Capital formation and private SMEs in Ontario
New and growing businesses play an important role in Ontario’s economy. As we work to ensure that our regulatory environment is supportive of innovation and growth, we will continue to study access to capital for small and medium sized enterprises (SMEs) in Ontario’s private markets. The information on this page represents a snapshot of our initial research.
Ontario SMEs at a glance
Number of Ontario SMEs.[1]
Percentage of Ontario businesses that are SMEs[2].
In 2020, 68.1% of Ontario SMEs were majority male-owned, 18.7% were majority female-owned and 14% were owned equally by men and women[3].
Visible minorities, Indigenous persons and person(s) with a disability, respectively, held the majority ownership of 13.4%, 0.6% and 0.4% of Ontario SMEs[4].
SMEs and job creation
Average employment share of private sector jobs in Ontario from 2001-2020.[5]
Average gross employment creation in Ontario’s private sector from 2001-2020.[6]
Young, high-growth firms have historically been a major factor in job creation[7], contributing 41% of the total net employment change across Canada between 2009 and 2012.[8]
Sources of funding for small businesses
Ontario SMEs are heavily reliant on personal funding from founders and other non-equity sources of financing for startup capital.[9]:
Used personal financing.
Used credit from financial institutions.
Used financing from friends or relatives.
Sought equity financing.
Trends in capital raising by SMEs, 2018-2023
Data on private market deals and investors was sourced from CB Insights.
Annual funding trend in Ontario
Ontario private SMEs raised a total of $24B between 2018 and 2023, with a median deal size of 1.4M
More than 40% of deals in Canada by count and value were for Ontario SMEs.
2021 saw a sharp increase in both total funding and deal count and both continue to remain above pre-pandemic levels.
Distribution of funding by Region and Round
The size represents the amount of funding in Million USD and the color represents number of deals.
More than 60% of deals in Ontario by count and value were for Toronto SMEs.
Deal value was also higher at each stage for Toronto businesses.
Average deal size completed for Toronto SMEs was $10.7M per deal, while the average for non-Toronto SMEs was $8 M per deal in the same period.
Ontario is an attractive destination for foreign capital
Foreign investors participated in deals worth at least $16.9B from 2018-2023.
At least 736 deals worth a total $9,3B were made up of only foreign investors, increasing from $758M invested in 2018 to $2,2B invested in 2023.
An analysis of deals for a group of 14 Ontario unicorns[10] shows that approximately 61% were either led by or entirely made up of non-Canadian investors.
Accelerators, incubators, and innovation hubs
949 companies received funding from accelerators, incubators, or innovation hubs from 2018-2023.
The number of innovation hubs in Ontario increased from 46 in 2015 to 88 in 2022[11].
Initial results of research by Innovation, Science and Economic Development Canada (ISED) suggests that companies in business accelerator or incubator programs were “significantly more likely to be growing in employment and revenue and to be achieving high growth” as compared to benchmarks[12].
Angel investors are an important source of funding for early-stage businesses
Angel investors invest earlier, both in terms of the age and size of a company, than other investor types[13].
Data from CB Insights shows that angel investors participated in 284 deals worth $3,1B from 2018-2023. Deal value reached a high of $326M in 2022, over 9 times the 2018 levels.
$105M CAD of investments were made by angel groups in Ontario in 2022. $25.5M CAD of this was in Northern Ontario[14], representing 15.3% of value and 42.6% of activity at a national level.
Crowdfunding
Use of equity crowdfunding is increasing in other countries, but uptake has been slow in Ontario.
Equity crowdfunding deals in Ontario using crowdfunding exemptions, from 2020-2023[15].
Value of equity crowdfunding deals in Ontario.
573 equity crowdfunding deals in the UK in 2022, representing approximately $450M[16].
$352M USD raised via Regulation Crowdfunding in 2022 in the US[17].
