external-link
Skip to content
  • Français
    • Getting startedLearn about the stock market, investment types, and how to get started.
    • Working with an advisorA financial advisor can help you choose investments and manage your portfolio.
    • Making a planHaving a plan can make it easier to make the right investing decisions for you.
    • Tracking your progressLearn how to track your investing progress and see how you're doing.
    • Understanding riskHaving a plan can make it easier to make the right investing decisions for you.
    • Rules and regulationsRegulators protect investors in Canada by setting and enforcing securities rules.
    • Psychology of InvestingMake better financial decisions by learning about behavioural insights.
    • Community outreachOSC in the Community takes the OSC's mandate from Bay Street to Main Street.
    • AnnuitiesAnnuities are an investment that can generate a steady income in retirement.
    • BondsBonds are an investment that generate interest after a fixed period of time.
    • Crypto assetsCrypto assets are digital investments with different opportunities and risks.
    • ESG investingESG investing allows you to choose investments that align with your priorities.
    • ETFs (exchange-traded funds)These funds hold a collection of investments and are traded on a stock exchange.
    • GICs (Guaranteed investment certificates)GICs guarantee a specific rate of return over a short period of time.
    • Mutual funds & segregated fundsMutual funds pool multiple investments into a fund owned by many investors.
    • Pension & savings plansDifferent kinds of workplace pension plans provide retirement income.
    • Real estateBuying a home is a way to invest your money and diversify your portfolio.
    • StocksStocks give you equity in a company, and are traded on a stock exchange.
    • More complex investmentsComplex investments have potential for high reward, but also higher risk.
    • RDSPsPeople with disabilities can save with a Registered Disability Savings Plan
    • RESPsSave for your child's education with a Registered Education Savings Plan.
    • RRIFsYou open a Registered Retirement Income Fund with funds from your RRSP.
    • RRSPsA Registered Retirement Savings Plan grows your savings tax free until you retire.
    • TFSAsA Tax-Free Savings Account helps you save for any goal, tax free.
    • Bank accountsChequing and savings accounts can help you manage your short-term needs.
    • BudgetingA budget can help you manage your spending, saving, and plan for the unexpected.
    • Life eventsLearn about how your financial needs may change at different stages of life.
    • Managing debtDebt shouldn't get in the way of your saving and investing. Learn how to manage it.
    • Personal insurancePersonal insurance coverage can help protect you and your loved ones.
    • RetirementPlanning for retirement helps you determine how much to save and where.
    • Running a small businessImprove your financial knowledge for your business and your personal life.
    • Saving moneyKeep your financial goals on track by saving some money each month.
    • Understanding taxLearn more about how tax filing and tax deductions work.
    • Wills and estate planningPreparing a will and estate plan ensure your final wishes are taken care of.
    • Types of fraudLearn how to spot frauds and scams and what they look like.
    • Making a complaintKnow your options for making a complaint.
    • Reporting fraudIf you suspect you've been a victim of fraud, report it immediately.
    • Checking registrationAlways check the registration of anyone trying to give advice or sell investments.
    • Investor warnings and alerts
    • CalculatorsPractice calculating compound interest, savings, debt consolidation, and more.
    • Quizzes and toolsCheck your knowledge of scams, behavioural biases, and other financial tools.
    • WorksheetsTry our downloadable tools to help you plan and budget.
    • VideosOur videos show you the basics of investment types, frauds to watch for, and more.
    • Interactive investing charts
    • Research & reportsDelve into our research on Canadians' needs and habits in finances and investing.
    • Investing introductionVisit our multi-lingual site for information for those new to investing or new to Canada, or both.
    • Investor NewsStay informed about the latest investor initiatives, educational resources, topical issues, key dates, and investor warnings/alerts from the Ontario Securities Commission’s Investor Office.
    • Investing questionsOur Investing questions site offers clear, unbiased answers to your questions on investing, from a trusted source.
    • Investing fundamentalsThis site brings you on a visual journey of key investing concepts. No matter your age, income or goals, these eight fundamentals can help you make smarter investing decisions.
    • Investor officeVisit the Investor Office website to learn more about how we lead investor-focussed education and outreach, research, and policy initiatives at the Ontario Securities Commission.
    • Investment reportingThis site guides you through the steps to learn how your investments are doing. Then you'll know when to make changes in order to meet your goals.
    • Interviews

GetSmarterAboutMoney.ca

Français
When autocomplete results are available use up and down arrows to review and enter to go to the desired page. Touch device users, explore by touch or with swipe gestures.

Home / Investing basics / Rules and regulations / Risks of equity crowdfunding

Investing Regulation

Risks of equity crowdfunding

4 min read

Share

  • Share to Twitter
  • Share to Facebook
  • Share to LinkedIn
  • Share to Reddit
  • Share via Email

Before you participate in equity crowdfundingEquity crowdfunding Equity crowdfunding allows new business or start-ups to raise capital by selling many small stakes,…+ read full definition, it is crucial that you know and understand the risks associated with this kind of investing. Below are risks that you should be aware of:

