From dealflow to a lack of education, this week leaders in social finance addressed some of the key barriers preventing the UK market from flourishing. Last month Antony Bugg-Levine, the chair of the Global Impact Investing Network, told delegates at London’s Critical Mass conference that in the world of social finance there were “hypers, haters and […]Read More ›
Here Comes the Impact Investing Crowd
When you’re looking for change, ask Obama or his American crowd.
They are about to change the game for emerging American businesses struggling to access capital and average investors looking to place capital in local, impact ventures.
After months of debate, the US government passed the bi-partisan Jumpstart Our Business Startups Act [PDF] (JOBS Act or HR 3606), new legislation designed to modify existing securities regulations, “…to make it easier for smaller businesses and startups to raise money from the public…”
It has tremendous potential to enhance the growth of impact investing and impact ventures through the mobilization of investment capital towards ventures driving public good. Hopefully, it will lead to similar changes north of the 49th Parallel.
So what are the key changes? (For a full review, you can read this report from Martindale.com.)
It will be easier for ventures to raise start-up and growth capital, as there will be fewer legislative requirements for ventures to raise capital from investors. Enterprises will be able to raise up to $1 million without audited statements, or up to $2 million with audited statements from an unlimited number of non-accredited investors. There are additional disclosure requirements for issuers outlined in the Act related to the investment offering. The previous prospectus and offering requirements could be very costly for smaller entrepreneurs.
It will be easier for Americans to invest in small and medium sized local businesses. If you earn less than $100,000, you will be able to invest up to five (5) per cent of your annual income or $2,000, whichever is greater, during a 12-month period. Individuals with incomes above $100,000 could invest ten (10) per cent of their income or up to $100,000 during the same time period. This greatly expands the ability for individuals to support the creation of small and medium enterprises in their community.
Previously, these types of investments were limited to accredited investors, which includes wealthy individuals, angel investors, or large institutional investors like pension funds, foundations, or endowments. (If you are interested, you can see what an accredited investor is in Ontario.
It will be possible to set-up online crowdfunding platforms for ventures and investors. The new Act outlines the parameters for the establishment of online intermediaries, with requirements including registration with the US Securities and Exchange Commission, risk disclosures, issuer reporting, and investor income verification. There has already been a movement to create a self-regulating body known as the Crowdfund Intermediary Regulatory Association (CIFRA).
Within less than a year, I predict that there will be an industry of crowdfunding platforms (beyond the existing ones) established in the US. Americans will be able to go online to make an investment in local, impact ventures in their community and beyond.
Why is this important?
The ripples of this game-changing legislation won’t necessarily stop south of the border. Legislative reform in the US could translate into similar changes in Canada. We could also make it easier for local, impact ventures and funds to raise capital and easier for average Canadians to make investments in these ventures and funds. Although they are not harmonized, there is significant alignment with securities regulations in both countries.
There will likely be public pressure to do so. In a borderless online world, Canadians may well wonder why we cannot do the same. The Canadian Securities Administrators (CSA) is currently reviewing the accredited investor exemption and minimum amount exemption. It has been reported that there was significant interest in the increased democratization of capital through increased access to investments for average investors, and an enhanced ability to raise capital for ventures driving public benefit.
If we do see movement, there is tremendous potential for all Canadians to drive the development of impact investing, given tremendous public demand and interest. We could mobilize a significant amount of our investment capital to good purpose. Think of the potential of going online and investing in a local affordable housing project, a start-up renewable biogas firm, or a local, organic dairy that is a B Corp.
We must be careful when considering these changes. There have been identified winners and losers. There are potential risks, as always, and any changes to our securities laws must ensure appropriate investor protections, disclosures, and declarations of risk. We want to connect money with meaning, but we also want to make sure it is done safely. We are Canadian, after all.
I cannot wait for the impact investing crowd to come to Canada.
Photo credit: http://www.flickr.com/photos/wearecolbrain/6931275583/