The SEC in the US has voted to allow non-accredited investors, so those with less than $1 million in investable assets, to join the crowdfunding movement.
Title III of the Jumpstart Our Business Start-ups Act
in the US means that almost anyone will be able to help in the launch of new and innovative companies.
However, the extent of investment will be determined by the investors’ individual net worth. For example, investors with less than $100,000 net worth will only be able to invest $2,000 or 5% of their net worth, whichever is greater.
This could be good news for start-ups, who may well see an influx of smaller investments going forward, especially from millennials.
Craig Asano, executive director of the National Crowdfunding Association of Canada, said: “In today’s dynamic marketplace, being open, inclusive and allowing diverse crowds to participate in your business offers start-ups and SMEs strategic competitive advantages.
“Increasing the liquidity pool along with the diversity of participants is a good thing. It encourages innovation and helps strengthen feeder systems at all levels. An example of a potential longer term benefit may be that the overall financial and investment literacy gap in Canada may be reduced with the increased use of democratised alternative finance crowdfunding platforms.”
However, not all financial advisors are seeing the appeal of crowdfunding as a way for investors to make money. This is despite the possibility that this change could attract a new wave of investors looking to make money, as well as those simply wanting to invest in good causes.
Mark Hale, an Investment Associate from ScotiaMcCleod, said: “Crowdfunding for investment purposes seems very wild west and unregulated in my opinion. I’m not sure there would be enough safeguards in place to protect investments made by investors.”
Some advisors don’t see crowdfunding as a means of lucrative investment and view it is a risky move. “Crowdfunding is one step this side of a lottery, for both the naïve souls who throw their money into it, and the lucky recipient,” said Chris Horan, senior financial advisor at Toronto-based firm Assante. “Crowdfunding should be regulated by the lottery and gaming commissions, not investment authorities.”
It will be 2016 before the new changes are implemented in the US, which means Canadian advisors have a little more time before non-accredited investors are likely to hit Canadian crowdfunding.