Dealflow Solutions Ltd.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Filer operates an online introductory platform whereby potential investors may be made aware of potential investment projects meeting certain criteria selected by the investor -- Filer registered as an exempt market dealer but seeking relief from trade confirmation requirement and account statement requirements applicable to registered dealers -- Filer does not act on behalf of any investor in connection with that investor's purchase or sale of any securities and has no involvement in negotiation, execution or funding of a project posted on the platform -- Filer does not hold or have access to any investor or issuer funds or securities relief granted subject to 5-year sunset clause and other terms and conditions.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 14.12, 14.14, and 15.1.
May 18, 2021
IN THE MATTER OF THE SECURITIES LEGISLATION OF NOVA SCOTIA AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN THE MATTER OF DEALFLOW SOLUTIONS LTD. (the Filer)
The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for relief from the following under section 15.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103):
a. the requirement in Section 14.12 [Content and delivery of trade confirmation] of NI 31-103 that a registered dealer that has acted on behalf of a client in connection with a purchase or sale of a security promptly deliver to the client a written confirmation of the transaction setting out certain prescribed information (the trade confirmation requirement); and
b. the requirement in Section 14.14 [Account statements] of NI 31-103 that a registered dealer deliver to a client a statement containing certain prescribed information at least once every three months or, if the client has requested to receive statements on a monthly basis, for each one-month period (the account statement requirement);
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual review application):
a. the Nova Scotia Securities Commission (the Commission) is the principal regulator for this application;
b. the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision unless otherwise defined in this decision (the Decision).
This Decision is based on the following facts represented by the Filer:
1. The Filer is a corporation incorporated under the Canada Business Corporations Act. The Filer's head office is in Truro, Nova Scotia.
2. The Filer owns and operates websites with the stated purpose of "connecting entrepreneurs and investors". The Filer is specifically seeking registration and requested relief for activities associated with the CanadianInvestmentNetwork.com website (the Canadian Investment Network).
3. The majority of the revenue generated by the Canadian Investment Network originates from prospective issuers who pay a fee to obtain either a referral service (the Referral Service) or premium service (the Premium Service). The remaining site revenue (< 5%) is generated from prospective investors who pay a fee to obtain the contact information of entrepreneurs whose proposal they expressed interest in (the Entrepreneur Referral Service).
4. As the Filer is based in Nova Scotia and the Canadian Investment Network involves the facilitation of trades in securities of issuers to investors in Nova Scotia and Ontario, the Filer is seeking registration as a restricted dealer in these provinces.
5. The Filer has been operating the Canadian Investment Network since 2014. After discussions with the securities regulatory authorities, the Filer has applied for registration and this exemptive relief in order to continue its operations.
6. Subject to the matter to which this Decision relates, the Filer is not in default of securities legislation in any province or territory in Canada.
The Investment Process
7. Issuers register for free on the Canadian Investment Network platform and submit an investment proposal for funding. They have the option to submit a proposal for free to find out if there is investor interest in their proposal. If there is, and they wish to follow up on that interest based on the amount and type of interest (they are emailed anonymous profile info about the potential investor), then they may upgrade to the Referral Service or Premium Service to obtain their contact info. Issuers may also elect to pay these fees upfront which entitles them to include more detailed information about their company and venture to be sent to prospective investors.
8. The Referral Service provides the Issuer with access to contact information of interested investors and allows the Issuer to include contact information in their pitch (e.g., name of company, website link, phone number, email address).
9. The Premium Service provides the Referral Service features and also allows the Issuer to incorporate more details into their pitch (i.e., documents, videos, images, logo) and displays their proposal summary information more prominently on the site (front page, sidebar scroller, top scroller). Site users are notified in public and private areas of the site that entrepreneurs pay a fee to have their proposals featured and that featured placement should not be considered a recommendation.
10. Investors register for free and acknowledge a) that they are accredited investors, b) that they are aware that private investment deals are potentially high-risk and illiquid, and c) that investing in exempt distributions is suitable for them.. Investors who register are not automatically admitted to the platform. The data provided by the Investor is compared to other online information sources to verify that they are using their real name and are credible accredited investors. Credibility is assessed on our intake form by asking investors to provide details concerning their professional experience, education, investment experience, value-adds, anticipated involvement, and status (e.g., individual investor, investment group, broker, etc..). Connecting on Linkedin is the preferred method to verify investor details and to access relevant details that may not have been provided in the intake form. Our bias is to only admit investors who have Linkedin profiles or established websites that corroborate intake details. This also makes it easier for issuers to conduct similar due diligence on prospective investors.
10. When investors register, they specify their investment criteria in terms of which industries and locations they prefer as well as their investment range.
11. Investment proposals are automatically sent to investors based on a match with the industries, location and funding amounts that are specified in the issuer's investment proposal.
12. If an investor wishes to follow up with an issuer regarding a proposal, they can click a "Contact Entrepreneur" button on their version of the issuer's investment proposal.
