Resources for investors

The Exemption sets out permitted capital raising activities for early-stage businesses that includes activities to advertise the sale of securities to help them reach individuals that may be interested in investing in the business. A business relying on the exemption also has the option of raising money either with or without using a dealer (being a registered dealer or an intermediary that is exempt from the dealer registration requirement, such as an angel investor group or a crowdfunding portal).

Businesses raising money under the Early-Stage Business Registration Exemption without a dealer

If a business is raising money without a dealer, they are limited to raising money from accredited investors (as defined in the Securities Act (Ontario) and in National Instrument 45-106 Prospectus Exemptions or self-certified investors (as defined in Ontario Instrument 45-510 Self-Certified Investor Prospectus Exemption (Interim Class Order). Generally, an accredited investor is an individual that meets certain financial criteria, while a self-certified investor is an individual who may not meet any of the accredited investor criteria but can adequately assess and understand the risk of an investment through education or work experience.

The criteria for accredited and self-certified investors is discussed in the section: What are the criteria to be considered an “accredited investor” or “self-certified investor”?

As an investor who meets the eligibility criteria to be an Accredited Investor or Self-Certified Investor, this means that: 

• You can determine whether you wish to invest directly with a business raising capital through the exemption if you meet the criteria to be an “Accredited Investor” or possess the necessary business or financial knowledge, through your education or relevant industry-specific experience, to make an informed investment decision as a “Self-Certified Investor”;
• You can choose whether you wish to seek out information about the sale of securities on the website of a business or you can become aware of a business that is selling securities to raise money at a demo day organized by sponsors such as the government, universities, accelerators, or incubators.

Businesses raising money under the Early-Stage Business Registration Exemption with a dealer

Dealers connect investors with opportunities to invest in businesses raising money by selling securities. A registered dealer is subject to certain requirements under securities laws, including obligations, among others, to know their clients, understand the securities they’re selling and the underlying business, to only recommend investments that are suitable for their clients, and to address conflicts of interest in the best interest of the client. While dealers must satisfy these conditions, investors should consider their own personal and financial circumstances, risk tolerance, and risk capacity, and carefully consider whether an investment in an early-stage business is right for them.

In addition to raising capital from Accredited Investors and Self-Certified Investors, a business raising money with a dealer under the exemption may be able to access different types of investors and rely on other prospectus exemptions. For more information on the types of prospectus exemptions, refer to the OSC’s Get Smarter About Money website: Types of prospectus exemptions | GetSmarterAboutMoney.ca

As an investor, this means that you may be informed about opportunities by a dealer. You may also come across opportunities from the business’ website directly. If the business is raising money with a dealer, you should be directed from the business’ website to the dealer to go through the investment process.

Angel investors contribute to start-up businesses by investing money and in many cases also providing mentorship. An accredited investor or self-certified investor can be an angel investor. 

Angel investor groups play an important role in supporting early-stage businesses, as they introduce angel investors to early-stage businesses seeking money to grow and scale their operations. Angel investor groups may also support their members’ due diligence and provide education and networking opportunities to both their members and to businesses. 

The Not-For-Profit Angel Investor Group Registration Exemption provides a limited dealer registration exemption for not-for-profit angel investor groups that engage in limited activities. For more information about the Not-For-Profit Angel Investor Group Registration Exemption, please refer to the resources for angel investor groups and other businesses. 

As an investor, this means that you may be able to join an angel investor group and be introduced to investment opportunities in early-stage businesses if you meet the angel investor group’s membership criteria, and you are an accredited investor or a self-certified investor (i.e., possess the necessary business or financial knowledge, through your education or relevant industry-specific experience). 

Accredited Investor

An Accredited Investor is defined in the Securities Act (Ontario) and in National Instrument 45-106 Prospectus Exemptions. Generally, an Accredited Investor is an individual or company that meets specific criteria allowing them to invest in the exempt market. The Accredited Investor Prospectus Exemption allows businesses to sell their securities to Accredited Investors without a prospectus. 

An individual investor is an Accredited Investor if the individual meets at least one of the criteria outlined below:

• Net income before taxes of more than $200,000 in each of the two most recent calendar years and expected net income of more than $200,000 in the current calendar year. 
• Net income before taxes combined with a spouse of more than $300,000 in each of the two most recent calendar years and expected combined net income of more than $300,000 in the current calendar year. 
• Financial assets, alone or with a spouse, of at least $1 million before taxes but net of related liabilities. Financial assets include cash, securities and bank deposits but not the value of an investor’s personal residence.
• Net assets, alone or with a spouse, of at least $5 million. Net assets generally include all of your assets after subtracting your debt. 

There are no limits on how much an Accredited Investor can invest under the Accredited Investor Prospectus Exemption. However, generally, a registered dealer would need to assess that the amount to be invested is suitable for the investor. If you are an Accredited Investor, consider what amount, if any, is right for you to invest in an early or development stage business. 

Self-Certified Investor 

The Self-Certified Investor Prospectus Exemption in Ontario Instrument 45-510 Self-Certified Investor Prospectus Exemption (Interim Class Order) allows businesses to sell securities to an individual who holds certain designations or degrees related to finance or capital markets, or who has relevant experience in the same industry or sector as the business. 

