Solutions for a Start-up Business 新兴企业的方案

Canadian start-ups and the Immigrant Investor

Running a company is no easy feat. It is even harder if your company is young and/or pre-revenue. So what are your options? Thanks to the digital revolution, there are more options than ever.

• Alternative financing: This is reserved for the financial engineers, investment bankers, hedge funds, etc. They may “short” shares, create complex special purpose vehicles, etc. Generally, most young companies are too small to make use of alternative financing. Public coin offerings were popular, but you will need to be aware of current regulations.

• Apply for loans: Most loans require collateral. Also, banks and credit unions tend to invest in businesses with stable, predictable income. As such, most young companies cannot benefit from traditional loans. However, governments and many small business administrations can make loans provided the business meets certain criteria: e.g. diversity mandates, industry mandates, etc.

• Equity crowdfunding: Before retail, non-accredited investors who wanted to invest in early stage companies could not. That is no longer the case. Equity crowdfunding is ideal in early stage companies as very little equity and control needs to be exchanged for the funds. The downside is that amount that can be raised each round is limited. As well, equity crowdfunding platforms' service arrangements may or not fit with your company's plan.

• Equity fundraising: Companies can issue or sell shares to angel investors, venture capital firms, etc. to raise significant amounts of cash. Companies undergoing this route should expect this journey to be convoluted and long. However, the right deal can add a trusted mentor to your team, which can be much more invaluable than any money raised. Loss of control tends to be a common issue using this method.

• Going public: In the past, only companies of a certain size could list. With new exchanges, the threshold for listing is decreasing. The regulatory burden can be high: e.g. initial public offering versus reverse take over.

• Government and private incentives: Contests, hackathons, subsidies, grants, tax credits, are all non-equity, non-loan methods to raise funds. Sometimes it is also a great way to get publicity. The downside may be that the time and record keeping may not make it worthwhile.

• Incubators, accelerators, boot camps, etc.: You can enrol into one this organization. Fees may be charged for network access, desk fees, legal support, etc. Usually a vetting process is done to ensure only the top candidates get accepted. Afterwards, candidates are accepted on a cohort basis. Depending on the candidate’s business, candidates may graduate with funding and other perks.

• Non-equity crowdfunding: Don't want to give up equity or get into a loan? You can do so with product crowdfunding. Generally, most product crowdfunding works by offering perks to early adopters. In exchange, early adopters invest in your company. Different crowdfunding targets different industries and niches.

As shown above, there are many choices. However, immigrants can be another way to bolster your company. For this discussion, the focus will be on investment immigration. At a high level, immigrant investors can purchase equity in your company in exchange for permanent and/or temporary status in Canada. Skilled immigration will be discussed another time.

For the time being, passive immigration investments schemes are closed. So why would this be important? It means there are limited options for Canada investor immigrants. It means your company can get high quality business people whom can bolster your company with funds. As a result, investor immigrants are more inclined in investing in your company. Like any union, you should plan to the end.

Things to consider

• Documentation: Are your documents in order? Can you get the documents in order?
• Due diligence: Are you comfortable with someone “peeking under the hood”? Are you prepared and willing for a cross-examination?
• Communication: Are you able to communicate effectively? Can you get along with the potential investor immigrant?
• Work division: What role will each team member have? Who makes what decisions? How will the company operate?
• Commitment: Are you willing to commit fully in case of delays and unexpected issues?
• Share allocation: How much equity are you willing to give up?
• Funds: How much are you fundraising? When do the funds need to deposited?
• Business viability: Is your business feasible and viable? 
• Business sector: Is your business in a sector that the government wants to promote?
• Innovation: How innovative is your business? Will you pass a peer-review?
• Timeline: What are your milestones? When do you need to complete those milestones?
• Taxes and legal: Does your company meet regulatory standards? Have taxes been paid appropriately?

Regarding tax and legal matters, your trusted lawyer and accountant will more than helpful. As well, business consultant, coaches, mentors, etc. can help you with developing specific growth strategies. We are connected to many domain experts whom can lend a helping hand. 

If you are interested in exploring this option, feel free to reach out.