
Janu
ary 6, 201
1.
Perhap
s the
most striking feature of
\crowdfun
ding" is the broa
d geog
raph
ic
dispersio
n of investors. This c
ontrasts with
existing theo
ries tha
t predict entrepren
eurs and
investors w
ill be
collocated du
e to distan
ce-‐sen
sitive costs. W
e exam
ine a crow
dfun
ding se
tting that con
nects
artist-‐en
trep
rene
urs w
ith investors o
ver the
internet fo
r finan
cing early stage musical
projects. The
average distan
ce between artists
and investors is a
bout 3,000
miles, su
ggestin
g a
redu
ced role fo
r spa
tial proximity
. Still, distan
ce
does play a role. W
ithin a single ro
und of
finan
cing, local investors invest relatively early
, an
d they app
ear less respo
nsive to decision
s by
othe
r investors.
We show
this geog
raph
y effect is driv
en by
investors w
ho likely have a pe
rson
al con
nection
with
the artist-‐en
trep
rene
ur (\family and
friend
s"). Althou
gh th
e on
line platform
seem
s to elim
inate most d
istan
ce-‐related
econo
mic
frictio
ns su
ch as m
onito
ring prog
ress, p
roviding
inpu
t, an
d gathering inform
ation, it doe
s not
elim
inate social-‐related
frictio
ns.
i Wroldsen, John S, The Social Network and the Crow
dfund Act: Zuckerberg, Savern, and Venture Capitalists Dilution of the Crow
d. 15 VAND. J. ENT. & TECH. L., Jan. 2013, Forthcoming.
ii Martin, Thomas A, The JOBS Act of 2012: Balancing Fundamental Securities Law Principles W
ith the Dem
ands of the Crowd. W
illam
ette University College of Law, 2012.