ncfa corporate partners - national crowdfunding & fintech...

Workshop Sponsors:

Presenting Partners:

NCFA Corporate Partners:

8:55AM Welcome and Overview

9:00AM Angel & VC perspectives and Funding Options

9:30AM Raising Capital on an Equity Crowdfunding Platform

10:00AM Regulations, Legal and Compliance in Canada and US

10:30AM Networking Break (15mins)

10:45AM Risks and Challenges vs. Best Practices

11:15AM Accounting, Tax and Financial Planning

11:45AM Q&A Discussion

12:00AM Networking until close

WiFi Network:Dentons Public

Twitter:@NCFACanada

#NCFAlive

Equity Crowdfunding Bootcamp: Tue, Jul 28

Morning Program:

Panel: Globe and Mail (moderator), EVP, NACO and The Funding Portal

Presentations: Coupgon and Optimize Capital Markets

Intro: National Crowdfunding Association of Canada

Presentations: Dentons Canada and Dentons US

Presentations: The SVX and OurCrowd

Presentation: BDO

Open Mic

“Crowdfunding is taking the world on by Storm”Finance Minister of Canada, Joe Oliver

Crowdfunding Models

Basic Models

Level of

Uncertainty

“Crowdfunding is the process of raising capital online (leveraging the internet and social media) to fund a project or venture”

Inclusive part of an issuer’s capital stack

• Crowdfunding isn’t a stand alone funding source. Equity crowdfunding includes angels and VCs participating online as well.

• One big difference…Equity crowdfunding platforms can scale

• If ECF doubles yearly (like the rest of crowdfunding), it will reach $36B by 2020 and become a leading source of start-up funding

– Chance Barnett, CEO of Crowdfunder

Trending: Attracting institutional investors

Oculus Rift – Potential for Equity

• Raised $2.4 million (goal was $250K)

• Crowdfunding as an economic generator and on-boarding ramp to follow-on investment

• March 25th news report Oculus was just bought by Facebook for $2 billion

2014 Global Crowdfunding Markets ($16.2B)

2014 Global Crowdfunding Markets

7%9%

12%

72%

Equity

Reward

Donation

Lending

By Model (2014)Lending = $11.08bn Donation = $1.94bn Reward = $1.33bnEquity = $1.11bn

$16.2Billion

Growth and Funding Volume by Model

Regional Market Diversification

Education andResearch

Integrity (reduce risk)

Increasing Efficiency

CrowdfundingInfrastructure

1

2

3

45

NCFA and the Canadian Crowdfunding Industry

1500 Subscribers3200+ Followers

1100+ Members

90+ Platforms20+ Providers

45 Portals

Future

2015

2014

2013

Oct 2012 Educate AdvocateNational Peer

Network

Revolutionizing the coupon industry.

The Idea.

You’re crazy! ”- Everyone

“

The Struggle.

Seed round.

The Journey.

Uh oh.

Cash injection.

Evolution.

Uh oh.

Series A.

Growth.

Uh oh.

Yesterday.

Private Public

Today.

PrivatePublic

Crowdfunding

Please make all cheques out to Coupgon Inc.

The End.

[email protected]

THE CROWDFUNDING

LANDSCAPE

Overview

Disclaimer

The following document contains certain forward-looking statements and forward-looking information, which is based on current expectations, estimates, projections, assumptions and beliefs. By their nature, forward-looking statements involve a number risks and uncertainties, because they relate to future events and circumstances and there are many factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements may be identified by words such as “believes”, “expects”, “anticipates”, “projects”, “projected”, “pro forma”, “intends”, “forecasted”, “forecast”, “assumed”, “should”, “continue”, “seeks”, “may”, “will", "estimates”, “estimated”, “future”, “could”, “probably” or similar words or expressions or by discussion of strategy, goals, plans, intentions or projections of revenues, earnings, segment performance, cash flows, contract awards, market size, industry trends, expenses and future financing.

It is believed that the expectations reflected in the forward-looking statements and forward-looking information are reasonable, but no assurance can be given that these expectations will prove to be correct, and such forward-looking statements and information should not be unduly relied upon, because the actual future results may differ materially from the plans, goals, and expectations set forth in such forward-looking statements. The forward-looking information and statements are only as of the date they are made. All subsequent written and oral forward-looking statements made are qualified by the cautionary statements in this section. There is no undertaking or assumption of any obligation to update or revise any of the included forward-looking statements or information, whether as a result of new information, changes in expectations or circumstances, future events or otherwise.

The information in this document is confidential to the person or entity to whom it is addressed and should not be disclosed to any other person or entity. It may not be reproduced in whole, or in part, nor may any of the information contained therein be disclosed without the prior consent of the Company which is being featured in this document. A recipient may not solicit, directly or indirectly (whether through an agent or otherwise) the participation of another institution or person without the prior approval of the directors of the Company which is being featured in this document.

The contents of this document have not been independently verified and they do not purport to be comprehensive, or to contain all necessary information to make an investment decision. No representation, warranty or undertaking, expressed or implied is or will be made or given and no responsibility or liability is or will be accepted by the company being featured in this document or by P2P Financial Inc., doing business as Optimize Capital Markets, or by any of its directors, employees or advisors in relation to the accuracy or completeness of this document or any other written or oral information made available in connection with Optimize Capital Markets.

Any form of reproduction, dissemination, copying, disclosure, modification, distribution and or publication of this material is strictly prohibited.

Who We Are

Optimize Capital Markets™ is leading the next generation of Investment Banking Firms through its Institutional Corporate Finance Team coupled with its Institutional Marketplace.

We focus on both public and private entities that need growth capital to maximize their business activities. We have been able to differentiate ourselves dramatically from the typical bank by providing our corporate clients traditional corporate finance services along with access to Our Online Institutional Marketplace.

Investment Banking With An Online

Institutional Marketplace (The OCMX)

Institutional

Crowdfunding

Retail

CrowdfundingVs.

