There are various types of equity financing, and the Canadian Angel Investment Network has a wide range of investors looking to partner with businesses across Canada and beyond. Here are some of the more common types of financing you might come across, and how each of them works. Each entrepreneur and business owner has different needs, and so it is up to you to determine what is right for you.

Bootstrapping is a term that is used to describe a business that is started and financed by the original business owners own personal finances. These businesses do not rely on outside investment, such as equity financing, business loans or crowdfunding. Many entrepreneurs start out by wanting to retain complete control of their business, so bootstrapping can be an attractive option. However, it can be very difficult to grow a business in this way, and not everyone has the luxury of building their business on their own. So what are the options?

Equity Financing in Canada

Equity financing the process of raising money for your business by typically offering shares of the company (also known as an equity stake) to one or more equity investors. In other cases, an equity investor may look for a certain rate of return on their investment, at a set point in the future. For small businesses this can be a great way to raise money and get some additional working capital to grow a business. Control of the company will be retained when you raise capital via equity investment if you offer less than 50% of the company shares to private investors. Some companies will have additional rounds of equity financing as they grow.

Business Bank Loans

Other ways to generate investment in a business is via a business loan from a bank. However, banks tend to only offer loans to established businesses. Interest rates are typically quite high on this type of loans, and the business will need to make loan payments at pre-determined intervals. This can be a good way to improve cash flow and generate additional capital, but it comes at a cost.

Pitch your Company to Business Angels

What Is Seed Capital?

Seed Capital - This is often referred to as the first round of financing. Seed capital is a type of financing that usually occurs in the first stages of a new business, perhaps where the project has yet to begin. Angel Investors usually play a key role in this stage, as the higher risk/reward attracts these investors more than Venture Capitalists, where a group decision will usually require an evaluation of activity to date, such as financial data. Generally, seed capital is not a large amount of money, usually slightly higher than basic grants and loans: this type of equity financing falls in the $10-30k range.

Understanding Venture Capital

Venture Capital - This type of investment usually follows as the next step. It involves significantly more money and virtually always requires the investors to be involved in part of the overall running of the company and its decision making process. The average range for this step is often in the six-figure range and is invested as a type of Private Equity. Obviously, the overall aim is that the investors will generate a good return via the growth of the company and ideally the eventual Initial Public Offering (IPO) of the company. Investments from venture capital firms are usually made in exchange for a percentage of the company's shares, which will provide a strong return on investment if the company is successful.

Other types of investment funding methods for businesses in their later stages include Hedge Funds and Collective Investments.

Learn About the Canadian Angel Investment Network

If you've made the business decision that you want to increase your working capital in your business but do not want to go down the venture capital route, or take out expensive bank loans you may be looking at finding an equity investor. This raises the question how do you find an equity investor in Canada if you do not have the relevant business contacts? This is where the Canadian Angel Investment Network comes in. The goal of the network is to connect Canadian entrepreneurs with angel investors in cities such as Montreal, Quebec, Toronto, Vancouver, Calgary and more, along with the rest of the world.

View Angel Investment Opportunities in Canada

Entrepreneurs can pitch their ideas and business plans on the Canadian Investment Network directly to investors. In turn, Canadian investors can also use the network to find entrepreneurs, projects, and start-ups that they might want to invest in. The Canadian Investment Network takes the hassle out of both investing in and raising capital.

Investors can be active members of your business offering business advice and help with the running and strategy of your organization. In many cases investors look to finance companies and start-ups that operate in a market or field that they have experience with, so not only can they add financial value to an organization, but also value through their experience and contacts. This is not always the case, some entrepreneurs prefer to go it alone, and they can find investors to match. Some investors are just looking for a good business opportunity and do not want to invest their time in helping with business decisions.

When investing in a business or raising equity for your business you should carry out due diligence to ensure that everything is in order.