On March 14 Interactive Ontario made public its recommendations to an ongoing Ontario Securities Commission (OSC) review panel that is considering loosening the rules governing investing via crowdfunding. Among other things it recommends that “exemptions” be made that would lift the ban on production companies issuing equity investments as part of crowdfunding efforts, and a ban that presents social media from being used by project producers to direct prospective investors to sites such as Indiegogo and Kickstarter.

Interactive Ontario is a non-profit trade group, whose goal is to support the province’s growing digital and screen-entertainment industries.

Here, Interactive Ontario president and CEO Donald Henderson (pictured) gives Playback some further details of the organization’s recommendations and what changes could be in store for the industry.

In practical terms, what change would the approval of the exemptions bring about in terms of crowdfunding? Briefly, what IS the status quo when it comes to crowdfunding?

The status quo for crowdfunding in Canada is that it is currently legally being used by many content creators to fund their projects through the “reward” or “pre-sales” model. Backers can contribute funds toward a project in return for receiving a copy of a game, or a t-shirt or poster, for example. This is permitted because the companies running the campaigns are not issuing securities to the funders. What the OSC is investigating is the possibility of allowing companies to issue shares in return for the investment, rather than goods.

The new exemptions would not affect the reward/pre-sales model, but would introduce a new model: it would allow companies to issue shares in return for investment. This is not currently permitted under Ontario’s securities legislation (The Securities Act).

Note that certain crowdfunding portals such as Indiegogo allow Canadian companies to launch campaigns, while others such as Kickstarter currently have certain requirements (U.S. bank accounts, U.S. mailing address, etc.) that make it more difficult for Canadian companies to participate. We had a representative from Kickstarter speak at our recent GameON: Finance conference in Toronto, and she advised the audience that Kickstarter was clear on the importance of the Canadian market, and were working to remove some of these restrictions, but she was unable to give a specific timeline on when those changes might occur.

The changes would make it easier to raise funding via the likes of Kickstarter for digital/TV/film producers. Correct?

The changes would provide a new method for companies to access the capital markets… The idea is that they could raise small amounts of money from each of a large number of individual investors anywhere in the world. Companies would be able to use this money to help them fund their operations. This is important because access to funding is one of the most common challenges for companies creating video games and other interactive digital media products.

Why is IO supporting these changes?

We are supporting these changes because they are one way to help improve access to capital for our members, especially those who are already utilizing crowdfunding. We hear from many of our members that their growth is being limited as a result of challenges in accessing funding. Although this model will not be appropriate for all companies, we believe that it will help fill one of the existing financing gaps that growing companies face.

As this involves the OSC, that means the changes—and its possible benefits—would only benefit Ontario-based producers, correct?

This is basically correct. Any organization issuing shares or other securities that would fall under the jurisdiction of the OSC would need to comply with the Securities Act, and in return would be able to take advantage of the new exemptions, if they are created. In the United States, they are also introducing legislation (the Jumpstart Our Business Start-ups Act, or ‘JOBS Act’). Other provinces may also consider implementing similar legislation; in Canada, securities legislation is a matter of provincial jurisdiction, so each province has their own securities commission.

Does IO know when the OSC is to make its decision?

The OSC has not provided any guidance on this. The comment period ended on March 8 (and was actually extended from February, as they expected a large number of replies). We are hopeful that the changes are implemented soon, as the U.S. legislation is expected to be finalized soon, and without similar legislation, Ontario companies may be at a competitive disadvantage.