Size of Investment

Size of Financing

Type of Investor

Equity vs. Rewards

The OCMX Marketplace

Online

Institutional

Marketplace

1 Technology

2 Life Sciences

3 Clean Tech

4 Infrastructure & Real Estate

5 Energy & Resources

6 Consumer Products

TYPES OF COMPANIES

1 Institutional Investors

Fund Managers

Private Equity

Pensions

Venture Capital

Hedge Funds

Banks

Lending Institutions

Government Agencies

Insurance Companies

2 Financial Advisor Community

Independent Financial

Advisors

Investment Counsellors

Optimize Portfolio Managers

3 Accredited Investors

Successful Entrepreneurs

Family Offices

POTENTIAL INVESTORS

Participating Issuers

Types of Participating Companies1 4

TECHNOLOGY

CONSUMER

PRODUCTS

TECH

SCIENCE

INFRASTRUCTURE

& REAL ESTATE

ENERGY

Integrity & Reputation Are Key

Initial Screening of Potential Companies

Less than 10% of Prospective Issuers

Get Approved for our Marketplace

Background Diligence- Business Background

- Management Team

- Market Size

Detailed Financials- Market Research

- Competitive Analysis

- Comparative Advantage

Final Decision-Our Investment Committee

Makes the Final decision

Innovative Financing Solutions

Equity Options

Equity related Offerings

Private Placements

Preferred Shares

Project Financings

Real Estate Deals

CAPEX Financing

Energy and Resource

Developments

Fixed Income Options

Debt Recapitalization

Straight & Convertible Debt

Securing Bank & Project

Financing

High Yield Debt

Crowdfunding Process

A DISCIPLINED PROCESS

Step 1

Kick-Off

Meeting

Step 2Due

Diligence

Step 3

Strategic

Overview

Step 4Investor

Materials

Step 5Key

Investor

Groups

Step 6

List

Opportunity

Step 7

Marketing

Campaign

Best Practices

• Prep Work Upfront

• Know Your Audience

• Get Agreement from Stakeholders Upfront

• Focus on Opportunity NOT on Financing

Vehicle

• Clean & Simple Corporate Structure

• Leverage Investor Feedback

• Be Open to All Offers

Equity Crowdfunding

Regulations, legal and compliance in Canada

28 July 2015

1

Jason Saltzman

Presented to the National Crowdfunding Association of Canada –Equity Crowdfunding Workshop

Crowdfunding: Overview

28 July 2015 2

• Securities regulators globally have been examining the concept of

“crowdfunding”

• In Canada, when a company issues securities it must comply with applicable

securities regulations which effectively, means that either a prospectus must

be filed and provided to prospective investors or the securities must be

issued in accordance with an exemption from the prospectus requirements.

• Those offering securities to the public must be registered unless there is an

exemption available.

• Basic Policy Considerations:

• Prospectus: ensure that investors obtain sufficient information in order to make an

informed investment decision and that companies issuing securities are held

accountable for disclosure and any misrepresentations.

• Registration: ensure that the principal individuals who are facilitating the offering of

securities meet certain proficiency requirements and that sufficient background

checks are undertaken in advance on its directors, officers, promoters and control

persons.

Crowdfunding: Overview (cont’d)

28 July 2015 3

• Saskatchewan was the first province to exempt equity crowdfunding from the

prospectus requirements.

• The Ontario Securities Commission (“OSC”) has recognized the need to

address crowdfunding and implement a regulatory framework as part of its

overall review of the exempt market, with a particular focus on investing through

online funding portals.

• Certain provinces have adopted a “start-up” crowdfunding exemptions. Ontario is

not a participating in the new crowdfunding regime as a result of its concerns in

part on the lack of registration requirements for funding portals and the desire to

incorporate higher capital raising limited.

• Ontario is expected to announce its own rules in the Fall of 2015 and expects

these rules will follow the framework which it had proposed in March 2015.

• Alberta is notably absent from the participating provinces which have adopted the

“start-up” crowdfunding exemptions, leaving it as a significant outlier amongst

Canada’s more significant capital markets.

Prospectus Exemptions and Crowdfunding

28 July 2015 4

• There are a number of exemptions already in place which

currently would facilitate equity based crowdfunding in

Canada; some of which are available nationwide, whereas

others are only available in certain provinces:

• Accredited Investor

• Offering Memorandum Exemption

• Start-Up Crowdfunding Exemption

Accredited Investor Exemption

28 July 2015 5

• Accredited Investor: is the most widely used exemption for capital raising purposes, as it is available

nationwide and allows companies to raise an unlimited amount of capital by distributing securities to

persons and individuals who qualify as “accredited investors”, which include:

• individuals who, alone or together with a spouse, own financial assets worth more than $1MM before

taxes but net of related liabilities.

• an individual, who alone or together with a spouse, has net assets of at least $5MM

• an individual whose net income before taxes exceeded $200,000 in both of the last two years and who

expects to maintain at least the same level of income this year.

• an individual whose net income before taxes, combined with that of a spouse, exceeded $300,000 in

both of the last two years and who expects to maintain at least the same level of income this year.

• an individual who is or once was, a registered advisor or dealer other than a limited market dealer.

• Risk Acknowledgement: recent amendments have been implemented to this exemption whereby

companies will now be required to obtain executed risk forms from all individual investors relying on this

exemption that do not qualify under the highest asset threshold ($5MM) to ensure that these investors

understand the risk associated with purchasing securities in the exempt market.

• Confirmation of Representations: expanded guidance focused on the responsibilities of companies to

confirm that investors are eligible to rely on the accredited investor exemption, which will necessitate the

adoption appropriate policies and procedures to address these new requirements.

• Use of “offering materials”

The Offering Memorandum Exemption (“OM

Exemption”): NI 45-106, s.2.9

28 July 2015 6

• The OM exemption is available in all jurisdictions in Canada except Ontario

• The exemption allows reporting and non-reporting issuers to issue securities by providing

prospective investors with an offering memorandum and a risk acknowledgment form

signed by investors

• Form 45-106F2 Offering Memorandum for Non-Qualifying Issuers contains disclosure

about:

• the company or the entity that is raising money;

• the directors, management and promoters;

• the securities offered;

• the risks of the investment;

• how the money will be used; and

• financial statements (audited annual and unaudited interim).

