Author: Delilah Panio, VP U.S. Capital Formation, TMX Group
Coming off of a record year is always a challenge and that was certainly the case for the North American public markets in 2022. With record financings and initial public offerings (IPOs) in 2021, the significant downturn that occurred last year was particularly poignant, driven by markets reacting to geo-politcal tensions, ongoing impacts from the pandemic and supply chain issues, and interest rate hikes.
On both sides of the border, IPOs slowed to an almost halt. And yet, several U.S. companies went public on TSX Venture Exchange (TSXV), demonstrating the potential of public venture capital even in tough times. Let’s take a look at what happened in the private and public markets in 2022.
Private and Public Markets Overview
1 Pitchbook NVCA Venture Monitor. Pitchbook and NVCA. Q4 2022. https://nvca.org/wp-content/uploads/2023/01/Q4_2022_PitchBook-NVCA_Venture_Monitor.pdf
2 Number of IPOs in the U.S. 1999-2022. Statista Research Department. February 3, 2023.
https://www.statista.com/statistics/270290/number-of-ipos-in-the-us-since-1999/#:~:text=2021%20was%20quite%20a%20year,of%20IPOs%20 dropped%20to%20181.
3 Monthly Monitor. SPAC Research. Renaissance Capital, December 31, 2022. https://www.spacresearch.com/reports?type=monthly&file=cdn/2023/02/Nasdaq%20Monthly%20Monitor%20Dec2022.pdf
4 Market Intelligence Reports. TMX Group. https://www.tsx.com/listings/current-market-statistics
Interestingly, private venture capital investments held their own in 2022, only down compared to the record year of 2021 for number of deals and total deal value. But compared to 2020 and earlier years, venture capital was actually up, as venture capital and private equity funds continued to deploy capital into key sectors such as tech and healthtech.
However, in the U.S. public markets it was a different story, with a truly unprecedented drop in the number of companies that completed an IPO. Not since the market crash of 2008 have we seen such a downturn. In 2022, there were just 181 IPOs in the U.S., 82.5% lower than the 1,035 IPOs in 2021, which was a record.
Special Purpose Acquisition Corporations, or SPACs, which were once the sought after route to go public in the U.S., also experienced a significant collapse. The number of new SPAC IPOs went from 613 in 2021 to 86 in 2022, down by 86%. And the number of companies that went public through a SPAC also declined significantly by 49%, as the redemption rate of the IPO funds continued to increase, leaving target companies with minimal cash in the SPAC.
In Canada, a similar IPO reality unfolded. In 2022, only 3 companies completed an IPO on Toronto Stock Exchange (TSX), compared to a record 36 in 2021. On the TSX Venture Exchange, most early-stage companies typically list through a reverse merger or reverse take over transaction versus an IPO. Last year, the number of companies that listed on TSXV was down 36%... not nearly as dramatic a drop as the IPO markets.
For U.S. companies accessing capital on TSX and TSXV, while the total new U.S. listings for 2022 was 17 compared to the record number of 25 in 2021, this number is still above the annual average of 10-12. In fact, in the last three years, 52 U.S. companies have chosen the public route versus private venture capital route to fuel their company’s growth. And a majority of these companies have completed their going public transaction through a Capital Pool CompanyTM (CPC)… the most common way for early stage companies to go public in Canada. (Source: TMX Group Market Intelligence Group)
Despite the tough market conditions in 2022, several U.S. companies listed and raised growth capital on TSX and TSXV representing diverse sectors and regions, including:
AIP Realty Trust (TSXV:AIP.U) - Real Estate, Texas
Edge Total Intelligence Inc. (TSXV:CTRL) - Technology, Virginia
FRX Innovations Inc. (TSXV:FRXI) - Clean Tech, Massachusetts
Inspire Semiconductor Holdings Inc. (TSXV: INSP) - Software, Texas
The Hempshire Group Inc. (TSXV:HMPG) - Life Sciences, California
Thiogenesis Therapeutics, Corp. (TSXV: TTI) - Life Sciences, California
All of these companies listed on TSXV through a CPC. To access the list of all U.S. listings on TSX and TSXV, click here.
As we are beginning to see some momentum with small cap IPOs getting done in the U.S. so far this year, now may be a good time for those companies considering going public to get ready for when market conditions become more favorable. Some of the areas that companies should consider include:
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: Audited financial statements are required.
Internal Controls: Financial controls and a reporting infrastructure that comply with regulatory requirements are required.
Going Public Team: A full team of advisors including cross-border securities lawyers, auditor and investment bankers needs to be established.
As market conditions begin to improve over time, consider that TSX and TSXV are a unique listing platform for high growth U.S. companies looking to raise Series B+ capital. Companies with early revenue, a strong management team, and a growth strategy to eventually list on a U.S. exchange may want to consider the Canadian capital markets as an alternative that may be the right fit.
For more information, contact Delilah Panio, VP of U.S. Capital Formation, Toronto Stock Exchange, at delilah.panio@tmx.com or visit the TSX U.S. website as us.tsx.com.
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