Crowdfunding is a way to raise money by collecting small amounts of money from a large number of people. It’s funding ideas through community support. Crowdfunding is often used by charities, artists, tech companies, and even politicians to fund projects or causes. Now, businesses can also use crowdfunding to raise money for their start-up and sell shares to investors. This is called equity (or securities) crowdfunding.
Crowdfunding lets individuals or companies ask the public to help fund a product, service, or business. Instead of relying on one investor, they gather smaller contributions from many people.
There are three main types of crowdfunding models:
Donation-based crowdfunding: People give money to support a specific cause or project without expecting anything in return.
Rewards-based crowdfunding: Supporters receive a reward—like a product or service—in exchange for their contribution. If funding a tangible project, backers may be rewarded with an item that has a clear monetary value in exchange for their financial support.
Equity crowdfunding: Investors give money to a start-up or small business in exchange for shares or other securities. This means they may become part owners of the company as they would if they had purchased a share or stock on an established stock market.
Crowdfunding offers a unique opportunity to support ideas and businesses you believe in. It’s especially appealing to people who want to:
Back local or innovative projects
You can help bring new ideas to life and support entrepreneurs in your community.
Get in early
Equity crowdfunding allows you to invest in a business during its early stages, which could lead to future growth.
Diversify your investments
Crowdfunding gives you access to opportunities outside traditional stocks and bonds.
Crowdfunding—especially equity crowdfunding—is not like buying stocks on a public exchange. It’s less regulated and comes with fewer investor protections. That’s because many start-ups use something called the start-up crowdfunding exemption.
This exemption allows early-stage businesses to sell shares through an approved funding portal—a website where investors can browse and invest in crowdfunding projects. These businesses don’t have to meet the usual registration and disclosure rules that apply to larger companies. For example, they may not be registered with a securities regulator.
Normally, anyone selling or advising on investments in New Brunswick must be registered with the Financial and Consumer Services Commission (FCNB). Registration helps protect investors by ensuring that firms and individuals are qualified and meet certain standards. But to make it easier for start-ups to raise money, the exemption allows them to skip registration—if they meet specific conditions.
However, not all funding portals are exempt. Unless a portal is relying on the start-up exemption, it must be registered. You can check if a funding portal is registered by visiting http://www.aretheyregistered.ca/ or contacting the Commission directly.
Because of these differences, it’s important to do your homework before investing. You may not get regular updates, and you might not be able to sell your investment easily—or at all.
Crowdfunding can be exciting, but it also comes with serious risks. Before you invest, make sure you understand what could go wrong and how it might affect your money.
Risk of loss
Start-ups are new and may not succeed. If the company fails, you could lose all the money you invested.
No income
There’s no guarantee you’ll earn money from your investment. You might not receive dividends, interest, or any return at all.
Liquidity risk
You may not be able to sell your investment when you want, or ever. Securities sold through crowdfunding often have strict resale rules, which can make it hard to get your money back.
Limited information
Start-ups using the crowdfunding exemption don’t have to share as much information as larger companies. You might not get regular updates or detailed financial reports, making it harder to track your investment.
No approval or advice
These investments are not reviewed or approved by the Financial and Consumer Services Commission or any other securities regulator. That means there’s no official check on the company’s business plan or financial health.
No advice from funding portals
Unless the portal is run by a registered dealer, it can’t give you advice about whether the investment is right for you. You’re responsible for making your own decision.
Limited legal rights
You won’t have the same protections as you would if you bought shares through a stock exchange or a prospectus offering. If something goes wrong, your options may be limited.
There are rules in place to help protect investors who choose to invest in equity crowdfunding:
Investment limits
There’s a cap on how much you can invest to reduce your risk.
Cancellation period
You have 48 hours to cancel your investment if you change your mind. The funding portal must provide clear instructions on how to do this.
Risk Acknowledgement Form
Before investing, you must read and sign a form that explains the risks and confirms you understand the offering.
Evaluate the risk
Are you okay with the chance of losing your money? Do you understand the risks?
Do your homework
Research the company and read all the documents carefully.
Get a second opinion
Talk to a lawyer, accountant, or registered financial advisor before investing.