• There are currently two versions of the exemption available in different provinces:

• s.2.9(1) of National Instrument 45-106 (the “BC Model”) available in British Columbia, New Brunswick,

Nova Scotia and Newfoundland

• s.2.9(2) of National Instrument 45-106 (the “Alberta Model”) available in Alberta, Manitoba, Northwest

Territories, Nunavut, Prince Edward Island, Quebec, Saskatchewan and Yukon

The OM Exemption (cont’d)

28 July 2015 7

• The BC model does not restrict the types of investors and is available to any investor under this

exemption with no investment limits

• The Alberta Model imposes an enhanced layer of requirements compared to the BC model.

Under the Alberta Model:

• the purchaser must be an "eligible investor" or the acquisition cost of the securities does not

exceed $10,000 per investment.

• The exemption is available to non-redeemable investment funds and mutual funds that are reporting

issuers

• An “eligible investor” includes:

• a person whose:

i. net assets, alone or with a spouse, in the case of an individual, exceed $400,000;

ii. net income before taxes exceeded $75,000 in each of the 2 most recent calendar years and who

reasonable expect to exceed that income level in the current calendar year;

iii. net income before taxes, alone or with a spouse, in the case of an individual, exceeded $125,000 in

each of the 2 most recent calendar years and who reasonable expect to exceed that income level in the

current calendar year;

• an accredited investor;

• family, friends and business associates; or

• a person that has obtained advice regarding the suitability of the investment and, if the person is

resident in a jurisdiction of Canada, that advice has been obtained from an eligibility adviser.

Start-Up Crowdfunding Exemption: Overview

28 July 2015 8

• On May 14, 2015, the securities regulators of 6 provinces and the Canadian Securities

Administrators (CSA) adopted the start-up crowdfunding exemption through Multilateral

CSA Notice 45-316 – Start-up Crowdfunding Registration and Prospectus Exemptions.

• The exemptions will remain in force for a period of 5 years (expiring on May 13, 2020).

• The participating jurisdictions are:

• British Columbia

• Saskatchewan

• Manitoba

• Quebec

• New Brunswick

• Nova Scotia

• The start-up exemption actually comprises two separate exemptions:

1) the “Start-up Prospectus Exemption”: an exemption from the requirements to file a prospectus

when issuing securities

2) the “Start-up Registration Exemption”: an exemption from the dealer registration requirements for

funding portals

Start-up Prospectus Exemption: Key Features

28 July 2015 9

• The issuer can raise a maximum of CAD$250,000 per offering and can only conduct up

to two offerings per year (therefore, a maximum of $500,000 in a year)

• An investor can invest no more than CAD$1,500 per offering

• Investors must be provided with a contractual right to withdraw within 48 hours of their

subscription

• The distribution may remain open to up to a maximum of 90 days from first launch

• The issuer must be a non-reporting issuer (and cannot be an investment fund)

• The issuer will not be required to provide investors with financial statements either at the

point of sale or on an ongoing basis, but the issuer will be required to produce:

• Form 1 – Start-up Crowdfunding – Offering Document: includes basic information about its

company, its management and the distribution, including how the business intends to use the funds

raised, and the minimum offering amount; must be made available to investors and filed with securities

regulators no later than 30 days after the closing of the distribution

• Resale Restrictions: the eligible securities are subject to an indefinite hold period and can

be resold only pursuant to (a) another prospectus exemption, (b) a prospectus, or (c) 4

months after the issuer becomes a reporting issuer

Start-up Registration Exemption: Key Features

28 July 2015 10

• The funding portal must deliver a funding portal information form and

individual information forms for each of its principals to the

regulators in the participating jurisdictions 30 days prior to its first start-

up crowdfunding distribution

• The funding portal’s head office must be located in Canada and the

majority of its directors must be Canadian residents

• The funding portal cannot provide advice to an investor, cannot

recommend a security and cannot receive a commission or fee from

an investor

Start-Up Crowdfunding Exemption (cont’d)

28 July 2015 11

• Registered dealers can also operate funding portals provided they:

• meet their existing registration obligations under securities legislation

(including the know-your-client, know-your-product and suitability obligations

owed to investors)

• confirm to issuers that the funding portals meet certain of the conditions

in the start-up crowdfunding exemption, such as making available to

investors an offering document and risk warning

• receive an acknowledgement from any person entering the funding portal’s

website that the funding portal is operated by a registered dealer that will

provide suitability advice

• be registered in an appropriate dealer category under National Instrument

31-103 Registration Requirements, Exemptions and Ongoing Registrant

Obligations (NI 31-103)

• file a Form 33-109F5 Change of Registration Information that describes the

change in its business to include operating a funding portal

Recent Developments in Ontario

28 July 2015 12

• On July 14, 2015, the OSC’s Corporate Finance Branch published its 2014-2015 Annual Report

• The OSC identified two key themes from the comment letters received during the comment

periods for proposal for both the Ontario Start-up Crowdfunding (Multilateral Instrument 45-108

Crowdfunding) and OM exemptions:

• “Need for greater harmonization – Several stakeholders highlighted the benefits of

harmonized regulation of the exempt market. In response to those comments, we have worked

closely with the other participating CSA jurisdictions to achieve greater harmonization, where

possible.”

• “Concerns regarding restrictions on capital raising – Several stakeholders expressed

concerns that certain aspects of the proposals, such as the proposed investment limits, may

have been too restrictive to significantly facilitate capital formation. As a result, we plan to make

changes to respond to those concerns.”