  1. High risk of loss – Much of the risk stems from the fact that most businesses that seek financing through crowdfunding are start-ups or early-stage ventures. Statistically speaking, the vast majority of these businesses do not survive past five years. If you investInvest To use money for the purpose of making more money by making an investment. Often…+ read full definition in a business that does not succeed, you may lose all the money you invested.
  2. Locked-inLocked-in An account that you cannot take money out of until you retire. In most cases,…+ read full definition investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition – There’s also a good chance that you won’t be able to resell your shares in the business you invested in. Unlike a stock marketStock market The collection of markets and exchanges where stocks, bonds and other securities are issued or…+ read full definition, funding portals allow you to buy stakes or interests in a business, but not sell them. You will likely have to hold onto your investment until there is a change with the business – like if it goes public on a stock exchangeStock exchange A market in which securities are bought and sold.+ read full definition. This may take many years to happen, or may never happen. Until then, your money is locked in the investment. This is also known as liquidity risk.
  3. Lack of information – You should expect to receive significantly less information about your investment than you would with more traditional investment products. Businesses raising capital through equityEquity Two meanings: 1. The part of investment you have paid for in cash. Example: you…+ read full definition crowdfunding are not required to provide the same amount of information as a public company. You will receive some information, such as an offering document, annual financial statementsFinancial statements Reports that sum up a company’s financial data and tell you how it is doing.…+ read full definition, annual updates about how the money is being spent and notices about key events, like change in control of the business.
  4. No income – Start-ups rarely pay dividends or interest while they are in their ramp-up or growth stages. If you’re investing for income, a crowdfunded venture is not likely for you.
  5. Fewer protections: no approval and limited legal rights – These investments are not reviewed or approved by a securities regulatorSecurities regulator A government agency that enforces the securities act in jurisdiction it has authority over. This…+ read full definition. You also won’t have the same legal rights that you would have had you purchased under a prospectusProspectus A legal document that sets out the full, true and plain facts you need to…+ read full definition or through a stockStock An investment that gives you part ownership or shares in a company. Often provides voting…+ read full definition exchange.
  6. No investment advice – Unless the crowdfunding portal is operated by a registered investment dealerInvestment dealer A securities firm that buys and sells a wide range of investments. They are likely…+ read full definition or exempt market dealer, it won’t provide you with information about whether the investment is suitable for you as an investor.
  7. Potential for fraud – Despite checks made by funding portals, individuals with ill-intentions may not be completely weeded out from offering shares via crowdfunding.
  8. Dilution risk – Start-ups could issue new shares to drum up more capital or compensate employees. This comes at the expense of existing shareholders like you as your percentage ownership of the company decreases when additional shares are issued by the company.

Your responsibility as an investor

Only you can decide whether equity crowdfunding is the type of investment you want to make. Every investment decision should be carefully considered and thoroughly researched ahead of time. Equity crowdfunding is just one of several potential investment optionsOptions An investment that gives you the right to buy or sell it at a set…+ read full definition available to you. Many investors opt not to put all their eggs in one basket and instead choose different kinds of investments to minimize their risk. This is referred to as diversification.

Before you invest in equity crowdfunding:

  1. Do a self-check on your comfort level with these risks of equity crowdfunding:
    • Can you afford to lose all of your invested money? It’s a real possibility.
    • Are you willing to wait, potentially years, before you might be able to get your money out of this investment, let alone a return?
    • Do you believe you understand the information you have received about this investment opportunity to make an informed decision?
  2. Take time to thoroughly review the offering document. Make sure you understand what the business’s objectives are and the risks associated with investing in it.
    • How is the business going to grow?
    • How will it make money and within what timeframe?
  3. Investigate. You can search the internet for information on the business, the industry, the people managing the business, as well as the viability of the business plan.
  4. Research the portal. You can search the internet for information on the particular funding portal where you see the offering document. Make sure it’s operated by a registered dealer by inquiring with the Ontario Securities Commission or checking CheckBeforeYouInvest.ca.

Additional information about Ontario’s equity crowdfunding initiative can be found on the OSC’s website.

Warning

Participating as an investor in equity crowdfunding is extremely risky, but it can also be a way to support innovation and become part of a community of entrepreneurs.

Caution

The OSCOSC See Ontario Securities Commission.+ read full definition has set out certain rules and restrictions that provide some investor protections because of the high risk nature of equity crowdfunding, but these rules and restrictions won’t protect you from all risks associated with equity crowdfunding. So before you consider any equity crowdfunding investment, know and understand the risks.

Last updated September 14, 2023

Articles in this section

Articles read
How your investments are protected at financial institutions 5 min read
How regulators protect investors 4 min read
The exempt market explained 3 min read
What is total cost reporting and how it will work? 11 min read
Self-regulatory organizations 1 min read
Types of prospectus exemptions 5 min read
Equity crowdfunding in Ontario 4 min read
Risks of equity crowdfunding 4 min read
5 ways regulation protects investors 2 min read
Where to get information before you invest 2 min read
Investment performance and the cost of advice 2 min read
Who's who in Canadian markets 1 min read
Annual information about your investment fees 4 min read
Your personal rate of return 2 min read
OSC Seniors Strategy 4 min read
OSC Seniors Strategy Updates 5 min read
Investor office: behind every statistic is a person
Investor office: every person matters
Investor office: financial success is a marathon not a sprint

Post navigation

Back To:
Previous: Equity crowdfunding in Ontario
4 min read
Up Next:
Next: Where to get information before you invest
2 min read

Sign up for Investor News

Stay informed about the latest investor initiatives, educational resources and investor warnings and alerts.

Past issues
  • September 19, 2023
  • August 1, 2023
  • June 20, 2023

Connect with us

Facebook Twitter YouTube Instagram
  • About Us
  • Contact Us
  • Investor News
  • Media
  • Glossary
  • OSC in the community
  • OSC Website
  • Terms of use
  • Privacy Policy
  • Accessibility policy

Brought to you by the OSC Investor Office

This website is provided for informational purposes only and is not a source of official OSC policy or a substitute for legal or financial advice. We recommend that you consult with a qualified professional advisor before acting on any information appearing on this website. For details, please see our full Terms of Use and Privacy policy

© Ontario Securities Commission 2023

Go back to top