The SEC’s Office for the Advocate of Small Business notes that crowdfunding offerings have been a particularly important source of funding for women and founders of color[18].
What did founders have to say about the capital raising journey?
To gain a better insight into the capital raising experience, we engaged a public opinion research firm, Innovative Research Group, to collect perspective from founders, investors, and members of the innovation ecosystem across Ontario through surveys, interviews, and focus groups.
43% of founders said that lack of knowledge of how/where to raise capital or lack of knowledge of the rules was a barrier to capital raising.
Nearly two-thirds of founders indicated that, overall, the amount of capital available to the business was slightly or much less than it needed.
61% of the roughly ¼ of survey respondents that participated in a program from an innovation hub, accelerator, or incubator reported their experience as all or mostly positive. This aligns with initial results of research by ISED that suggested that a majority of companies supported by business accelerators or incubators believed the program to have been ‘significant’ or ‘vital’ to their success[19].
Less than 20% of issuers completely or mostly agreed that there is adequate information and advice available for start-ups and SMEs trying to raise capital in Ontario.
In surveys and focus groups, businesses told us that access to foreign investors was often an important part of their capital raising journey.
Less than half of founders indicated their capital raising journey was all or mostly successful. For pre-seed/seed businesses this dropped to approximately 1 in 5 founders.
Other key items indicated as barriers to raising capital:
Difficulty finding potential investors.
Investors not willing to invest enough money and taking too long to make a decision.
Lack of interest from investors and a lack of investors with knowledge of this business’ industry.
Too difficult to access loans or credits from financial institutions, government grants, or other funding.
Join the conversation.
INNOVATIVE REGULATION STARTS HERE.
OSC IdeaHub is a new public participation platform for capital market participants to share ideas that contribute to the OSC’s efforts to foster innovation and economic growth. Together, with your unique insights and our commitment to continuous improvement, we’re modernizing Ontario’s regulatory environment to meet the evolving needs of those who live, work and invest in Ontario.
Methodology
In 2023, the OSC conducted research and consulted with key stakeholders, to enhance our understanding of private market capital raising activities by start-ups and SMEs in Ontario.
The OSC commissioned an analysis of capital raising for Ontario SMEs for 2018-2022 from an external vendor, with Canadian and global comparisons, relying primarily on data from CB Insights and StatCan.
- The OSC expanded on the Ontario data from CB Insights to include 2023.
Work conducted by Innovative Research Group on behalf of the OSC included:
- Focus groups with accelerators, innovation hubs, and incubators (2 groups with 9 participants total).
- Surveys responses (including full and partial) from 521 issuers:
- 396 had less than 25 employees
- 57 had 25-49 employees
- 38 had 50-99 employees
- 24 had 100-249 employees
- 6 had 250-500 employees
- Surveys responses (including full and partial) from 58 investors:
- 19 responded on behalf of institutional investors
- 24 responded on behalf of themselves as individual investors
- 15 responded as both institutional and individual investors
- Interviews with 25 issuers, evenly split between businesses in the following stages:
- Pre-seed
- Seed
- Series A
- Series B
- Businesses who did not raise capital in the exempt market or felt that these stages did not apply
- Interviews with 8 investors.
- 4 Venture Capital firms
- 3 Angel Investors
- 1 Government backed institutional investor
- In addition to employee size, the target population was limited to businesses that are actively trying to raise capital or have been raising capital within the past 5 years, have not issued a prospectus, are not listed on an exchange, and do not identify their primary business activity as raising capital to invest in other businesses.
- Small and medium sized enterprises are businesses with less than 500 employees.
- Dollar figures, unless otherwise indicated, are in USD.
- Market data, unless otherwise cited, is sourced from CB Insights. Non-SMEs have been excluded using headcount data from CB Insights, where available.
- Data from CB Insights does not include deal values for all deals. However, deals with no value attributed are included in total counts.
- Deals categorized as Exits in CB Insights are excluded.