• The OSC stated their intention to publish the OM exemption and crowdfunding regime in final

form and deliver the rules to the Minister of Finance for decision in fall 2015

• Additionally, the OSC provided further details regarding the content of the two exemptions

The Proposed Crowdfunding Exemption in Ontario –

MI 45-108 Crowdfunding

28 July 2015 13

• On March 20, 2014, the OSC published for comment a proposal for its own “integrated

crowdfunding exemption” developed with input from regulators of other CSA jurisdictions

• The proposed exemption would be made available to reporting and non-reporting issuers,

including registered dealers

• However, investment funds, issuers without a written business plan (“blind pools”) and issuers

whose directors are not residents of Canada would be excluded from using the exemption

• Issuers would be required to present to investors an offering document, Form 45-108F,

disclosing basic information about its company, its capital structure, management and the

distribution, including how the business intends to use the funds raised, the minimum offering

amount and information about the funding portal being used

• The proposed exemption would cap the amount an issuer could raise at $1.5 million during a

12 month period

• A funding portal applying the exemption would be required to register with securities regulators

as a restricted dealer

• Investors who do not quality as accredited investors would be limited to $2,500 in a single

investment and $10,000 in a calendar year; accredited investors would have higher

investment limits and permitted clients would not be subject to any limits

The Proposed OM Exemption in Ontario

28 July 2015 14

• On March 20, 2014, the OSC published for comment a proposal for an OM exemption in Ontario

• The proposal follows the Alberta’s model of the exemption, with a few key differences (i.e. there is no

limit to the amount an eligible investor can invest under the Alberta model)

• Under the Ontario Proposal, there would be no limits imposed on:

• the amount of money an issuer can raise;

• the number of offerings an issuer can make in any given time period;

• the number of offerings that may be made by individuals involved with the issuer (i.e. directors, officers

control persons or promoters);

• the length of time an offering can remain open; and

• the use of proceeds raised under the exemption.

• The OSC Corporate Finance Branch’s 2014-2015 Annual Report published on July 14, 2015, provided

that investors who are individuals would be subject to the following limitations:

• an individual who is not an “eligible investor” would only be permitted to invest up to $10,000 per year;

• an individual who is an “eligible investor” would be permitted to invest up to $30,000 per year; and

• an individual who is an “eligible investor” and receives advice from a portfolio manager, investment dealer or

exempt market dealer that an investment above $30,000 is suitable would be permitted to invest up to

$100,000 per year.

• Other differences from the Alberta model include changes to the calculation of net assets, the exclusion

of investment funds from relying on the exemption, the exclusion of specified derivatives and structured

finance products from offerings, etc.

Practical Considerations for Crowdfunding

Transactions

28 July 2015 15

1. Documents and agreements must be consistent with exemptions that are being relied

upon

2. Subscription Agreements must be made available on platform whereby issuer and any

dealer gets proper representations from investors on the following items

a. Jurisdiction of residence

b. Investor status

c. Acknowledgements relating to private company investing, risks, hold periods, etc.

d. Agreement to accept terms of any shareholder agreement

3. Verification of status by issuer and any dealer

4. Offering documents

5. Logistics regarding payment of investor funds, delivery of share certificates and other

investor documents.

6. Due diligence / screening by portal

7. Filing of report of trade forms, fees and offering documents within prescribed time

periods.

Dentons Canada LLP

77 King Street West

Suite 400

Toronto, Ontario M5K 0A1

Canada

Thank you

© 2015 Dentons. Dentons is a global legal practice providing client services worldwide through its member firms and affiliates. This document is not designed to provide legal or other advice and you should not take, or refrain from taking, action

based on its content. We are providing information to you on the basis you agree to keep it confidential. If you give us confidential information but do not instruct or retain us, we may act for another client on any matter to which that confidential

information may be relevant. Please see dentons.com for Legal Notices.

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interconnected world. A top 20 firm on the Acritas 2014 Global Elite Brand Index, Dentons is committed

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www.dentons.com.

28 July 2015

Crowdfunding

in the United States

Marc H. Mandel

For the National Crowdfunding Association

of Canada Equity Crowdfunding Workshop

What is a security?

28 July 2015 2

• An expectation of profit from the efforts of others

• Cofounders vs. employees vs. others

Securities laws pertain to shares given or sold to employees and others

• What about startup loans?

Loans are securities if for general corporate purposes, widely distributed,

investors expect them to be securities

Contrast commercial loans to acquire a particular asset, where lending laws

suffice, and are not normally securities

What is a security?

• What about Kickstarter / Indiegogo?

Rewards are not securities under federal law

Federal Trade Commission jurisdiction

Some states may view putting capital at risk for a valuable reward as a security

(CA, WA)

04 August 2015 3

Who regulates securities?

• Overlapping jurisdiction of the SEC vs. the 50 states

SEC and the states always have concurrent jurisdiction to prosecute fraud

Some federal exemptions preempt state registration, but never anti-fraud rules

SEC regulates adequacy of disclosures, but some states also regulate the

merit of the offering to be sold in the state even if adequately described

No SEC regulation of intrastate offerings to ppl. in state where issuer resides

2,000 holders or 500 non-Accredited Investors (“AIs") and $10mm in assets =

public reporting

This cap contained in Exchange Act Sec. 12(g) applies to private Canadian

entities with >= 300 US resident shareholders

• What is regulated? Offers and sales, not companies

This includes resale of securities: one year holding period for private company

shares

04 August 2015 4

Who regulates securities?

• What is a broker and why does it matter?

Hallmarks of brokerage: receiving transaction compensation, holding funds or

negotiating sales

Unlicensed brokerage activity is basis for rescission (an investor put option for

buyer’s remorse)

Broker-Dealer exemption for online platforms if no hallmarks of brokerage

activity

Can make offers, co-invest, perform ancillary services such due diligence and

distributing documents

Can charge for ancillary services and charge carried interest on profit at exit

Does not allow general solicitation, but achievable under the No Action

Letters

• Consequences of violating the law

Jail, fines, injunction, bans on future access to capital markets (“bad actor”

disqualification)

04 August 2015 5

Securities offering basics

• Three types of offerings

Registered, exempt and illegal

• Crowdfunding via IPO?!

