Many Canadian companies receive initial funding through private investments (such as seed capital or venture capital). In a private investment, young businesses work closely with investors so that the two are on the same page about the company’s growth and development.
Private investors are often wealthy individuals looking for a profitable return in a viable business venture, also known as business angels or angel investors - will also offer networking opportunities and business connections or sometimes take on a management role in their invested company. Often, they will make direct investments into a company.
Typically for businesses that are based in Canada, private investment will normally come from individuals based in Canada, since they will understand what will be successful in the local marketplace. However, it is not uncommon for overseas investors, especially those based in the United States to look for business opportunities in Canada
While other sources of business funding exist, like bank loans and government grants, private investors are willing to take risks on developing companies that many financial institutions are not (even more so in recent market conditions). By avoiding traditional investment routes, such as bank loans, entrepreneurs can also avoid interest rate fees.
Private investment funds are also often received quicker than funding from venture capitalists - an individual, firm or pool of individuals who invest large sums of money in already-established businesses - because less due diligence (investigations or audits of a potential investment) is involved. In turn, private investors are usually more patient about receiving a return on their investment than venture capital companies or institutional investors.
Other forms of private investment include private equity funds. Generally, these private equity firms run investment funds for a group of investors. These investment companies may buy in to private companies, for long term gain and as an investment opportunity, providing the businesses they fund with capital investment. Often these investment management firms engage in buyouts as a form of value creation. Private equity investors typically will invest in firms with a good track record or have valuable assets (such as real estate) since these assets will increase the overall net worth of an organization.
How the Business Angel Networks Can Help Your Business with Private Investment
As a Canadian entrepreneur you may have a great business idea or are already running a company which now requires more cash flow and financial help to expand. However, you may not have the right business contacts to find individuals who can invest in your company. Perhaps you are uncertain about dealing with venture capitalists or portfolio companies and instead are looking for a business partner, that can not only add investment into your business but also add additional insight and experience to your management team. This is where the Canadian Investment Network can help.
For Canadian investors looking at their wealth management options, it can make good financial sense to diversify any investments across multiple areas. So, investing in the public markets, and making private equity investments via a portfolio manager is a good risk management strategy. However, often the best way to make a good rate of return on your money is to invest directly into a start-up or business that is looking to expand. Because you are investing directly into a business you do not have to pay any management fees to a fund manager.
When it comes to making wise investment strategies such as investing your money into a fledgling business, it can both increase your risk, but also your reward. Ultimately, whatever investment decisions are made it is important to carry out due diligence to ensure that your investment is a sound decision.
The Angel Investment Network in Canada has been set up to connect business angels with entrepreneurs in Canada, whether cities such as Montreal, Toronto and Vancouver, to the remote parts of Manitoba. This is a global organization that can help individuals connect across Canada and the rest of the world. Entrepreneurs can find accredited investors whilst investors can explore a range of business opportunities that they can invest in.