NASSAU, BAHAMAS — A Cabinet minister said yesterday that new crowdfunding rules that allow eligible entrepreneurs to raise up to $5 million by offering investors an equity stake in their businesses represent a “game changer” in capital raising for small businesses.
Minister of State for Finance Senator Kwasi Thompson, while speaking at a press conference on the new crowdfunding rules, noted that entrepreneurs can now avoid the expensive and often onerous processes involved with traditional fundraising and secure debt-free capital by selling a stake in their businesses while maintaining control of their companies.
“The new rules are now in effect and they represent a game changer. Eligible entrepreneurs can raise up to $5 million to put towards the development of their start-ups or existing small businesses,” said Thompson, noting that local platforms will allow them to raise this money from citizens and residents across the country who are interested in investing in their businesses.
“This is just one way that we are breaking down the barriers for Bahamian entrepreneurs and small businesses to raise capital in The Bahamas.
“The new crowdfund rules provide an appropriate balance between access to capital for entrepreneurs and, of course, provisions to ensure protection for potential investors. The rules also seek to minimize systemic and jurisdiction risks.
“These innovative regulations have already created space for the establishment of the nation’s first licensed equity crowdfunding platform, which goes by the name ArawakX.
“I understand as well that The Bahamas International Stock Exchange (BISX) has also been approved to establish its own similar platform to raise funding for Bahamian small businesses.
“We expect to see even more innovators come forth as a result of the new framework.”
Thompson noted that the Economic Recovery Committee (ERC) had recommended the implementation of legislation to facilitate and support crowd sourcing and junior stock; and that Cabinet recently approved new regulations from the Securities Commission to establish a legal framework to allow MSMEs to participate in crowdfunding.
“We expect that the Securities Commission is going to be doing a number of educational initiatives to advise not just the investors but also small businesses on the opportunities available,” said Thompson.
“Crowdfunding has gained a lot of interest throughout the world. We are not the first to do it in the Caribbean. A number of Caribbean countries have been able to do it successfully.”
Acting Financial Secretary Marlon Johnson noted that crowdfunding will be restricted to equity.
“It allows for much more straightforward method and approach. That’s where the sweet spot is for crowdfunding. You want people to become substantial owners in a very direct and manageable way and that is where the sweet spot is for crowdfunding,” said Johnson.
According to the crowdfunding rules: “A platform shall ensure that where an investor purchases securities in a crowdfund offering, as a result of a project initiator’s advertisement, the number of such investors — (a) shall constitute no more than 30 percent of the total number of investors in the crowdfund offering where fully subscribed; and (b) have no priority over persons purchasing via the platform after the 30 percent investor threshold is met.”
The rules also state “a platform shall also return all funds to a purchaser in the event that a distribution is removed from the platform, or where the distribution is canceled by the project initiator or the commission; and, such return shall be done without any specific request of the purchaser within two days of the occurrence of either event”.