Investments in technological innovation have changed how businesses operate as well as how people live. The emergence of new disruptive technologies — AI, machine learning, automation, blockchain — is forcing savvy Canadian business owners to seize a narrow window of opportunity to capitalize on the latest digital revolution and harness it for their ventures to thrive.
As modern businesses adapt to industry trends, and gradually become more dependent on technology, the demand for business accelerators and investors continues to climb. This trend shows no sign of slowing down, with one in three small to medium-sized enterprises (SMEs) planning to invest in software over the next 12 months. With a positive outlook in Canada’s technology sector (despite the downturn), and an expected 22.4% growth rate in the 2021 to 2024 period for investments in tech, it is vital for business owners seeking to accelerate their venture to be well-informed of the resources available to support them. Embarking in a new venture inevitably brings along new challenges, which is why founders seek external support from experts who already have the previous industry knowledge and experience to help new startups reach their fullest potential.
Upon reading this guide, you will be well informed on the startup ecosystem, and the necessary steps to grow your startup, taking a unique idea, along with the support from industry and innovation experts to a fully operational and lucrative company. There is no golden ticket to success when navigating the entrepreneurial journey. However, the sky’s the limit, and with the right mindset, resources, and support this is just the start to creating a meaningful impact on the world.
Table of Contents
Summary of Accelerators and Investors
What Accelerators Do For Canadian Startups & Small Businesses
List of International Investors For Canadian Startups & Small Business Owners
How ReInvestWealth Helps Canadian Startups & Small Businesses Secure Investment
The differences between Investors and Accelerators
Although both accelerators and investors play a vital role in the development of a startup in Canada, especially in its early stages, there are key differences between the two. Imagine the incubation stage as a school where founders learn about building a company, before entering the real world where the company is on the market.
What Accelerators Do For Canadian Startups & Small Businesses
Accelerators are programs that support developing companies/startups by providing them with a network of investors, access to government support, mentorship, and other guidance needed. Accelerator programs generally range from three to twelve months and are guided by industry professionals throughout the process. Companies entering accelerator programs are established, and have completed the incubation stage — building a minimum viable product (MVP). Accelerator programs focus on growth and expansion and tackle challenges in organizational structure, operations, financials, and business strategy. Essentially, accelerators provide advisory services for startups. Lastly, following completion, the company is pitched to an audience of Venture Capitalists (VCs) and investors to raise capital.
Some of the most highly regarded Accelerators that you may be familiar with include Y Combinator (YC), Techstars and 500 Startups. Although based in the United States, these accelerators regularly work with foreign-based companies and are available to Canadian businesses. Many top Accelerators back unicorns and successful companies such as Coinbase (YC), Airbnb (YC), Canva (500 Startups), Reddit (500 Startups), and Zipline (Techstars).
How Investors Help Businesses
Following the establishment of this method involves investors purchasing the company’s shares at a fixed price. Priced Equity investments are intangible assets, or securities, similar to investing in a government-issued bond or a tesla stock. Additionally, Priced Equity Round investments typically are made to later-stage startups (Series A+), which we will cover later. Startup founders seek advice from seasoned entrepreneurs and industry professionals through accelerators. Accelerators provide advisory services, but do not provide the necessary capital needed to execute the strategies for growth — which is where investors come in.
Typically, there are 3 popular methods of raising investment for startups:
1. Priced Equity Round
Price Equity round fundraising is the most common method of investment involving investors purchasing the company’s shares at a fixed price. Priced Equity investments are intangible assets, or securities, similar to investing in a government-issued bond or a tesla stock. Investors will determine a startup’s valuation — how much investors think a company is worth, then offer an investment — capital in exchange for shares in the company. The price per share is calculated on behalf of the valuation of the company. Priced Equity Round investments typically are made to later-stage startups (Series A+).
2. Convertible Debt
Convertible debt can later be converted from one asset type to another. For example, the initial investment amount may be converted into stock options, equity, or cash as time goes on. In this method of investment, an investment in a form of a loan is given to the start-up. Upon reaching the maturity date or end of term, the debt can be repaid in cash or stock options — shares of the company. Investors specializing in earlier phases, such as the seed stage, often invest using convertible debt as the startup’s financial performance continues to change.
3. Simple Agreement for Future Equity (SAFE)
The SAFE was first introduced by the revolutionary technology accelerator and investor Y Combinator (YC) in late 2013. Since then, the SAFE has become a popular new choice for investors for early stage fundraising, offering two essential features important to startups — high-resolution fundraising and flexible one-document security.
A) High-resolution fundraising
Investors and founders are more transparent with what each side gives and receives in a transaction. This way, founders and single investors can close a deal as soon as both parties are ready to sign a formal agreement, instead of having to organize a simultaneous close with all investors.
B) Flexible one-document security
The SAFE does not have a set maturity date, eliminating the need to negotiate multiple terms such as interest rate and maturity date revisions. A SAFE can save founders and investors significant legal fees and reduces the time spent negotiating the terms of an investment. Time is money — literally. This way, the single term that requires negotiation is the valuation cap — the price ceiling imposed on the SAFE when it converts to stock ownership in the future.
Company Funding Stages
A Canadian startup’s funding stages include pre-seed, seed, series A, and series B, followed by the end goal of an initial public offering (IPO). Using the analogy of a seed, which will eventually grow into a tree, companies begin from an idea, or “seed” and strive to grow into a “tree”, representing a fully operational company.
Commonly referred to as the “bootstrapping stage," companies in the Pre-seed stage use their e