In November the Ontario Securities Commission released its report on Ontario’s “exempt market” (Ontario Exempt Market Report 2018). If you are in a smaller tech business and looking for capital is in your business plan, there is reason for concern.

The exempt market is the name given to equity and debt fundraisings (also known as ‘private placements’ or ‘exempt offerings’) that are completed pursuant to prospectus exemptions. It plays a crucial role in Ontario’s capital markets. It is the means by which public and non-public companies raise capital without incurring the high cost of qualifying a prospectus and completing a public offering. It is of particular importance to small non-public companies who can find it difficult to obtain meaningful bank financing and who rely upon prospectus exemptions to raise capital from family and friends, high net worth individuals, angels, and venture capital firms.

While the news is good for industry as a whole, (the exempt market was found to be robust and growing) the news for small business and particularly the tech sector, is less so. The vast majority of capital was invested in larger public companies, with more than half going to foreign issuers. Small Canadian issuers received less than 1% of the capital raised in the exempt market. Small issuers in the sectors most closely associated with tech companies, a miniscule 0.07%. Given the importance of tech to our economy, one has to wonder if the laws that surround the exempt market are stacked against it. Tellingly, not a single financing was completed using Ontario’s cumbersome crowdfunding regime.

I have set out below some highlights from the report that are relevant to small and mid-sized businesses. The bulleted points following my comments are quotes culled from the report. “Issuer” refers an entity that is issuing its securities (such as shares) in an exempt offering.

Ontario’s exempt market is large and growing.

  • Ontario investors allocated approximately $91.6 billion to roughly 2,970 Canadian and foreign corporate issuers.
  • Capital raised through the exempt market in 2017 represents a 27% increase in proceeds raised from 2016 and a 17% increase in the number of issuers.

Institutional investors dominate the industry in terms of dollars invested, but individuals make up the majority of all investors.

  •  Capital raised from institutional investors comprises approximately $89.4 billion (or 98%) of the total capital invested in Ontario’s exempt market. Individual investors contributed $2.2 billion (2%) of the total capital invested in Ontario’s exempt market.
  •  Individual investors represent a large proportion (77%) of the approximately 28,500 exempt market investors.

Individual investors are the principal source of exempt market capital for small Canadian issuers. They prefer purchasing shares over debt. (The report defines a small issuer to be an entity with less than $5 million of assets participating in an offering of less than $1 million.)

  • Small Canadian issuers predominantly raised their capital through the issuance of equity securities and bundled units (87% of gross proceeds) and their investor base consisted primarily of individual investors (77% of investors).
  • Individuals invested almost 90% of their capital in equity or non-debt offerings, while institutional investors invested 67% of their capital in debt or fixed income-type securities.

While the overall market is huge ($91.6 billion) a very small percentage of capital goes to small Canadian businesses (i.e. Small Canadian issuers).

  • Ontario investors allocated about $37.6 billion to approximately 1,890 Canadian issuers.
  • Small Canadian issuers accounted for approximately 700 Canadian issuers (37%) and $194 million or less than 1% of total capital raised by all Canadian issuers.

Among small Canadian issuers, mining companies raised significantly more money in the exempt market than any other sector. Notwithstanding the prominence of tech companies in the headlines, small non-public Canadian tech issuers (Technology, Life Science, Finance, Insurance, Telecom and Media sectors) raised a very modest $26.63 million in 2017.


Ontario’s crowdfunding regime has been a complete disaster. Perhaps the failure of this hotly anticipated funding tool accounts for the relatively small amount of exempt market capital raised by non-public tech issuers.

  • There was no reported use of the crowdfunding prospectus exemption in 2017. However, there have been several exempt market dealers and other registered entities that have facilitated a crowdfunding-like model to raise capital predominantly from accredited investors.


The full report is available from the OSC and can be downloaded at: