By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas International Securities Exchange (BISX) yesterday said it planned to move “swiftly” on developing a market model to support the Securities Commission’s crowdfunding ambitions.

Keith Davies, BISX’s chief executive, told Tribune Business that the exchange planned to unveil “a very clearly defined market” through which Bahamian entrepreneurs/start-ups can seek crowdfunding investments, once it obtained Board approval.

Mr Davies was speaking ahead of today’s seminar, organised jointly between the Securities Commission and Bahamas Chamber of Commerce and Employers Confederation (BCCEC), to discuss proposed rules for creating a formal, regulated crowdfunding market in this nation.

One small business consultant yesterday told Tribune Business that the Securities Commission’s proposals were “long overdue” when it came to improving ease of capital access for small Bahamian businesses and entrepreneurs.

Mark A. Turnquest, of Mark A. Turnquest Consulting, told Tribune Business he had 25 small business clients who could potentially qualify for crowdfunding investments, including firms in the manufacturing and merchandising sectors.

Disclosing that he had been seeking grant funding for several clients, Mr Turnquest said: “They need more money than the bank is offering now; a little working capital. The banks are risk averse.

“This type of platform [crowdfunding] is at least five years overdue, and should have been done a long time ago. It’s a wonderful option.

“We have businesses doing well now that could take advantage of it, once they get the experience necessary to position their business to be attractive for this type of funding. It would excite the market, which is down and out now. I’m an advocate for this big time.”

Access to capital, both equity and debt, has frequently been the biggest obstacle complained about by Bahamian small businesses, start-ups and entrepreneurs.

With commercial banks increasingly risk averse, and constrained by laws and regulations from taking a chance, traditional capital sources have shrunk in recent years - especially since the 2008-2009 recession.

Apart from the government-sponsored venture capital fund, the Bahamas Entrepreneurial Venture Fund, this nation does not possess a developed private equity or venture capital market, which have acted as alternative financing sources for small business in developed countries.

As a result, Bahamian entrepreneurs have frequently been forced to rely on their own resources, plus family, friends and so-called ‘angel investors’ for their financing, together with whatever they are able to access from more conventional sources.

Crowdfunding, which involves financing a project or business venture by raising small amounts of money from a large number of people, typically via the Internet, is now stepping into this gap. It pools money from friends, family and investors.

With the Internet and social media increasingly being used by Bahamian entrepreneurs to raise capital via crowdfunding, the Securities Commission is now seeking to fill the financing ‘vacuum’ with the creation of a formal market and rules to protect both start-ups and potential investors.

Mr Turnquest told Tribune Business it was “not rocket science that things are bad” for Bahamian small businesses, and even those operating with proper accounting records and marketing strategies were challenged in obtaining “funding for growth”.

“They’re not growing the way they want,” he said of several clients, “and they’re having to be very conservative in this market.”

Disclosing that some small businesses were reluctant to take on debt-related expansion financing for fear it will “mess up their cash flow”, Mr Turnquest added: “They can’t add more people and add more products.

“They’re successful, but are not growing exponentially like they want.”

The Securities Commission’s crowdfunding proposals, contained in the draft Securities Industry (Business Capital) Rules 2017, require that new start-ups access investor financing by offering securities through a ‘platform’.

This is described as an Internet-based “electronic marketplace”, which will advertise and administer these offerings. While a ‘platform’ as to be registered with the Securities Commission, the regulator’s proposals appear to impose no restrictions on how many there can be.

BISX appears ideally placed to be one such ‘platform’, given its existing technology and status as the Bahamas’ sole regulated stock exchange.

There also appear to be significant synergies between the crowdfunding proposals and BISX’s long-planned Small Alternative Market (SAM), which would target companies seeking $1 million or less in new capital.

Mr Davies acknowledged as much, and confirmed to Tribune Business that BISX planned to “absolutely” offer itself as one crowdfunding ‘platform’.

“We’re going to try and do our best, and put forward a very clearly defined market that people will have a chance to look at, once our Board approves it,” he said. “I’m moving towards that swiftly. That is our intent”

Confirming that there had been discussions between BISX and the Securities Commission on the latter’s proposals, Mr Davies said the relationship between the two would remain the same over crowdfunding.

“They will create the parameters for crowdfunding, and we will create the market within that,” he explained. “I’m very pleased the Commission is going forward with this, and I’m looking forward to working with them and creating our own market environment that will enhance and support crowdfunding in the Bahamas.”

The Commission’s proposed Rules attempt to create a formal, regulated market for crowdfunding while striking a balance between ‘ease of capital access’ and investor protection.

“The main objective of the Rules is to lighten the regulatory burden and open access to funding for SMEs via the public markets, while maintaining appropriate mechanisms to protect investors,” the regulator said.

“The proposed Rules would allow the general public to participate in crowdfund distributions within limitations, and would require that all equity crowdfund distributions are conducted on a platform that is registered with the Commission.

“To help protect small and/or sophisticated investors, the Rules would limit the amount such persons could invest in such distributions in any given year.”

Start-ups raising equity capital via a ‘platform’ would be limited to a maximum of $1 million, with less sophisticated investors unable to invest more than $1,000 in any single offering in a year. Their investments are also capped at a maximum $3,000 per start-up.

The Securities Commission is also permitting more established small and medium-sized businesses to raise capital on the over-the-counter (OTC) market, via registered broker/dealers and investment houses.

They will only be allowed to conduct one offering per year, with capital raising-limits of $2 million for small businesses, and $3 million for medium-sized enterprises.

Again, less sophisticated investors are unable to invest more than $1,000 in any single offering per year. Their investments per company, though, are capped at a higher maximum of $5,000 per start-up.

“The Rules would allow certain small and medium business to raise up to $3 million per year in the ‘Over-the-Counter’ market without having to file a prospectus with the Commission, though an Offering Memorandum would be required to be filed, which will allow investors to make informed investment decisions,” the Securities Commission.