Delilah Panio, VP Capital Formation (Southern California), TMX Group
SoCal growth companies looking for funding should consider all capital raising options. While many entrepreneurs tend to only consider the traditional route of angel investors to venture capitalists to being acquired, there are other options that may be a better fit for the company’s long term growth strategy.
With the introduction of equity crowdfunding and Initial Coin Offerings (ICOs), there are now more financing options than ever, including the public markets. However, in the United States going public means being quoted on the unregulated over-the-counter markets on one end of the spectrum, or completing a large IPO on one of the country’s main exchanges on the other end.
The Canadian capital markets are unique in that TMX Group owns and operates a two-tiered marketplace serving companies from early stage pre-revenue companies on TSX Venture Exchange (TSXV) to multi-billion dollar established businesses on Toronto Stock Exchange (TSX). The idea of going public “early” may not be intuitive to most U.S. companies, but it is an important option worth considering.
TSX is the senior market for larger, more stable companies with a track record. The average financings on TSX fall in the $25-$100M range and have an average market cap of $2.0B. These companies benefit from increased analyst coverage and being eligible for our index products.
For smaller, early stage growth companies, TSX Venture is a unique platform that is tailored to companies of this size. TSX Venture provides financings typically in the $5-$25M range and TSX Venture issuers have an average market cap of $31M.
Recent U.S. Tech Listings
In the last year, several California technology companies have listed and raised growth capital on TSXV.
- Boardwalktech Software (TSXV:BWLK) offers patented digital ledger technology supporting blockchain applications; Based in Cupertino, CA; Raised $10M on its TSX Venture listing in June 2018.
- Nubeva Technologies (TSXV:NBVA) is engaged in developing and selling software related to blockchain technology and cybersecurity; Based in San Jose, CA; Raised $10M on its TSX Venture listing in March 2018.
- Universal mCloud (TSXV:MCLD) is building the next generation IoT platform for asset and smart energy management; Based in San Francisco, CA; Has raised $6M since listing on TSX Venture in October 2017.
For the 2018 Technology & Innovation Mid Year Review, click here.
Going Public Considerations
1. Reason: Does your company have a reason to be public?
Advantages of being a public company include:
- Access to capital for multiple rounds of financings.
- Acquisition currency (i.e. public stock) to acquire competitors, technology etc.
- Diversified shareholder base from a few shareholders with potentially onerous terms to a flat cap table of common shareholders.
- Public shares can be used as a recruitment incentive to attract quality talent.
- Being listed on an internationally regulated stock exchange can provide credibility and exposure, particularly important if working with Fortune 500 clients.
2. Ready: Are you and your company ready to go and be public?
- Management Team: Your management team should be interested and ready to go public, and include a CFO with public company experience.
- Board of Directors: Your company will need a formal board of directors that understands its legal and fiduciary responsibilities as public company directors.
- Audited Financials: Two years of audited financial statements will be required.
- Internal Controls: Your company will need to establish the required financial controls and reporting infrastructure to be public.
- Time for Investor Relations: A significant amount of your CEO’s time will be spent on communicating with current and potential investors.
- Transparency: Your company’s financial information will be public to everyone including competitors, and you and your team need to prepare for that.
3. Requirements: Does your company meet exchange listing requirements?
As a junior regulated market, TSXV uniquely lists pre-revenue companies. Listing requirements are based on financial fundamentals including working capital, revenue and net tangible assets, unlike the U.S. markets which base listing eligibility on share price, market cap and shareholder equity. See the Guide to Listing for more details: www.tsx.com/ebooks/en/2018-guide-to-listing/
4. Reality: Can Canadian investment bankers get investor support (retail and institutional) for your type and size of company in current market conditions?
In today’s market, Canadian bankers are looking for companies raising growth versus development capital. This means that the company has developed a commercially viable product, has early customers or interest, and now needs growth capital for customer acquisition and expansion. Typically, companies raising at least $10M are of interest.
Why Consider a Listing on TSX Venture Exchange?
1. A Source of Growth Capital
Last year, TSX and TSXV issuers raised over $55B, making Canada the 4th largest market in the world for financings… which is impressive considering the size of the Canadian population! Approximately 40% of TSX daily trading originates from outside of Canada (a majority of that coming from U.S. sources), providing access to international investors.
As an alternative to private venture capital, a TSXV listing can provide the benefit of raising small, subsequent rounds of capital. TSXV companies raised $6B in 2017, with an average financing of $4M. These are small public companies… and we like to refer to this market as “public venture capital”, as companies are accessing rounds of capital similar to the typical VC route of Series A, B, and C rounds.
2. Tailored to Small Public Companies
With a 165-year history of financing exploration companies, the Canadian public markets have evolved to support small cap public companies. From the securities commissions, the exchanges, and analysts to the retail and institutional investors… everyone in the Canadian ecosystem understands and embraces small public companies. This is not the case in the U.S. TSXV companies benefit from right-sized corporate governance and reduced time and costs to listing. Listing vehicles like the Capital Pool Company (CPC) program allow growth companies to access the public markets without the high costs and risk of a large initial public offering (IPO).
3. No Longer Just a Resource Exchange
While TSX has historically been known as a natural resource market - given our 165 years financing mining and energy companies - today our stock list is quite diverse. In fact our mining issuers currently account for just 10% of the market cap of all issuers, with other sectors surpassing them.
For the past five years, the number one source of new listings has been tech and life sciences companies (including cannabis). Last year, there were 138 new technology/life sciences listings… and all of the issuers in these sectors raised over $29B.
4. A Platform for Long Term Growth
The key benefit of this two-tiered market is the potential for early stage growth companies to list on TSXV, raise several rounds of capital, and when ready, graduate to TSX. In the past 20 years, over 650 companies graduated from the junior board to the senior board, and almost 40% of current TSX-listed technology companies started on TSXV.
TSX is also a true stepping stone to the U.S. markets. Once a TSX issuer is large enough and relevant enough, it can look to interlist on a U.S. stock exchange. If your end goal is to be listed on Nasdaq, TSXV and TSX are a viable path to get there.
For the growth company that is looking to build a long-term sustainable business that requires ongoing access to capital, TSXV is an important financing option to consider.
For more information, contact Delilah Panio, VP Capital Formation (Southern California), Toronto Stock Exchange and TSX Venture Exchange at delilah.panio@tmx.com