It’s a crowd, but is expensive requires expertise of an underwriter that will only

underwrite sizeable deals (e.g. $30mm in revenue)

Multijurisdictional Disclosure System allows Canadian issuers to make

registered public offerings in the U.S. using a prospectus mainly compliance

only with Canadian law

• Exemptions for registration for crowdfunding:

Regulation D

•Regulation A+

Jobs Act Title III (anticipated to be adopted in October)

Intrastate offerings

04 August 2015 6

Crowdfunding with Regulation D

• Accredited Investors status is the lynchpin

Traditional Reg. D — up to 35 non AI at most

Premise is all private approaches; including a single non-AI triggers disclosure

requirements

Watch what you tweet or you will end up in new 506(c)

• Modern Reg. D on the Internet under 506(c)

Rolling your own

Advertise online and take reasonable steps verify AI status (bank, tax forms)

Use a third party AI verification service (e.g. SecondMarket)

Investment fund model

FundersClub and AngelList became SEC approved business models in 2013

Substitute for VC financing

They raise a funds from AIs under Regulation D roll them into an investment fund

Broker-dealer model

CircleUP (US entities), allows AI to invest directly in startups in a min/max round

04 August 2015 7

Crowdfunding with Regulation D

• Peer-to-peer lending

LendingClub (US entities only) up to $300k for business loans; Prosper.com

Series of notes are SEC registered in continuous process, so not limited to AIs

Significant state law restrictions on lending

04 August 2015 8

Crowdfunding with Regulation A+

• Basics: SEC approved public disclosure + internet

advertising

• Who can use Reg A+?

Formed and HQ in US or Canada; no investment, blank check, or mining /

mineral interest issuers

• Tier 1: up to $20mm in 12 months

Including $6mm of resales, but capped at 30% in initial and second year

offerings

No limit on number of AIs or amount they can purchase, but count toward

2,000/500 limit

Requires registration in each state of offering to comply with “blue sky” laws

New consolidated review program for blue sky: make one filing to registered in

all offering states

No ongoing SEC compliance and no audit requirement for financial statements

04 August 2015 9


• Tier 2: up to $50mm in 12 months

Including $15mm of resales, but capped at 30% in initial and second year

offerings

Non AIs limited to greater of 10% of yearly income or net worth (revenue or net

assets for entities) per deal

Self certification of accredited status is okay in contrast to Reg D with

advertising

Holders excluded from 2,000/500 limit if amount held by non-affiliates < $75mm

No registration with the states, but states currently challenging this Tier 2

preemption

Financial statements must be audited, but auditor need not be PCAOB

registered

On going annual, semi annual and current reporting similar to public companies

04 August 2015 10


• Disclosure requirements

Form A-1 consists of Part I Summary, II Offering Circular, III Exhibits, F/S

Two years of F/S with US GAAP or IFRS for Canadians

Level of disclosure similar to an IPO; can be satisfied using IPO forms (S-1)

• Advertising and liability

Only limited “testing the waters” communications prior to filing publicly Form A-1

Requires disclaimers, no commitments, subject to anti-fraud, state law if Tier 1

After public Form A-1 filing, can make binding offers, subject to SEC

qualification

After SEC qualification of Form A-1 (6-9 months anticipated), can make sales

Issuer, D&Os, selling shareholders liability for written and oral statements,

without intent

04 August 2015 11

Crowdfunding Under JOBS Act Title III

• Section 4(a)(6) enacted but Regulation Crowdfunding is not

yet the law (targeted for October)

• Per issuer and per investor limits

$1mm on a rolling 12 month basis for company and affiliates; 4(a)(6) $ raised

not "integrated" with other securities issuances

Investors with 12 month income and NW < $100k can invest the greater of $2k,

5% of income and 5% NW

Investors with 12 month income or NW > $100k, can invest the greater of 10%

of income or NW, up to $100k

Must offer through single online broker or portal; portal tracks investor limits

Securities do not count toward Section 12(g) 2,000/500 person limit

04 August 2015 12


• General disclosure obligations (File new Form C on EDGAR

21 days before 1st sale)

Identity of the issuer, D&O and 20% stockholder info

Business plan info (detail unspecified, but SEC raised question of scope in

proposal)

Offering price; use of proceeds; description of securities incl. voting, transfer

restrictions

Risk factors, description of debt, # employees, insider transactions, fees to

intermediary

04 August 2015 13


• Financial disclosure obligations (based amount sold last 12

months plus current amount targeted)

<= $100k, US GAAP FS for 2 years plus last year’s tax return, certified by PEO

$100k to $500k, US GAAP FS for 2 years reviewed by independent public

accountant

> $500k, US GAAP FS for 2 years audited by independent public accountant

Discussion of financial condition: results of operations, liquidity, capital

resources

04 August 2015 14


• Significant limitations

Must be US issuers, but forming a US subsidiary is easy

Must be an operating co., not blank check or investment company (no real

estate investment companies)

Ads ok, but content limited to issuer, $ amount, security type, closing date, link

to portal

Ad rules bind employees, other promoters; both must disclose their comp in

each ad

Liability to D&Os, sellers, portals, for written oral misstatements (rescission or

damages)

Update Form C yearly w/in 120 days of year end until all securities resold or

IPO

No resale for one year unless to issuer or AIs, registered or to family upon

death/divorce

04 August 2015 15


• Requirements for all intermediaries (none apply to current AI

crowdfunding portals)

Registration with FINRA, and as a broker or funding portal with the SEC

Intermediaries and their principals may not have a financial interest in the

issuers

Act as gatekeepers, with reasonable belief the transaction complies with laws

Must perform background checks on D&Os and 20% owners

Required to educate investors on offering road rules and risks

Must enforce annual per investor limits across all portals (but may rely on

investor’s word)

04 August 2015 16


• Additional requirements for funding portals (not registered as

brokers):

May not provide investment advice or recommendations

May not solicit purchases or sale of the securities offered on the portal

May not handle funds or pay compensation based on sales

04 August 2015 17

Intrastate Crowdfunding

• Rules enacted in about half of the 50 states; not much data

but NYT cited 95 intrastate offerings to date

• Federal exemption premised on a local offering by a local

business (Securities Act Sec. 3(a)(11) + Rule 147)

Principal office, plus 80% of gross revenues, assets and proceeds all in the

state

No resales out of state for 9 months after last issuer sale

No concurrent intrastate offerings in 2+ states due to "integration" of offerings

Integration if one plan of financing, same class, time, consideration and purpose

Obvious advantage for high population states, but no rules yet in CA or NY

04 August 2015 18

Intrastate Crowdfunding

• Offering basics

Maximum offering generally $1-2mm; typical cap of $10k per investor unless AI

Audited financial statements required for higher offering amounts

Issuers required to be either formed or qualified in the state

Issuers either required or encouraged to use portals

All internet advertising allowed if properly geo-fenced / limited to the offering

state, but this impractical with social media

Issuers may use state law compliant portals with disclaimers and self

certification by investors of their state of residency

04 August 2015 19

Analysis and recommendations

• No sale of securities is a good option if feasible (Kickstarter)

• Pitfalls of having a large investor base

Exceeding 500 non-AI limit, more plaintiffs, less professional potential plaintiffs

Burdensome logistics for voting, notices, and related shareholder governance

May limit options for or be less attractive to future sources of financing

• Liability may be greater if issuers free form ads instead of

disclosure documents vetted with counsel

• Private Reg. D preferable to advertising if feasible

• If advertising required to raise capital, use a structured Reg.

