Overregulation in crowdfunding will hurt Canadian startups, small businesses: TD

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TORONTO - Canadian startups are in a prime position to cash in on the growing popularity of crowdfunding, but regulators need to ensure that incoming rules will not hinder that potential, TD Economics warns a report issued Wednesday.

"Canadian regulators cannot drag their feet too long. If they do, there is the potential for entrepreneurs and enterprise owners to shift to jurisdictions which embrace crowdfunding," wrote senior economist Sonya Gulati.

"This leads to the potential loss of economic opportunities here in Canada. It also reduces the scope for startups and entrepreneurs."

According to the 13-page report, the global crowdfunding market is estimated to be worth $3.5 billion, with the majority of the funds coming from within North America and Europe.

Although that accounts for a small fraction of overall business funding, Canada has taken note and is making moves to put in place regulations to govern the growing industry.

These rules will undoubtedly address a variety of concerns, including the potential for fraud, patent infringement and copyright concerns.

But in doing so, regulators need to ensure they do not overegulate the crowdfunding industry, the report said.

"While effective and enforceable regulation is required, there is a risk of overregulation, especially given the innovative nature associated with crowdfunding," said Gulati.

"Nevertheless, fraud, information asymmetry and crowd due diligence are structural barriers and risks that must be addressed if crowdfunding is to reach its upmost potential."

The report said this is particularly important for Canada, where venture capital funds have been declining, making it more difficult for startups and small businesses to raise funds within the $1 million to $2 million range, according to the National Crowdfunding Association.

Organizations: National Crowdfunding Association

Geographic location: Canada, TORONTO, North America Europe

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