13. When an investor clicks the "Contact Entrepreneur" button, the issuer is notified by e-mail of the investor's interest. That e-mail contains anonymous information about the interested investor. If the issuer has not paid a fee to the Filer for the Referral Service or Premium Service, they may choose upgrade to obtain the investor's contact information or they may wait until there is more investor interest or the right type of interest is expressed.
14. If the issuer has paid for the Referral Service or Premium Service, they may obtain the investor's contact information to follow up directly with the prospective investor. The Filer is not involved in any of the negotiations with the prospective investor.
15. The pool of potential investors for any investment proposal includes all the investors registered on the network.
16. The Filer has established, maintains and applies policies and procedures reasonably designed to ensure that access to the Canadian Investment Network is limited to accredited investors.
17. The Filer's primary administrative role is to approve investors for access to the Canadian Investment Network, to approve investment proposals by issuers before they are posted to the platform, and answer any questions that either issuers or investors might have.
18. Except as described above, the Filer does not offer advice or recommendations to investors as to the suitability of any specific investment or any listed investment proposal.
19. The Filer does not accept any compensation from investors or issuers that is contingent upon an investment proposal being funded or an investment being consummated.
20. The Filer does not have knowledge of whether an issuer has been successful in fund raising.
21. The Filer does not have knowledge of whether an investor has invested in a particular investment proposal.
22. Investors are advised that they must perform their own due diligence on the entrepreneurs they wish to connect with and their investment proposal.
23. Entrepreneurs are advised that they must perform their own due diligence on the investors who have expressed interest.
24. Investors and entrepreneurs are advised to seek professional assistance before any deal is consummated.
25. The Filer does not provide or promote any firm offering professional services. The only exception is a pitch consultation which is provided by a third party from whom the Filer does not receive compensation (the Pitch Consultant). If an issuer needs help preparing an investment proposal, they may be referred to the Pitch Consultant.
26. The Filer does not engage in any direct trading or settlement of securities in respect of any particular securities offerings.
27. The Filer does not hold any investor or issuer funds or other client assets of any kind at any time, either in connection with an offering of securities or otherwise.
28. The Filer only advertises proposals to potential investors. The filer offers an "introduction only" service.
Request for relief from trade confirmation and account statement requirements
29. The Filer submits that compliance with the trade confirmation requirement and the account statement requirement are unnecessary in the circumstances and would impose an undue regulatory burden on the Filer and that the cost of such compliance would outweigh the benefits to its investors.
30. The trade confirmation requirement in section 14.12 of NI 31-103 applies to "a registered dealer that has acted on behalf of a client in connection with a purchase or sale of a security".
31. Unlike a conventional dealer, the Filer does not act on behalf of investors as clients in connection with a purchase or sale of securities, since:
a) the Filer's role is generally limited to providing an online introductory platform whereby potential investors may be made aware of potential investment projects meeting the investors self-selected criteria;
b) the Filer does not act on behalf of any investor as a client in connection with that investor's purchase or sale of any securities and has no involvement in negotiation, execution or funding of a project posted on the Canadian Investment Network; and
c) the Filer does not hold or have access to any investor or issuer funds or securities.
The Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Maker under the Legislation is that relief from the trade confirmation requirement and the account statement requirement are granted, provided that and for so long as:
a) unless otherwise exempted by this Decision or by a further decision of the Decision Makers, the Filer complies with all of the registration requirements of a registered dealer and to a registered individual under Nova Scotia securities laws, and any other terms, conditions, restrictions or requirements imposed by a securities regulatory authority or regulator on the Filer;
b) the Filer deals fairly, honestly and in good faith with users of the Canadian Investment Network;
c) the Filer has its head office in Nova Scotia;
d) the Filer's primary source of funding remains as set out in paragraph 3 above;
e) the Filer will facilitate trades in securities to investors only in Nova Scotia and Ontario;
f) the Filer's mandate and activities remain substantially as set out above in paragraphs 7 to 28 above;
g) the Filer does not receive any commissions or transaction-based fees or incentive fees for its services;
h) the Filer has established, maintains and applies policies and procedures reasonably designed to ensure that investor membership is limited to accredited investors;
i) neither the Filer nor any representative of the Filer provides a recommendation or advice to any investor or prospective investor in connection with an offering or potential offering;
j) the Filer is not involved in the negotiation, documentation, financing and transaction closing of any investment;
k) the Filer does not hold, handle or have access to any funds or securities of any investor or issuer;
l) the Filer maintains
(i) a copy of all information posted by the Filer, its investors or issuers on its website;
(ii) information it is required to keep under applicable securities law
for at least seven years in a safe location and in a durable form and agrees to deliver to the Commission at such time or times as the Commission may require, any of the books, records and documents (including the information posted on the website) of the Filer;
m) the Filer notifies the Director in writing at least 30 days prior to any material change in the Filer's business operations, business model or capital structure, including any material addition to or modification of the services it provides to issuers or investors;
n) this Decision may be amended by the Director from time to time upon prior written notice to the Filer;
o) this Decision shall expire on the earlier of:
(i) five years after the date hereof; and
(ii) 90 days after any material changes in the Filer's business, operations or capital.
Application File #: 2018/0607