D portal with carefully vetted advertising instead of a DIY

solution with free form ads

04 August 2015 20

Dentons US LLP

1221 Avenue of the AmericasNew York New York 10020

Thank you

© 2015 Dentons. Dentons is a global legal practice providing client services worldwide through its member firms and affiliates. This document is not designed to provide legal or other advice and you should not take, or refrain from taking, action

based on its content. We are providing information to you on the basis you agree to keep it confidential. If you give us confidential information but do not instruct or retain us, we may act for another client on any matter to which that confidential

information may be relevant. Please see dentons.com for Legal Notices.

Dentons is a global law firm driven to provide a competitive edge in an increasingly complex and

interconnected world. A top 20 firm on the Acritas 2014 Global Elite Brand Index, Dentons is committed

to challenging the status quo in delivering consistent and uncompromising quality in new and inventive

ways. Dentons' clients now benefit from 3,000 lawyers and professionals in more than 80 locations

spanning 50-plus countries. With a legacy of legal experience that dates back to 1742 and builds on the

strengths of our foundational firms—Salans, Fraser Milner Casgrain (FMC), SNR Denton and McKenna

Long & Aldridge—the Firm serves the local, regional and global needs of private and public clients.

www.dentons.com.

Marc H. Mandel

[email protected]

+1.212.398.5832

Session 4: Risks & Challenges / Best Practices

NCFA Equity Crowdfunding Bootcamp

Toronto, July 28, 2015

Best Practices. Or what NOT to do

1. Consumer appetite / competition

2. Build your crowd in advance

3. Leverage social and traditional media

4. External professionals

5. Be due diligence ready

6. Secure initial investments


1. Know your consumer appetite and the competition for your market


2. Build your crowd in advance


3. Use social and traditional media to create a marketing advantage


4. Get an external team of professionals including identifying mentors and board member targets


5. Be due diligence ready (and what does that really mean)


6. Secure initial investments so that the crowd may follow on

Q & ASVX: Carlos Pinto LoboOurCrowd: David Shore

Equity Crowdfunding and Taxes – How can

you make the most out of every

dollar raised?

Equity Crowdfunding Bootcamp

Alex Hardy, CPA, CA – Partner, BDO

Dan Nagle, CPA, CA – Senior Manager, BDO

Nicole Boucek, CPA, CA – Manager, BDO

LOOKING AT TAX SAVINGS FROM ALL ANGLES

Introduction

Tax Considerations for Your Company

CCPC status and impacts

Tax Considerations for Your Shareholders

Remuneration planning

Accounting for Crowdfunding

INTRODUCTION

To date the CRA has been silent on equity crowdfunding

Important to discuss your potential tax exposure with your

tax advisor

TAX CONSIDERATIONS FOR YOUR COMPANY

What is a CCPC?

A private Canadian corporation that is not controlled by

one or more non-resident persons

Why do I want to be a CCPC?

Access to small business deduction

Access to larger SR&ED claims

QSBC status

IN OTHER WORDS CCPC = $ IN YOUR POCKET!


What is the Small Business Deduction (SBD)?

Reduces overall tax that a corporation would have to

pay on up to $500,000 of active business income

New budget announced that the federal rate for small

businesses will be reduced over the next four years as

follows:

10.5% effective January 1, 2016

10% effective January 1, 2017

9.5% effective January 1, 2018

9% effective January 1, 2019

Without SBD With SBD

* Assume December 31, 2014 year end

combined Ontario and Federal rates

Income earned by the business $ 10,000 $ 10,000

Corporate taxes payable $ (2,650) $ (1,550)

Income net of taxes paid $ 7,350 $ 8,450

Net Savings: $1,100!


EXAMPLE


What is SR&ED?

Scientific Research and Experimental Development Tax Incentive Program

Can reduce your income tax liability dollar for dollar

You may qualify to claim the tax incentives as cash refunds from the

government

You can access these tax credits if:

You are working towards a scientific or technological advancement

There is a level of uncertainty to what your are developing

You are conducting your research in a disciplined manner (someone must

be able to repeat the steps you took)

Expenses include salaries, materials and subcontractors

CCPC Other

Refundable ITC on qualified SR&ED

expenditures up to $3 million in

expenditures 35% 0%

Refundable ITC on qualified SR&ED

expenditures over $3 million in expenditures

(qualifying CCPC only) 15% 0%

Non-refundable ITC on qualified SR&ED

expenditures (over $3 million in

expenditures for CCPC) 15% 15%



What is a QSBC and what does it mean?

Qualified Small Business Corporation

Speak with your tax advisor as to whether you meet all the criteria to

qualify as a QSBC, but you must be a CCPC

Eligible individuals are entitled to a cumulative lifetime capital gains

exemption of $800,000 of net gains on the disposition of shares of a QSBC

Sale of QSBC

Shares

Sale of Other

Company Shares

Purchase Price $1,000 $1,000

Sale Price $150,000 $150,000

Capital Gain $149,000 $149,000

Taxable Capital Gain $74,500 $74,500

Taxes Payable (approximate based on

2014 highest personal tax rates)

$0 $36,900


What does all of this mean?

PROTECT YOUR CCPC STATUS!


How to Maintain your CCPC Status:

Company must be controlled by Canadian

Residents


Who is considered a non-resident?

If you routinely live in another country and are

not a resident of Canada

If you do not have significant residential ties in

Canada and you stay in Canada for less than 183

days in the tax year

Significant residential ties include home, spouse etc.


