Crowdfunding is a process through which an individual or a business can raise small amounts of money from a large number of people, typically via the Internet. The objective is to raise sufficient funds in order to carry out a specific project.
THERE ARE DIFFERENT TYPES OF CROWDFUNDING
1. Donation-based Crowdfunding
In donation-based crowdfunding, donations are made by individuals, usually in small amounts, to go towards a cause, service, or product. Typically donation-based crowdfunding is used to raise funds for charity or someone in need of a special treatment or procedure. These funds are collected online through a funding portal and the donor receives no monetary return, but does enjoy gratification of contributing and helping other people.
2. Reward-based Crowdfunding
In reward-based crowdfunding, donations are made by individuals to help to fund either a product or service. In return for their contribution, they receive a reward, such as a product or service. For example, if an individual/group are raising funds to make a movie, once the movie has been made, any individual who contributed will receive a free copy.
3. Equity Crowdfunding
In equity crowdfunding, a business raises funds and then in turn issues securities (stock or other approved financial instruments), providing the investor the opportunity to profit from the success of the business. As an investor, the expectation is to earn a return or participate in the growth and profits of the business.
This type of crowdfunding is overseen by the securities regulator of your province or territory of residence.
In Canada, issuing securities offered to the public is subject to legal and financial obligations. For example, businesses seeking to raise capital by issuing securities must file a prospectus. These obligations, however, can be costly for small businesses and start-ups.
Under certain conditions in British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick and Nova Scotia (the participating jurisdictions), a start-up or small business that wants to use securities crowdfunding to raise money does not have to file a prospectus or financial statements. The securities regulators refer to this as start-up crowdfunding.
Start-ups and small businesses can raise money under the start-up crowdfunding exemption by posting their business on ConsiderFunding’s funding portal. The business must follow the rules outlined in the exemption and complete an offering document that is then posted on the portal.
The business must post a minimum amount that they want to raise, which is limited to no more that $250,000 per campaign, to a maximum of 2 campaigns per calendar year (total $500,000/yr). If the business does not raise the minimum set amount, all monies need to be returned to the investors by ConsiderFunding.
Investors can invest a maximum of $1,500 per campaign.
Once the business has raised the minimum amount it needs, the business may complete its start-up crowdfunding campaign. In this event, your money will be released by ConsiderFunding to the business and you will receive confirmation of your purchase.