Canadian Startup and Video Game Law Blog
Startup and video game law, from a Canadian and U.S. perspective
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Raising Capital from U.S. Investors
Many Canadian companies raise funds in cross-border financings, with most rounds including at least 1 U.S. resident investor (if not a U.S. lead investor). If your Canadian startup is raising funds from U.S. investors, you will need to keep the following in mind:
1. Value Your Startup in USD
All Canadian startups should value themselves in USD. While early investors may be Canadian, U.S. startup to benefit from the USD-CAD exchange rate, further extending runway to the extent expenses (see: payroll) are in CAD.
In our experience: (a) Canadian investors expect a USD valuation; (b) US investors don’t consider forex; and (c) your company is not more appealing because CAD is cheaper – investors are looking for quality companies not forex discounts.
2. US vs Canadian Templates
Most startup financings use template documents, either YC’s SAFE or the National Venture Capital Association priced-round documents (CVCA for Canadians). It’s important to use the correct, Canadian, version of these templates as the Canadian version contains key clauses designed to achieve Canadian legal compliance. The Canadian versions are very similar to the US versions, which similarity will create comfort for your U.S. investors and their legal counsel.
3. Canadian and US Securities Laws Apply
As a Canadian startup, raising company from U.S. investors will implicate cross-border securities laws. First, since your startup is incorporated in Canada, Canadian securities laws apply. Second, since the investor is resident in the U.S., U.S. securities laws apply. It is critical that compliance with these securities laws be addressed before closing a financing. Luckily, cross-border legal counsel should be able to address compliance quickly.
4. You Don’t Need to incorporate in the US
You don’t need to be a U.S. company to raise money from U.S. investors and many U.S. investors won’t force you to be a US company. Of the 1,400+ companies we represent, we’ve only had to incorporate a U.S. company to appease U.S. investors twice in the last 12 years. Read our blog posts on the subject here: Should I Incorporate my Canadian Startup in Delaware and Revisiting – Should I Incorporate my Canadian Startup in Delaware.