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 45-507 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 a 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 45-507 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:

• Holds a CFA or Chartered Financial Analyst Charter from the CFA Institute or any predecessor or successor organization. 
• Holds the CIM or Chartered Investment Manager designation from the Canadian Securities Institute, a Division of Moody's Analytics Global Education (Canada) Inc. or any predecessor or successor organization. 
• Holds the CBV or Chartered Business Valuator designation from the CBV Institute or any predecessor or successor organization. 
• Holds a CPA or Chartered Professional Accountant designation from CPA Canada.
• Holds a CIWM or Certified International Wealth Manager Designation from the Canadian Securities Institute, a Division of Moody's Analytics Global Education (Canada) Inc. or any predecessor or successor organization. 
• Was admitted to practice law in a jurisdiction of Canada and at least 1/3 of the individual's practice has involved providing advice in respect of financings involving private or public distributions of securities or mergers and acquisition transactions. 
• Holds a Master of Business Administration degree, focused on finance, from a university in Canada or from an accredited university in a foreign jurisdiction. 
• Holds an undergraduate degree in Finance or holds an undergraduate degree in Business or Commerce with a major or specialization in finance or investment, from a university in Canada or from an accredited university in a foreign jurisdiction. 
• Has passed the Canadian Securities Course Exam administered by the Canadian Securities Institute, a Division of Moody's Analytics Global Education (Canada) Inc., or any predecessor or successor organization. 
• Has passed the Exempt Market Products Exam administered by the IFSE Institute, Canada, or any predecessor or successor organization. 
• Has passed the Canadian Investment Funds Course Exam administered by the IFSE Institute, Canada, or any predecessor or successor organization. 
• Has passed the Investment Funds in Canada Course Exam administered by the Canadian Securities Institute, a Division of Moody's Analytics Global Education (Canada) Inc. or any predecessor or successor organization. 
• Has passed both the Series 7 Exam administered by the Financial Industry Regulatory Authority in the United States of America, or any predecessor or successor organization, and the New Entrants Course Exam administered by the Canadian Securities Institute, a Division of Moody's Analytics Global Education (Canada) Inc., or any predecessor or successor organization.
• Holds the CFP or Certified Financial Planner designation from FP Canada or any predecessor or successor organization. 
• Holds 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. 
• Has management, policymaking, engineering, product, or other relevant operational experience at a company that operates in the same industry or sector as the business and who, as a result of this experience, is able to adequately assess and understand the risk of investment in the business.

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 45-507 Self-Certified Investor Prospectus Exemption (Interim Class Order) to invest up to $30,000 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 $25,000 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 $30,000. 

For more information on this order, click here: Ontario Instrument 45-507 Self-Certified Investor Prospectus Exemption (Interim Class Order).

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