A self-certified investor must meet at least one of the qualifying criteria outlined below:  

Qualifying Employment

Has qualifying employment experience including:

• a minimum of five years of management, engineering, product development, or other relevant operational experience at a business that operates in the same industry or sector as the issuer,
• in the past five years, been an employee of a business that operates a venture capital fund or a private equity fund, or a business that regularly invests in or provides financing to small or medium sized issuers, and has, in that role participated in the investment decisions of the person or company for at least one year,
• in the past five years, been the founder of a business or the director of an early-stage business that had in its most recently completed financial year annual revenues of at least $500,000;

Qualifying Degree

Holds a qualifying degree including:

• a law degree, having practiced law in a jurisdiction of Canada for at least 24 months and whose personal legal practice provides advice in respect of financings involving distributions of securities, or mergers and acquisition transactions,
• an accredited Master of Business Administration (MBA), Doctor of Business Administration, PhD or master’s degree, where the degree specializes in finance or economics, from a university,
• an accredited undergraduate degree in finance, business, or commerce from a university, with a minimum of three years of relevant employment experience,
• an accredited degree from a university with a focus or specialization that directly relates to the industry or sector that the issuer operates in, with a minimum of three years of relevant employment experience; or

Qualifying Designation

Holds a qualifying designation including:

• a Chartered Financial Analyst (CFA) designation,
• a Chartered Investment Manager (CIM) designation,
• a Chartered Business Valuator (CBV) designation,
• a Chartered Professional Accountant (CPA) designation,
• a Certified International Wealth Manager (CIWM) designation,
• a Certified Financial Planner (CFP) designation, or
• a Financial Planner or Financial Advisor credential, in good standing, from a credentialling body approved by the Financial Services Regulatory Authority of Ontario under the Financial Professionals Title Protection Act, 2019 that permits the individual to use the Financial Planner or Financial Advisor title;

Qualifying Examination

Has passed the following:

• the Canadian Securities Course Exam administered by the Canadian Securities Institute,
• the Exempt Market Products Exam administered by the IFSE Institute Canada, or
• both the Series 7 Exam administered by the Financial Industry Regulatory Authority in the United States of America and the New Entrants Course Exam administered by the Canadian Securities Institute.

Examples of the application of the qualifying degree

The following are examples that apply in this situation:

• an investor holding a Doctor of Dental Surgery degree from Dalhousie University who is investing under the Exemption in a dental clinic;
• an investor holding a master’s degree in chemical engineering from the University of New Brunswick who is investing under the Exemption in a start-up that manufactures equipment for natural gas pipelines; and
• an investor holding a Bachelor of Science degree in Forestry from the University of Alberta who is investing under the Exemption in a company that detects forest fires using electronic heat sensors throughout national parks.

The following are examples that do not apply in this situation:

• an investor holding a history degree from the University of Saskatchewan investing under the Exemption in a dairy farm operation, as the specialized degree and the industry of the issuer are not sufficiently related;
• an investor in the process of completing a law degree from the University of Manitoba investing under the Exemption in a legal tech company, as the investor’s degree has not been conferred yet; and
• an investor holding a Master of Fine Arts degree from the University of Toronto investing under the Exemption in a company that operates oil wells, as the specialized degree and the industry of the issuer are not sufficiently related. 

The Self-Certified Investor Prospectus Exemption is not available for purchases of securities of investment funds. A business relying on this exemption must obtain from each investor a signed Confirmation of Qualifying Criteria form and an Acknowledgement of Risks form, as set out in the exemption. 

Self-Certified Investors can only rely on the exemption in Ontario Instrument 45-510 Self-Certified Investor Prospectus Exemption (Interim Class Order) to invest up to $50,000 in aggregate during the calendar year in exempt market securities. For example, if today is September 1st, and Joan is a self-certified investor who had relied on the self-certified investor prospectus exemption to invest $45,000 in a business earlier in the calendar year, she can only use the self-certified investor prospectus exemption to invest up to $5,000 more, in that business or another business, until January 1st of the next year.  

A self-certified investor must also provide a representation in the subscription agreement that after purchasing securities of the business, the total investment cost of all securities of all businesses acquired by the investor for the calendar year as a self-certified investor does not exceed $50,000.   

For more information on this order, click here: 45-510 | OSC

If you are not an accredited investor or a self-certified investor, you may still be able to invest in a wide range of potential investments that may not be available through traditional stock exchanges. For example: 

• Crowdfunding:

  Designed for start-ups and early-stage businesses, the crowdfunding and start-up crowdfunding prospectus exemptions enable businesses to sell securities online through crowdfunding platforms. Investors are required to be provided with a disclosure document and there are limits on the amount the investor can invest. For more information on equity crowdfunding, click here: Equity crowdfunding in Ontario | GetSmarterAboutMoney.ca 

• Offering Memorandum:

  The offering memorandum prospectus exemption allows businesses to raise money from investors by making available a disclosure document, referred to as an offering memorandum. There are limits on the amount that an investor can invest depending on the financial circumstances of the investor and the assessment by a registered dealer. 

• Pre-existing relationships with the business:

  Certain prospectus exemptions allow businesses to raise money from investors who have pre-existing relationships with the business. For example, there may be ways for an investor to invest in a business without the business having a prospectus if the investor is one of the following: 

  • A family member of a director, executive officer, founder, or control person of the business (e.g., a spouse, parent, grandparent, sibling, child or grandchild), 
  • A close personal friend of a director, executive officer, founder or control person of the business, or 
  • A close business associate of a director, executive officer, founder, or control person of the business. 

  If you are interested in exploring opportunities in the exempt market, you should speak with your financial advisor, if you have one, or consider working with a registered dealer or adviser. More information about the role of dealers and advisers can be found here: Registration categories | GetSmarterAboutMoney.ca

  If you would like more information about what it means to work with a registered dealer or adviser, please see the following link: How registration protects investors | GetSmarterAboutMoney.ca