Canadian Start-Up Funding Rounds

For tech startups, the goal is always rapid growth on a national and global scale. To achieve this, capital is always a crucial factor. The fundraising process for a startup in Canada, as in other countries, generally involves stages from the Pre-Seed Round to subsequent Series A, B, C, and D.

TO KEEP IT SIMPLE, THE FUNDRAISING PROCESS CAN BE DIVIDED INTO 3 PHASES:

• Pre-seed and Seed stages/rounds
• The early funding stage (Series A & B)
• The late funding stage (Series C & D)

Seed and Pre-Seed Round

Seed funding is the first round of fundraising for a startup. At this stage, the company begins to develop an idea and prepare for establishment. Typically, entrepreneurs will start with personal funds or ask friends and family for help. Some who lack funds will even use personal assets as collateral. These family and friend investors are often referred to as "angel investors."

After securing sufficient funding to develop a prototype or a feasible, well-structured plan, entrepreneurs seek out professional Angel Investor organizations. This is known as the Seed Round. Typically, at this stage, angel investors only invest a relatively small amount, averaging $50,000 to $250,000. In some cases, larger projects may raise over $1 million in the Seed Round.

Some smaller venture capital funds also participate in the seeding round.

Series A, B

This is the stage where the company has developed and has stable revenue. Due to its rapid growth potential, it needs to raise further funding in rounds A and B. At this point, family and friends usually can't afford to invest, partly because the company's valuation is already high, and partly because the amount of funding needed is substantial, requiring the involvement of a professional fund management firm.

This round typically raises a few million dollars, up to around 5-10 million dollars. Angel investors or venture capital firms usually participate in this round.

Series C, D

By the time a startup reaches this stage, the company has already captured the market, and some of its risks have disappeared. Unlike previous rounds where technological risks were a concern, the technology has now proven its viability. Furthermore, market risks have also been addressed; the product has attracted and captured the market. When risks disappear, the company's value skyrockets. Small and medium-sized investors can no longer afford to participate. This is the time for large corporations to step in.

Which investment round should I start with?

Each investment round will depend on the financial capacity of the investors. Of course, Pre-Seed and Seed rounds are the cheapest but also carry the highest risk.

Currently, there's Shark Tank Vietnam. I've watched a few episodes and noticed that the Sharks seem to prefer participating in the Seed Round because this is the stage where company valuations are relatively low. However, the Sharks don't like investing in the Pre-seed Round because the projects are still too young and risky at that stage. Some projects in Shark Tank Vietnam didn't seem to have the potential for "global scaling," but the Sharks still invested, perhaps because simply developing within a large, populous market like Vietnam is enough. However, it's different in Canada. The Canadian market has a smaller population, so startups without "global scaling" potential will struggle to attract investors.

Funding rounds typically occur within the first 5 to 7 years of a company's lifecycle. However, they can extend beyond 10 years. Successful funding rounds are crucial, as they are the way to scale up operations; insufficient capital can lead to downsizing, potentially impacting global expansion plans. Successful funding rounds can help create a tech giant and propel the company toward an IPO, meaning an initial public offering. Based on the experience of my entrepreneurial friends who invest in startups, after facing numerous failures, they advise me to only participate in rounds within the first 5 years of a company's life. Furthermore, it's not advisable to stay too long in a business unless it's absolutely necessary to "exit" within the following 5 years.

START-UP VISA CANADA

The Start-Up Visa Canada is a similar model. This type of business must have a long-term vision, create jobs for Canadians, and be global in scale, aiming for worldwide reach. The program requires support from an Angel, Venture, or Incubator. The type of support will depend on the project's stage. For example, an Incubator will lead a Pre-Seed project, while a smaller Angel or Venture will be involved in Pre-Seed or Seed projects. Large-scale projects will be supported by larger Ventures.

If you're interested in immigrating to Canada with a Start-Up Visa, book your appointment here.