What is Equity Crowdfunding

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What is Crowdfunding?

Crowdfunding is the raising of funds through the collection of small contributions from the general public “the crowd” using the Internet and social media.  Crowdfunding has its origins in the concept of crowdsourcing, which is the broader concept of an individual reaching a goal by receiving and leveraging small contributions from many parties.

Traditional Funding – large amounts from one, or a few sources. 

Crowdfunding – small amounts from numerous groups or individuals

Equity Crowdfunding – the sale of a stake in a business to a large number of investors in return for equity in the company

Equity Crowdfunding

Start-up or early-stage businesses can raise money for their operations by selling securities (such as bonds and common shares) to investors through a start-up crowdfunding campaign.

If you contribute, you are an investor and hope to earn interest or participate in future profits of that business.

Can Anyone Invest in a Start-Up Crowdfunding Campaign?

You must reside in a jurisdiction that allows companies to use an exemption to sell securities to investors through start-up crowdfunding, such as British Columbia. It is up to you to protect your own interests by knowing what exemption the company is using to sell you its securities. 

How Much Can You Invest?

The maximum a business can raise from each investor for a project is $2,500.

What Risks do These Types of Offers Have?

Pay close attention to the risk warnings. Before you invest, the funding portal will ask you to confirm that you have read and understood the risk warnings and the offering document. These investments are risky and you could lose your entire investment. This infographic will walk you through the risks of crowdfunding.

How To Get Started with Equity Crowdfunding

1 - Register as an Investor

Create an account—all it takes is your name, email address, and province.

2 - Review Investment Opportunities

Go to Opportunities to view company profiles. 

3 - Initiate Investment

When you find a company that you would like to invest in, click on Invest Now. 

4 - Complete Investment

Once you review the risk warnings and select the amount to invest, you can choose to pay with one of the secure payment platforms that work with Vested: EFT or Interac e-transfer.

Select your preference to verify the amount of your investment and initiate payment by Credit Card or Interac e-transfer.

Your funds will then be held in trust, until such time that the minimum raise amount has been achieved by the company. If you decide that you would like to cancel your investment, you will have a 48 hour period to do so. 

5 - Close Financing

When the company’s minimum raise amount has been reached, and the 90 day raise period has elapsed, the financing will be closed and your shares will be issued.  If the company’s minimum offering amount is not reached, your payment will be returned to you.

What are the Expected Types of Returns?

Returns are always uncertain and depend on many factors beyond the company’s and your control. The majority of start-up and early stage companies never go public.

If the company you invest in never goes public, then you may never be able to sell your shares. That’s what makes it so risky and why you should only invest in a private company using crowdfunding if you can afford to lose your whole investment.