How does this impact equity crowdfunding?

Need to ensure that when issuing shares you are

not leaving yourself exposed to losing control of

your company to non-residents

Very important to discuss your share structure

with your advisor before raising your first round


75%

25%

Control – Before 100 Common Shares

You

Othershareholders

30%

70%

Control – AfterIssued 150 Common Shares

You

Othershareholders

TAX CONSIDERATIONS FOR YOUR SHAREHOLDERS

Methods in which your shareholders can make money:

Dividends

Selling Shares

Salary (not likely in crowdfunding scenario)

Each option has unique tax considerations


It is important to set up different classes of shares:

Common Shares (A, B,C etc.)

Usually voting

Preference Shares (A, B,C etc.)

Usually non-voting

Usually have preferred claim to company’s assets

When declaring dividends, you must pay out to each

shareholder in that class. Different classes allow you

flexibility in who you will pay dividends to.


DIVIDENDS

Important to consider if you are paying a dividend to a Canadian

resident or a non-resident

Non-residents often require a dividend tax withholding depending on

their country of residence

There are substantial penalties and interest on failures to remit and

file the correct forms on these withholdings with CRA

Have a discussion with your tax advisor before declaring dividends to

ensure you are withholding the proper amounts for non-residents


CAPITAL GAINS AND LOSSES

The sale of shares will likely result in a capital gain or loss

Taxation

50% of the gain is taxed at your marginal personal tax rate

Generally, capital losses can be applied to taxable capital gains of

the three preceding years and to taxable capital gains of any future

years

Where the shares are held personally the capital gain may be

sheltered in the capital gains exemption

Note that this exemption is not available to corporate

shareholders


2015 Combined Top Marginal Rates

Jurisdiction Regular

Income

Ineligible

Dividends

Eligible

Dividends

Capital Gains

Ontario > $220K 49.53 40.13 33.82 24.77

Ontario – 2nd tier

top rate

47.97 38.29 31.67 23.99

Ontario Rates — The top rate includes additional tax on regular taxable income in excess of

$220,000. The combined tax rate on regular taxable income over $150,000 but not exceeding

$220,000 is 47.97%

CROWDCUBE

World’s leading investment crowdfunding platform

Based in the UK

£95,000,000 successfully funded

193,544 registered investors

277 businesses successfully funded

SQUARE PIE

Square Pie is a leading name for gourmet pies in the UK with a fast growing

restaurant and grocery business

Currently listed on Crowdcube

Target raise £750,000

Equity: 10%

Using funds to expand

Reward offered:

Invest £10,000 and get 250 free pies over a 2 year period

ACCOUNTING FOR CROWDFUNDING/EQUITY

FUNDING

There are 5 general options to account for crowdfunding/equity funding:

1. Liability

2. Contra-asset

3. Equity (share capital)

4. Revenue

5. Combination of the above

2. CONTRA - ASSET

A contra- asset is an asset account where the balance is a credit balance,

effectively offsetting the asset account

Raising money for the purpose of creating a capital asset could potentially

support crediting a contra-asset account.

For example, cleantech companies

3. EQUITY

In a plain vanilla equity raise, the fund received would go to share capital

For instance, if a company is looking to raise 5% equity for $100,000 and does

not offer any rewards, the funds received would be credited to share capital

In this case there would be no tax attributed to the funds received

4. REVENUE

Revenue usually arises from the sale of goods and/or the rendering of services

and is earned (taxable) when the product/service is delivered

For example, Pebble on Kickstarter

Funds not taxed until shipped

ACCOUNTING FOR SQUARE PIE

The 5th option would likely apply – equity & revenue

Revisit the details

Target raise £10,000 maximum per person

Equity: 10%

Reward offered: Invest £10,000 and get 250 free pies over a 2 year period

ACCOUNTING FOR SQUARE PIE – CONT’D

Receive $10,000 (let’s assume CDN currency)

Each pie retails for $5, therefore total value of pies will be $1,250 ($5 * 250

pies)

The residual to equity is $8,750 ($10,000 minus $1,250)

Initial journal entry to record is Dr. Cash $10,000

Cr. Unearned revenue $1,250

Cr. Equity $8,750

The unearned revenue would then be taxed as the pies are received by

customers

ACCOUNTING FOR SQUARE PIE – CONT’D

The example given ignored HST in order to simplify the accounting

If dealing in Ontario, HST of 13% might apply

QUESTIONS?

CONTACT INFORMATION

Please Contact Us With Any Questions!

Alex Hardy, CPA, CA: [email protected]

Dan Nagle, CPA, CA: [email protected]

Nicole Boucek, CPA, CA: [email protected]

Questions and Answers

Join UsEducation & Research

Advocacy

Networking

Market Integrity

Crowdfunding Infrastructure

Diversification

Support and Leadership

GET IT IN

TOUCH

Canadian Crowdfunding Industry

www.ncfacanada.org

Resources and Contact Us

Workshop Sponsors:

Presenting Partners:

Thank you for attending!Save the date: Mar 3, 2016

| www.thefundingportal.com1

CAPITAL MARKETS AND BUSINESS SOLUTIONS

G




THE ISSUESACCESS, FRAGMENTATION, COST, TIME

All funding options should be assessed to find the best capital structure for

your company, clients, and/or investments. Government funding is often non-

dilutive and non-repayable

There are billions of dollars of government funding and thousands of

sources available in Canada - federal, provincial, and municipal

The time and resources required to find, review, monitor, update, etc. each

individual source in this pool of capital has made this funding option very

inefficient and expensive at best

The information was never organized and held in a centralized database

Therefore government funding was not until now, considered by most

capital markets participants – companies, principals, and agents



THE FUNDING PORTAL SOLUTION

CENTRALIZED FUNDING DATABASE

Fast, easy, thorough, inexpensive Your outsourced government funding search and application company

A funding strategy now open to many more companies and their advisors

Updated daily

Online access

Search ALL government funds

Find funds that match your key criteria

Non-dilutive and non-repayable capital lowers the cost of capital

Capital attracts capital. Business attracts business. The Funding Portal is

growing into a big data company very quickly.



