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The long hours and sleepless nights you put into your startup are beginning to pay off and your startup is gaining traction. Demand is rising, profitability is growing, and expansion may require new hires or technology investments. At this stage, it’s crucial to explore your financing options from venture debt and convertible securities to angel and venture capital investment.
Venture Debt & Hybrid Models
Venture debt, often provided by banks or private lenders, allows startups to raise funds without giving up equity or setting a valuation. Instead of collateral, lenders typically require higher interest rates and warrants (the right to buy shares later, usually at the time of an exit). Startups with multiple funding rounds are the best candidates for this type of financing.
Convertible securities, such as convertible notes or SAFEs (Simple Agreements for Future Equity), are also common when valuation is uncertain. These instruments start as debt or agreements but convert into equity during a future financing round. Each comes with unique tax implications including potential exposure to Canada’s debt forgiveness rules and residency considerations that can affect corporate tax status.
Equity Financing
Angel investors and venture capital firms provide equity in exchange for ownership and influence in the business. In Canada, this is often done through convertible preferred shares, which offer protections and priority over common shares.
When selling shares, investors may also benefit from Canada’s Lifetime Capital Gains Exemption (LCGE) now indexed at over $1.25 million in 2025. This can significantly reduce taxes on gains from qualifying small business shares.
The Bottom Line
Both debt and equity financing come with tax and legal considerations that can impact your business today and in the future. The right choice depends on your goals, stage of growth, and investor profile.
At Zeifmans, we help entrepreneurs evaluate their options, navigate tax implications, and structure financing strategies that support long-term success.
Ready to explore financing options for your startup? Connect with our team today at info@zeifmans.ca.
