Why Startups Need to Verify Accredited Investors

Speaker 0: you were saying that there is some regulatory information around the startup's burden on getting funding that maybe, people didn't really understand before. did you wanna clarify that?

Speaker 1: yeah. certainly. so just to add a bit further clarity

Speaker 0: thank you.

Speaker 1: my company is licensed as a private securities dealer. so we operate in the capital raising space, which is regulated by the ontario securities commission in ontario. every province in canada has its own regulatory body that regulates securities. so even though you as a start up might not be in a regulated industry, you know, you might not have to get approval for whatever your product is from a regulator, by being a private company and going out and raising capital from investors, operating in a regulated space, which is the buying and selling of investments. so the regulated space covers all companies, both public companies on the stock market and private companies. so private companies still do have regulations they have to follow when having investors come on and actually invest in the company. or not the change, but the clarification that i was mentioning to craig is as a start up, you're going out, you're able to raise capital from accredited investors, also called angel investors, and, of course, from friends and family. and when you're raising capital from those individuals, there's some additional forms that they have to sign. there's certain forms for friends and family, certain risk disclosures for them, and, of course, there's certain risk disclosures for the angel investors. and your legal counsel will often help you prepare that. of course, if you're working, with equinvesto, we include all of the required documentation inside our investment portal. the piece of important information is, typically, startups will just have the investors sign that sort of accredited investor risk declaration and use that document as proof that the angel investor is actually accredited. and equivesto as a platform, we actually go a couple steps further than that. so when an angel investor or credit investor is coming on our platform, we're actually getting the personal financial documents from that individual to verify them as accredited. that's sort of t fours, cra notice of assessment from the income perspective, or bank statements or other things like that from the assets perspective to qualify them as accredited. and just as a recap, accredited investor is two hundred thousand in annual income or three hundred thousand combined with a spouse or over one million dollars in net financial assets excluding real estate or over one, five million dollars, excuse me, in net worth, which would include real estate. so that's the definition of accredited. all angel investors have to be accredited, of course, and those are the investors that you can take on. so we as a platform have been verifying that, but most startups don't verify that. right? they just get them to sign the right forms, and they take the funding in. and i was able to confirm with the ontario securities commission. actually, just last week, i was speaking to them in person. they confirmed that it is on the startups or the startups legal counsel to actually collect those same personal financial documents from their investors to verify that. so right when you're going out to that person saying, please, please, you know, invest fifty thousand dollars in my business, give me that fifty thousand dollar check. you then have to turn around and say, oh, you know what? to actually take that check from you, you also have to show me your personal bank statements. and i know for a lot of companies that is not something that they've been doing, and that's something that creates a lot of awkwardness potentially in the relationship. the challenge being, if you're not collecting those materials, there is a chance, however slight, that if the investor decided that they didn't like the investment they made and they wanted their money back, they could go to the regulators and complain that you didn't verify that they were actually accredited, and so the investment wasn't suitable for them. and then you as the company, however long it's been, even if it's been two, three years down the line, you would be liable to repay their full investment amount. so that's something that i recently confirmed with the regulators. bit of a change from the way the inter industry's been sort of operating up up to this point. but that's something that ecovesto already does in our process. we're already collecting and verifying those things as a licensed third party, and we do that as a service for companies. so it is something that we already do as a business, but was certainly something that, a lot of companies don't realize is required for them to do themselves when going out and raising funds from, angel investors.