Crowdfunding is a process through which an individual or a business can raise small amounts of money from a large number of people through the Internet. The objective is to raise sufficient funds in order to carry out a specific project. There are different types of crowdfunding, including donation-based, pre-sale (rewards-based) or securities (equity) crowdfunding. This guide discusses securities crowdfunding.

Donation-based or pre-sale crowdfunding

Internet funding portals connect individuals or businesses that have a project proposal with people interested in contributing financially.

This type of crowdfunding is not regulated by the securities regulators, such as the Autorité des marchés financiers (the “AMF”).

Crowdfunding is often used to finance projects in various fields, such as the arts, culture and philanthropy. For example, funds can be raised to hold a cultural event, produce a motion picture or music album, or support victims of a natural disaster.

Small businesses also use crowdfunding to finance their business activities, raising funds as donations or product pre-sales. If you contribute, you are a donor.

Here’s an example: :

Joan has a coffee shop. She needs to replace the shop’s ice cream machine before the start of summer. The cost of a new machine, with delivery and installation, is $13,000. She solicits for funds on an on-line funding portal. For $100, donors will receive promotional articles and discount coupons and their name will be featured at the entrance to the coffee shop.


Donation-based or pre-sale crowdfunding is not regulated by the AMF.

Securities and start-up crowdfunding are regulated by the AMF.

End of the warning

Securities crowdfunding

With securities crowdfunding, a business raises funds through the Internet by issuing securities (such as bondsA bond is a security issued by governments and companies through which an investor lends money to the issuer.
In general, the government or company promises to pay the investor interest at a fixed rate and at certain intervals (for example, 2% per year). Interest is normally paid twice a year. At maturity, the government or company pays back a predetermined amount that is called the face value. The face value is usually $1,000.
There are several types of bonds:
Stripped bondReal return bondConvertible bondSavings bondRetractable bondUnsecured bondEtc. 
or sharesA share, also referred to as stock, is an equity security that entitles you to an ownership interest in a company.
The company can distribute a portion of its earnings to shareholders by paying them a dividend.
The shares of companies listed on an exchange are bought and sold at the exchange.
When a company ceases to operate, the proceeds from the sale of its assets are used to pay its debts and taxes, and the rest of the money is distributed to shareholders.
) that people can purchase. In Canada, issuing securities is subject to legal obligations. For example, a business seeking to raise capital by issuing securities must file a prospectusA prospectus is a detailed information document that a company must prepare to be able to sell securities (such as shares) to the public.
It must provide full, true and plain disclosure of all material facts likely to affect the value or market price of the security in question.  
or obtain a prospectus exemption. These obligations, however, can be costly for start-ups, small businesses and other issuers. In some provinces, businesses are allowed to raise funds using securities crowdfunding without filing a prospectusA prospectus is a detailed information document that a company must prepare to be able to sell securities (such as shares) to the public.
It must provide full, true and plain disclosure of all material facts likely to affect the value or market price of the security in question.  

In certain jurisdictions, businesses may choose between the start-up crowdfunding exemptions and the crowdfunding exemption under Regulation 45-108 respecting Crowdfunding (“Regulation 45-108”), depending on their projects, needs, and stages in their development. The following table summarizes the main characteristics of both regimes.

Participating jurisdictions

Start-Up crowdfunding exemption

Crowdfunding exemption under Regulation 45-108

Top three things to do before investing in a crowdfunding project

1 - Know the process

Business (issuer)

A business has an idea but needs to raise funds to make it happen. It must prepare an offering document that includes basic information about the business and the offering, how it will use the money raised and any risk to the project. The business must state the minimum amount it needs to raise to accomplish its goal and must use a crowdfunding website called a funding portal to raise the funds.

Crowdfunding website (funding portal)

The funding portal posts crowdfunding projects on its website. Among others, the funding portal is responsible for:

  • Explaining the risks of investing to potential investors;
  • Holding all investor funds in trust until the start-up raises the minimum funding target;
  • Returning funds to investors, without deduction, if the business does not reach its minimum funding target.

There are three types of crowdfunding portals:

  • Registered dealer funding portals. These portals must provide you with advice. Before you invest, they must determine if the investment is suitable for you. A funding portal that is registered as an investment dealer or as an exempt market dealer is a registered dealer funding portal.
  • Restricted dealer funding portals. These portals must perform a basic review of the documents provided by the issuer and its principals. They cannot give you advice; you must decide for yourself if the investment is right for you.
  • Non-registered funding portals.These portals can only post start-up crowdfunding offerings in participating jurisdictions. They are not required to perform any review of the issuer and its principals. They cannot give you advice; you must decide for yourself if the investment is right for you.

The funding portal must tell you the type of portal it operates. When you enter a funding portal website, you will see a pop-up notice telling you whether the funding portal is operated by a registered dealer or not and whether the funding portal will provide you with advice about the investment or not. You will have to confirm that you have read the notice before proceeding. You can check with the AMF to see if the funding portal can do business in Québec.

Investor (you)

You, the investor, may spot an interesting business on a crowdfunding website. After reading the business’s offering document and doing your homework, you may decide to invest any amount up to $1,500 or $2,500, depending on where you live and the crowdfunding regime used by the business. Before you complete your investment, the funding portal will ask you to confirm that you understand the risks and have read and understood the offering document. You have 48 hours after your investment to change your mind and get your money back.

2 – Do your homework

Before investing, you should:

  • Read the business’s offering document posted on the funding portal. It contains basic information about its activities, management, financial condition, the amount it wants to raise, how the money raised will be used and the risks. The securities regulators have not reviewed or approved the offering document. It is up to you to understand the information in the offering document.
  • Search the Internet for information on the business, its industry and the people responsible for its operation. Be skeptical of company documents claiming that these people held certain positions elsewhere if specific details are not included. Conduct a background check to see if they were ever disciplined for improper business practices. You can contact the business and the funding portal for further information.
  • You can ask the business about any previous successes or failures it may have had trying to raise funds in the past. The offering document must disclose whether the business has tried to raise funds through securities crowdfunding in the past five years and whether it was successful or not. However, a business is not required to report any failed attempts to raise funds other than through crowdfunding.
  • Businesses that rely on the start-up crowdfunding exemptions are not required to publish their financial statements but may wish to do so. Businesses that use the crowdfunding exemption under Regulation 45-108 are required to publish their financial statements.
  • If financial statements are available, you can ask the business whether they have been audited and which accounting standards were used to prepare them. Do the financial statements include a balance sheet, income statement, statement of changes in financial position and detailed supporting notes?
  • Read the business plan. How is the business expecting to grow? How will it make money and within what period? Watch for unsubstantiated claims about the future success of the business.
  • Consider how you will receive a return on your investment. What type of securities is the business offering to give you in exchange for your investment? The securities must be described in the offering document. If the business is offering debt securities, consider when the business intends to pay you back. If the business is offering shares, check if they are common or preferred shares as well as the related rights and terms and conditions.
  • Think carefully about your risk tolerance and what you can afford to lose if the investment doesn’t turn out as expected. Consider the cons before you consider the pros.
  • Ask the business any other questions you may have. The offering document will provide contact information for someone who is able to answer your questions.

3 – Understand the risks

To make an informed decision, you must have a good understanding of the risks related to the crowdfunding offering. These include:

  • Securities of early-stage issuers are risky. Statistics show that a high percentage of early-stage businesses fail. You could lose the entire amount you paid for your investment.
  • What do you know about the individuals operating the business? Do they have the knowledge and experience required to manage it? Businesses are sometimes managed by inexperienced individuals. Find out more about the individuals operating the business before investing.
  • Do you have the resources to be patient? If you think you will have to resell your securities in the short term, this type of investment may not be suitable for you. You may have to wait indefinitely before reselling the securities or you may not be able to resell them at all.
  • A great deal of information and analysis is available about large corporations. This is not the case for smaller businesses. You may receive much less information before or after you invest. Smaller businesses do not usually attract much media coverage.

If you are willing to take risks and invest in a crowdfunding project, you may want to consider investing in a business that operates in a sector you know well. You may be in a better position to assess its likelihood of success.

Read also:

Examples of start-up crowdfunding processes

FAQ about crowdfunding