Public Venture Capital


Overview:

  • Alternative manner to finance early-stage companies with an extraordinary potential for growth.
  • VC financing involving a large number of smaller investors.
  • TSX Venture’s CPC (Capital Pool Corporation) program. Program been in existence for over 15 years.
  • A simple and clean manner to raise financial resources and go public.
  • Connects an entrepreneur with individuals with financial, public company and business experience.
  • Financing in range of $1M to $10M.
  • Emphasis on management team, product/service(s) vs. earnings.
  • Open to both Canadian and American operating firms.
  • Over 1,100 businesses listed on TSX via CPC program.
  • Over 150 former CPCs have graduated to senior exchanges.
  • Greater than 40% of TSX Venture Exchange graduates to the TSX Venture Senior Exchange were former CPC issuers.
  • The Pros of Public venture capital via the CPC program:
    • Liquidity
    • Favourable valuations. Minimal dilution. Founders maintain up to 80%.
    • Cash, immediate access to funds in CPC, known result
    • Expertise: CPC management, already in place, is familiar with the regulatory hurdles re the public process. These individuals frequently stay with the new venture
    • Permanent equity money
    • “Currency” for mergers and acquisitions
    • Ease of raising additional capital
    • Benefits when moving to the TSX Venture senior exchange.
    • Credibility, exposure
    • Terms and conditions not as stringent as VC involvement
    • Prestige
    • Attract and retain key employees
    • Being a public company causes:
      • Focused management team
      • Clear business model
      • Transparent accounting procedures
    • Enhanced profile and greater responsibility of directors on “board”
  • The Cons of pursuing the CPC program:
    • Loss of privacy, all is public information
    • On-going costs i.e. reporting etc
    • Shareholders
    • Fiduciary responsibilities as officers of public company
    • Different tax treatment
  • Industry Sectors: Examples
    • Embedded systems
    • Biotechnology
    • Software applications
    • Application service providers
    • Wireless, telephony
    • Networking technology
    • System design
    • Content and information suppliers
  • Costs
    • Prospectus preparation
    • Audit and accounting
    • Listing fees, securities commission fees
    • Printing costs
    • Legal costs
    • Travel costs
    • Due diligence
    • Valuation
    • Underwriters commissions, sponsorship fees
    • Investor relations


Process

  • Seasoned directors (3-6) with business and public company experience create shell by investing $100k-$500k in seed capital.
  • Prospectus is prepared to raise between $200k-$1,900,000 by selling shares at typically twice the issuance price of the seed shares. Use of proceeds to identify and evaluate acquisitions (operating target company/qualifying transaction).
  • CPC applies for listing on TSX Venture.
  • Sponsoring broker sells CPC shares to a minimum of 200 arm’s length investors.
  • Once CPC is listed on Exchange has 18 months to identify its qualifying transaction (operating target company).
  • CPC prepares draft info circular providing prospectus level disclosure on the business to be acquired (operating target company).
  • TSX Venture reviews documents.
  • Shareholders vote.
  • Qualifying transaction closes and business is acquired.
  • If applicable, private placement accomplished in conjunction with amalgamation of CPC and target company.
  • The “resulting issuer” begins trading as a regular listing on the TSX Venture Exchange.


FAQs:

  • Is there a TSX Venture Guide to the listing process?
    • Yes, please download TSX Venture brochure
  • What external advisors do we require?
    • A sponsoring broker (investment banker)
    • A securities lawyer
    • An external auditor
    • An investor relations professional
  • How long will my founders shares be locked?
    • Founders shares will be held in escrow between 18-72 months
  • What are the alternatives to raising money through the CPC public process?
    • A company may seek capital from several private sources: banks, venture capitalists, government agencies, angel investors
  • Is there a similar product to the CPC program in the States?
    • At this time, not to our knowledge
  • What criteria, in part, will be used to determine if my company is a candidate for a CPC?
    • Well-developed business plan, formal marketing plan
    • Customer traction, indication of market acceptance
    • Fair and meaningful valuation and viable share structure
    • Management team, complete and gelled. Experienced. Knowledge of industry.
    • Defensible differentiated value proposition. IP
    • Large, growing market
    • Potential of $100M revenue in 5 years
    • Current financing, sufficient seed capital
    • Viable products
    • Advisors
  • How is initial share price set?
    • Your company in consultation with your investment banker.
  • What percentage of the company will go the shareholders of the CPC?
    • Approx 20%
  • What is a realistic timeline to be listed and in receipt of monies?
    • On average, between 9-18 months depending on the experience of your advisors especially the broker, lawyer, quality of your documentation and outstanding issues
  • How much will it cost in total?
    • Range: $50k-$75k
  • How do I get additional information?
    • TSX Venture documents/website
    • Omni-Rand Inc
    • TSX Venture Business Development professionals
    • Advisors
    • Sponsoring Investment bank