THE FUNDING PORTAL PLATFORM

Companies looking

for funding

Agents(Investment Banks, EMDs,

Investment Advisors, Investor

Relations Firms, Etc.)

Principals (Individual Investors, VCs,

Private Equity, Merchant

Banks, Money Managers,

Hedge Funds, Etc.)Professional Services(Lawyers, Accountants, Etc.)

Public-Sector Funding

Sources(Federal, Provincial,

Municipal)

© The Funding Portal 2014



PREFERRED SERVICE PROVIDERS



FOUNDER, PRESIDENT & CEO

Teri Kirk has 25 years experience as a lawyer, executive

and entrepreneur.

She practiced law for 12 years, both in private practice

and with the Attorney General of Ontario. In that capacity,

she was the senior legal advisor on matters related to

procurement, outsourcing and privatization, including the

Teranet public-private partnership.

In the corporate sector, as a Vice President, Bell

Canada, Ms. Kirk led large-scale e-commerce initiatives

in Canada.

As an entrepreneur, she built and commercialized three e-business ventures.

Ms. Kirk is a registered EMD and has completed Director & Officer training

through IFIC and the CSI and is a Director of the Private Capital Markets

Association of Canada.



PRINT MEDIA COVERAGE



CONFERENCE, TV, AND MAGAZINE

COVERAGE



INDUSTRY ASSOCIATIONS

http://www.pdac.ca/

http://www.pdac.ca/



$5.8B in government funding

and $900M in venture capital

distributed in first half of 2014

TORONTO, ON (Marketwired - Nov. 17,

2014) – New data released today by The

Funding Portal Inc. shows just how critical

government funding is for Canadian

businesses seeking capital for R&D and

expansion.

In the first half of 2014, governments

delivered $5.86B to organizations across a

range of industries.

Over the same period, venture capital deals

amounted to $897M, according to

previously reported findings from Canada’s

Venture Capital and Private Equity

Association.

UNIQUE DATA ON SOURCES OF FUNDING



Principals – Venture Capital, Private Equity, Merchant Banks, Money

Managers, Hedge Funds, etc.

Agents – Investment Banks, Exempt Market Dealers, Investment Advisors, etc.

1. FIND RELEVANT SOURCES OF FUNDING

Companies, Principals, and Agents use The Funding Portal to determine which

funds their company, investee, potential investee, client, or potential client

companies are eligible for from thousands of programs and billions of dollars

Can lower the cost of capital and adds deal structure options

Funds are often non-dilutive and non-repayable

White labeling is available

FUNDING SOLUTIONS FOR CAPITAL MARKETS

– COMPANIES, PRINCIPALS, AND AGENTS



2. ESSENTIAL FUNDING INFORMATION

Receive daily alerts as to what companies are receiving government funding

and looking for funding based on customized criteria

Funded companies are often looking for matching or additional capital or

may be looking for capital in the future

Funded companies have gone through a competitive process and

represent compelling investment opportunities

By analyzing the companies, amounts and sectors where government

funding is being awarded, you have a new and powerful tool in assessing

company and sector development, momentum and support. See what the

competition to your companies has received.

FUNDING SOLUTIONS FOR CAPITAL

MARKETS – PRINCIPALS AND AGENTS



AT THE HEART OF THE SYSTEM IS

MYFUNDCARDTM

Thousands of Canadian

organizations use the portal to find

funding each month

Our MyFundCard platform identifies your

objectives and those of companies to

ensure they are matched and ranked on

the basis of up to 11 distinct criteria:

1. Type of company

2. Region

3. Size (employees)

4. Revenues

5. Stage

6. Sector

7. Key commercial activity or objective

8. Amount of funding required

9. Purpose of the funds

10. Current Funding

11. Government incentives received to date



KEY OFFERING 1: FUNDINGSOURCES™

The authority for your top recommended funds

Critical investment tool for your organization

Should be part of the funding strategy

All the information and data required to

confidently move forward with applications to

your top recommended funds

Grant writing services are available

Quickly learn which funds meet your needs,

and which are the most likely to approve your

application

White labeling is available

“We had raised two successful

rounds and know a lot about

financing, but we just had not

turned our attention to possible

sources of government

financing.

FundingSources gave us an

overview of all possible

programs, ranked them against

our objectives and identified the

top three funds for us.

It descrambled the whole

process for us in just a few days

and at almost no cost.”

REPORTS FOR YOUR, YOUR PORTFOLIO, AND/OR

CLIENT COMPANIES



KEY OFFERING 2: LEADGENERATIONTM

CATEGORY 1 LEADS - COMPANIES THAT SECURED

FUNDING FROM GOVERNMENT

Companies that have just been awarded significant funding and that are closely

aligned with your funding and/or client criteria

Custom highly-targeted data feed and reporting service

Leads generated through our FundingAwards™ database tracking all

incentive programs daily

Leads matched against your profile to generate you custom opportunities



CATEGORY 2 LEADS – COMPANIES LOOKING FOR

FUNDING OR CAPITAL USING THE PORTAL

Companies in our MyFundCard™ platform which are actively looking for financing and

that are closely aligned with your funding and/or client criteria

Custom highly-targeted data feed and reporting service

Leads generated through MyFundCard where we collected 11 data points for

matching

Unique proprietary set of custom leads for your organization

KEY OFFERING 2: LEADGENERATIONTM



OFFERINGS AND PRICING

1.855.850.FUND (3863)

thefundingportal.com

Marc Kaipio

[email protected]

OFFERING BASE PRICE

1. FundingSourcesTM $1,500* for start-ups

$5,000* for non-start-ups

2. LeadGenerationTM $3,000/month

3. Grant Writing Services See next slide

*Volume discounts and white label reports available



GRANT WRITING PRICING GRID

1.855.850.FUND (3863)


Marc Kaipio

[email protected]

GRANT AMOUNT PRICE

< $100,0000 $5,000

$100,000 - $1,000,000 $15,000

$1,000,000 - $10,000,000 $20,000

> $10,000,000 $25,000



The Funding Portal Inc.

1 Yonge Street, Suite 1801

Toronto, Ontario

M5E 1W7

1.855.850.FUND (3863)


Marc Kaipio

[email protected]