Crowdfunding has become a great alternative for a business to raise funds and investors to diversify their portfolios. Usually, the investor can buy into an investment, the transaction takes place on the internet and it is available 24/7. The win-win situation for a business to access a new source of funds and investors to earn above-average returns, aside from traditional banking institutions, has been gaining traction and proving its value across the world. Yearly, crowdfunding raises US$17.2 billion in North America, and its number is growing steadily, suggesting that it will reach astronomical heights within the next few years1. Although the dynamic is perfect, certain aspects such as an investing ceiling and limited investor profiles hold back crowdfunding potential, not to mention it is considered high risk. That is when it comes to placing EMD (exempt market dealer) equity crowdfunding portal and combining the best of both worlds. With an EMD licensing portal, a business can access the same benefits, without facing an investing ceiling, and an investor can access compliant deals and which better suit their profiles.
An exempt market dealer is a registered securities dealer licensed to issue and sell exempt market products. Also, exempt market products are products that don’t require a large range of documentation to be sold as a security. EMDs wear many hats at the same time, as they provide protection and support for both business and the investor, by moving the money securely to the right place, and ensuring the funds are from a reliable source (no fraud, money laundering, or terrorist financing). Given that it is open to the general public to invest and there’s no limit to investing for accredited investors, therefore, it may allow the business to close deals with a fewer number of investors and faster turnaround time.
EMD reliability is derived through its rigorous compliance and due diligence process it performs on the deals and investor protection. From an investor's perspective, it is paramount to make sure that the KYC (know-your-client) process meet the regulation, and qualifies the right investor to the investment opportunity. On the business building side, the same applies to the KYP (know-your-product) process, since the EMD must understand the details of every investment and proceed with full due diligence on every product before offering it to the public. It can seem like a lot, and yes, it is, but the hard work happens behind the scenes. When comes time to add the investment in their portal (a.k.a website) the hard work has been done already, and an investor can access it through the tip of their fingertips.
Another big win for EMD relies on the capital and solvency requirement. As people say, you should put your money where your mouth is, for EMD, it is no longer different. EMD must maintain an excess working capital of at least, $50,000 at all times to ensure its own liquidity. They are also required to carry a variety of insurance coverages to protect not only themselves, but also clients. Last, but not least, they’re required to provide audited financial statements to regulators annually.
It seems like crowdfunding is here to stay. As you can see, there’re lots of benefits in using this alternative for raising funds, while allowing the general public to create a community and access good deals. However, it is a high-risk class of investment; investors should always keep that in mind. One good way to mitigate the risk, and putting your money to work hard for you, is to invest through an EMD crowdfunding portal. Canadian regulators always want the investors to check the license of the company offering investments. Regulators have created a webpage for all the licensed EMD’s operating in Canada. So, if you would like to check whether your crowdfunding platform is EMD licensed just click here.
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2 - Equity Crowdfunding in Canada and The Start-up Exemption (Q & A) | National Crowdfunding & Fintech Association of Canada (ncfacanada.org)