DESIGNATED ORGANIZATIONS: DIFFERENCES BETWEEN INCUBATORS, ANGEL INVESTORS, AND VENTURE CAPITAL
A pivotal aspect of Canada's Start-up Visa (SUV) program revolves around securing a Letter of Support (LOS) from one of three designated categories: Incubators, Angel Investors, and Venture Capital. So, what is the key differences between these organizations? Let's get into details in 3 major aspects of their involvement: their objectives, approaches and timing for involvement.
1. Incubators:
Incubators support start-ups in their initial phases, helping establish a sturdy base for growth.
As their name suggest, they incubate the start-ups by providing resources such as training, mentorship, and networking opportunities, sometimes with administrative resources also such as offices, incorporating services. Normally, incubators refrain from direct financial investments but stay at their role to be a consulting agency, although there are also exceptions.
Incubators assist start-ups at a very early stage, often prior to the MVP or traction phase, and that might be the reason why this group of designated organization is the largest group in term of quantity as well as number of SUV candidate at the moment.
2. Angel Investors
Angel investor groups invests personal funds into nascent start-ups during their early stages, aiming for lucrative returns in the future. They provide direct capital investment to start-ups. Usually comprised of affluent individuals or investment groups, distinct from professional investment firms.
Angel Investors typically engage during the early stage, after start-ups have outgrown the incubation phase but before attracting significant attention from major venture capital sources.
3. Venture Capital
Venture capitalists, or VCs, invest in start-ups exhibiting rapid growth potential and the promise of substantial profits. They furnish substantial investment capital, often in exchange for equity stakes or other advantageous rights. Venture Capital firms tend to be more substantial in scale and employ a more professionally managed approach compared to individual Angel Investors.
VCs are best suited for start-ups possessing products, customers, and noteworthy revenue, requiring capital for market expansion or accelerated growth. This is also the most advanced channel in term of progress for start-ups among the 3 types of designated organizations.
While all 3 types of designated organizations seem to contribute the same way to the SUV process, they diverge considerably in the extent and stage of their support, spanning from conceptualization to development and expansion phases.
In term of investment committed, Angel Investors requires a minimum investment of CAD 75,000, whereas Venture Capital demands a higher threshold of CAD 200,000. Incubators do not have this requirement as they usually do not commit to invest, however, development costs for start-ups after receiving LOS is a key factor to take into consideration for candidates as it might vary greatly.