Investment programs are an essential part of the Canadian economy, because they offer businesses an opportunity to raise capital by selling ownership stakes to investors. In exchange for their investment, investors become shareholders in the business and share in its profits or losses. In this article we cover investment programs for Ontario businesses, including what they are, the pros and cons of using them, and our top 10 recommended investment programs.
What is an Investment Program?
An investment program provides financial support to a business in the form of an equity investment. Through the program, investors can purchase shares in a business, which gives them an ownership stake. In return, the business receives the necessary funding to support its operations and growth.
Types of Investment Programs in Canada
There are four main types of investment programs in Canada that business owners can use to tap equity investments: angel investing; venture capital; private equity; and equity crowdfunding. We briefly describe each type in this section:
Angel investing is a type of equity financing where high net worth individuals invest their own money in early-stage companies in exchange for equity ownership. Angel investors provide capital, mentorship, and expertise to help startups grow.
Venture capital is a type of equity financing where institutional investors provide capital to startups and early-stage companies in exchange for equity ownership. Venture capitalists typically invest in companies with high growth potential and a strong management team.
Private equity is a type of equity financing where institutional investors provide capital to mature companies in exchange for equity ownership (as opposed to venture capital firms, which tend to invest in young companies). Private equity firms typically invest in companies with a proven track record of success and a strong management team.
Equity crowdfunding is a type of equity financing where individuals invest small amounts of money in exchange for equity ownership in startups and early-stage companies. Equity crowdfunding platforms allow entrepreneurs to raise capital from a large pool of investors.
Pros and Cons of Investment Programs
Investment programs come with their own set of pros and cons that businesses need to consider before deciding if it’s the right option for them.
On the one hand, investment programs offer businesses an alternative source of funding to traditional bank loans or debt financing. This can be particularly beneficial for startups and small businesses that may not have the credit history or collateral to qualify for a loan. Equity financing also allows businesses to access a wider pool of investors, including angel investors and venture capitalists, who may be willing to provide more funding than traditional lenders.
On the other hand, there are also potential drawbacks to equity investment programs. For one, businesses that sell shares of ownership to investors give up a portion of their control over the company. Investors may have a say in how the business is run and may even have the power to remove the business owner from their position. Additionally, equity financing can be more expensive in the long run, as investors may expect a higher return on their investment than traditional lenders.
Pros of Investment Programs for Businesses
One of the primary benefits of equity investment programs is that they provide businesses with access to capital. By selling equity in their company, businesses can raise the funds they need to grow and expand their operations.
Unlike traditional loans, equity investments do not have to be repaid. This means that businesses do not have to worry about making regular payments or meeting specific repayment terms.
Equity investors often bring more than just capital to the table. They may also provide valuable expertise, resources, and connections that can help the business grow and succeed.
When businesses sell equity, they are sharing the risk of the business with their investors. This can be beneficial for businesses that are just starting out or that are taking on new and risky ventures.
Cons of Investment Programs for Businesses
When a business sells equity, it gives up a portion of ownership and control to the investors. This means that the investors will have a say in how the business is run, which can lead to conflicts and disagreements.
Equity investment programs can be expensive for businesses, as they often require legal and accounting fees, as well as fees for finding and negotiating with investors.
When a business sells equity, it dilutes the ownership of existing shareholders. This means that their percentage of ownership in the company will decrease, which can be a concern for some shareholders.
Equity investors typically expect a return on their investment within a certain timeframe, which can put pressure on the business to perform and achieve financial goals. Additionally, if the business does not perform as expected, it may be difficult to find an exit strategy for the investors.
Best Investment Programs for Ontario Businesses: Our Top 10 Picks
1. Southeastern Ontario Angel Network (SOAN) – Investment
SOAN provides investments in early-stage companies and helps investees build a successful business to future-proof the economy of Eastern Ontario and to provide its accredited investors with a risk-adjusted return on their investment.
2. Business Development Bank of Canada (BDC) – Growth & Transition Capital
The Growth & Transition Capital provides a full range of financing options such as mezzanine, cash flow and quasi-equity financing, all designed to keep vital cash flow in their client’s rapidly-growing company, without diluting ownership.
Their Growth & Transition Capital team offers financing solutions on flexible terms to both mid-market and high-revenue Canadian companies. These solutions allow businesses to raise capital when they have insufficient tangible assets to pledge for security and don’t want to dilute ownership.
3. Export Development Canada (EDC) – EDC Investment Matching Program
EDC’s Investment Matching Program provides investments of up to $5,000,000 with a goal of accelerating the growth of Canadian businesses. EDC will work with applicant’s venture capital or private equity investor(s) to increase the capital available to the applicant under the latter’s commercial terms.
4. Angel One Network – Investment
Angel One Network invests in start-up and growth stage companies across Ontario with valuations of $6 million or less.
5. Community Futures Ontario – Community Futures Program – Access to Capital
Through the Access to Capital program, Community Futures Ontario administers local investment funds to help finance new or existing small businesses and social enterprises for start-up, expansion or stabilization plans that help maintain or create jobs in rural Ontario.
Funding takes the form of repayable financing of $150,000 or more on commercial terms through loans, loan guarantees or equity investments. Below there’s the list of the Community Futures Development Corporations providing investments. If your small business is in their service area, don’t hesitate to contact them.
6. Northern Ontario Angels (NOA) – Investment
Northern Ontario Angels (NOA) is a not for profit corporation that facilitates essential business connections between Northern Ontario’s entrepreneurs and accredited angel investors. The foundation of this network was developed to take Northern Ontario businesses to the next level and stimulate investment and economic development in the region.
7. Keiretsu Forum – Investment
Keiretsu Forum is a global investment community of accredited private equity angel investors, venture capitalists and corporate/institutional investors. It is a worldwide network of capital, resources and deal flow with 52 chapters on 3 continents. Keiretsu Forum members invest in high-quality, diverse investment opportunities.
Keiretsu Forum’s Investment is between $500,000 and $2 million USD. Companies that apply to Keiretsu Forum are typically in their A or B rounds, usually having already raised $500,000 to $1.5 million from the founders, friends, and family.
8. StandUp Ventures LP – StandUp Ventures
StandUp is a Toronto-based VC fund investing in companies with at least one woman in a C-level leadership position within the company and an equitable amount of ownership.
Although StandUp is completely sector-agnostic, they tend to invest in breakthrough B2B software, bio-tech, & health-tech ventures.
9. MaRS Discovery District – The Investment Accelerator Fund (IAF)
The Investment Accelerator Fund (IAF) provides up to $500,000 in seed funding to qualified emerging companies in Ontario to support the launch and development of innovative companies in Ontario’s priority sectors of advanced materials and manufacturing, information technology, cleantech and life sciences.
10. Business Development Bank of Canada (BDC) – Industrial, Clean and Energy Technology (ICE) Venture Fund
With deep expertise and agility, the Industrial, Clean and Energy Technology (ICE) Venture Fund manages $300 million in capital. The fund invests in Canada’s most innovative technology companies, firms that are redefining how the world works by bringing digital transformation to a wide range of industries.