February, 2012

BCSC Exemptions

BCTIA Member Forum

Agenda

• Background and Context

• Early Stage Investments in BC

• BC Securities Exemptions

• Roundtable Discussion

Background and Context

• Canadian Securities Administrators (CSA) review

– Minimum Amount Exemption: $150,000 minimum

– AI Exemption: accredited investor prospectus exemption

• Changing Start-up landscape

– Absence of an IPO market means greater reliance on private capital

– Funding gap between seed stage and VC stage is widening

– Seed capital requirements/Start-up costs have fallen dramatically

• What’s happening elsewhere…

– Encouraging entrepreneurship and early stage business growth

– US Entrepreneurs Access to Capital Act (eligibility for crowd-funding)

– UK Seed Enterprise Investment Scheme (50% tax relief)

– BC’s angel tax credit (EBC/VCC) program remains unique in Canada

State of Early Stage Investing in BC

Angel investing on the rise. Angel investments outpace VC investments by 5:1

Companies Receiving Investment

136108 117 128 120

149183 202

4767 69 57 51

5239

43

-

50

100

150

200

250

300

2003 2004 2005 2006 2007 2008 2009 2010

Venture Capital Investments

Angel Investments

Source: CVCA and BC Government, Small Business Branch

State of Early Stage Investing in BC

Investment Dollars ($millions)

40 31 32 54 54 69 71 72

110

254 226

298 316 260

141220

-

50

100

150

200

250

300

350

400

2003 2004 2005 2006 2007 2008 2009 2010

Venture Capital Investments

Angel Investments

Angel investments have doubled but VC investments still account

for over 75% of total invested dollars

Source: CVCA and BC Government, Small Business Branch

State of Early Stage Investing in BC

Average Investment Size($millions)

$0.29 $0.29 $0.28 $0.43 $0.45 $0.47 $0.39 $0.36

$2.34

$3.79$3.28

$5.23

$6.19

$5.00

$3.61

$5.12

$-

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

2003 2004 2005 2006 2007 2008 2009 2010

Angel Investments

Venture Capital Investments

Average angel investment is $300 – 400k; Average VC investment is $5MM

Source: CVCA and BC Government, Small Business Branch

2011-2012 Angel Investments in BC

… Still room for more angel investment

• Available Exemptions for Private Issuers

– Friends and Family Exemption

– Employee, director, officer and consultant Exemption

– Minimum Investment Exemption

– Accredited Investor Exemption

– Offering Memorandum Exemption

BC Securities Exemptions

• A private issuer means a person that:

– is not a reporting issuer, mutual fund or pooled fund

– has less than 50 security holders, excluding employees and former employees

– has restrictions on the transfer of its securities in its articles, memorandum,

bylaws or its shareholders agreement

– has sold its securities only to the persons in the bulleted list

• An accredited investor includes:

– financial institutions, dealers, pension funds, mutual funds

– corporations, limited partnerships, trusts or estates having net assets of at

least $5 million

– individuals who have at least $1 million in financial assets or net income

before taxes exceeds $200,000 or have at least $5 million in net assets

Definitions

Contents

• 1-page Term sheet

• Use of proceeds

• Description of the issuer and business

• Special features of the securities

• Risk factors

• Rights available to purchasers specified under securities laws

• Financial statements prepared in accordance with Canadian GAAP

Cost ~ $20 – 25k to prepare

Offering Memorandum Exemption

• What changes (if any) should be made to minimum

investment exemption?

• What changes (if any) should be considered in the

definition of an accredited investor?

BC Securities Exemptions

Member Forum

Comments and Discussion