participate in private placements

Can Non-Accredited Investors Participate in Private Placements?

The answer is yes! To back up that claim, follow my research & exchange with the BC Securities Commission:

In a 2014-15 BCSC annual report, the BCSC discuss the use of the Non-Accredited Investor exemption by companies and their strategic desire to encourage more companies to do so. Here is the pertinent section in the annual report:

Goal 4: Advance cost-effective regulation

Our goal is to advance cost-effective regulation. Regulation imposes costs through fees, compliance costs, and restrictions on innovation. Investors inevitably pay these costs. We aim to provide strong investor protection and market integrity for the least cost.


Strategy 4.1: Venture market cost of regulation research

  • During fiscal 2014/15, the BCSC set out five options for research about the cost of regulation for venture companies and selected two research projects to complete during this fiscal year.
  • The first project consisted of finding out how much capital was raised under the new existing security holder exemption and whether it was from accredited investors or others. The purpose was to see whether companies were able to access new investors or whether the exemption just provided another means of getting money from the same investors. The results of the project showed that approximately $1.6 million was raised under this new exemption and 81% of it was from non-accredited investors.
  • We also surveyed market participants to find out if there were unanticipated barriers to using the new existing security holder exemption. We sent an online survey to approximately 900 venture companies asking them if they had heard of the new exemption and, if so, whether it helped them to raise capital. Survey results showed three primary reasons that companies were not using the exemption: difficult financing conditions, the Ontario Securities Commission had not adopted the exemption at that time, and the $15,000 cap per individual investor. Ontario adopted the existing security holder exemption in February 2015. Going forward, we hope to educate companies about the fact that the $15,000 cap can be exceeded if the investor receives advice from a registered adviser.
  • For the second project, the BCSC wanted to study the reasons why public companies choose to become private; are the costs of being a public company starting to outweigh the benefits?

Two main comments stand out here:

  • That 81% of the $1.6 million raised was from Non-Accredited Investors in 2014-2015.
  • Going forward, BCSC hopes to educate companies about the fact that the $15,000 cap can be exceeded.

It seems pretty clear that, yes, Non-Accredited Investors are allowed to participate in Private Placements of publicly-traded companies on the Vancouver and Ontario stock exchanges.

At the same time, in 2015, The Financial Post reported that soon, the average investor would be able to invest in the same opportunities as the rich with all the rewards and the risks. However, these rules applied to Private Placements in private companies, which is not what I am advocating in this book. Nonetheless, it shows that the rules were changing to allow the average investor more opportunities to participate in investment opportunities that have previously been reserved for the, well, Rich, Famous, and Well-Connected!

Early next year, the rules about who can invest in private markets will change in six provinces. If you have $10,000, that could open up a whole new allocation in your portfolio.

Starting early next year, changes are coming to the investment industry and new options will be available to residents of Alberta, Saskatchewan, Ontario, Quebec, New Brunswick, and Nova Scotia that were previously only open to high-net-worth investors.

Still not satisfied, I contacted BCSC directly to ensure that this is indeed the case today and to provide direct reference links to their policy documents regarding participation in Private Placements by Non-Accredited Investors. I also asked a few very pointed questions:

To BCSC Public Inquiries:

If in fact, the above two exemptions are true, can you please confirm the following:

  1. In what official documents are the above Non-Accredited Investor exemptions clearly stated?
  2. Do the two Non-Accredited Investor exemptions apply to all Private-Placement subscription offers from TSX-V publicly traded companies?
  3. If you are an existing shareholder in a company, do you have the full right to participate in a Private Place subscription offer regardless of your investor status? Does the company have the right to refuse you the opportunity to participate even though you are an existing shareholder?
  4. Can publicly traded companies set and enforce a minimum Private-Placement investment amount and refuse to allow a small investor to participate even though they meet the Non-Accredited Investor status?

I would like to thank BCSC for responding to my inquiry. If you would like to read their responses, I have included them in an appendix at the end of my book – Private Placement Profits. You be the judge. My experience has demonstrated that there are ways to participate in Private Placements of publicly traded companies, and if I can do it, so can you.

So, what are you waiting for?

private placement profits

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