What Silicon Valley is to venture capital, Canada — especially Western Canada — is to junior public equity markets. Historically, it was predominantly companies in the mining and energy sectors that took advantage of these markets. Increasingly, our junior public equity markets serve a much broader base of sectors.
Public equity markets aren’t reserved for institutional investors, high-net worth individuals and those closely connected to companies raising capital. They are open to everyone. In fact, using “newer” prospectus exemptions, like the existing securityholder exemption, everyday investors are able to participate in financings from treasury, which are often done at a discount to market and include a warrant “sweetener”.
In contrast to private companies, generally, shareholders of stock exchange listed-companies can sell their shares whenever they wish. And, decisions to buy, sell or hold are based on listed-companies’ complete and current continuous disclosure records, which must comply with all applicable securities laws and stock exchange policies. In Canada, our securities regulators and stock exchanges strike a good balance between investor protection and fostering efficient capital markets that provide investment opportunities and access to capital.
From the companies’ perspective, compliance with securities laws and stock exchange policies is typically not unduly onerous. And, there is downward pressure on legal and accounting fees as services become increasingly commoditized through the application of technology and otherwise. The benefits of a public listing for venture-stage companies in many cases outweigh the costs associated with being publicly-traded.
Stock exchange-listed companies enjoy an increase in access to capital and can often raise money at a valuation that is less dilutive than if they remained private. More than $12 billion of equity capital was raised on the TSXV and CSE in 2018. It is also hugely beneficial that listed companies can use their shares to grow by way of acquisitions and to attract, retain and motivate directors, executives and employees. As a bonus, with the two-tiered aspect of the Canadian capital markets, venture-stage companies become “seasoned” as they grow their businesses on the junior public equity markets prior to graduating to the senior exchange, the TSX. One study concluded that TSXV graduates on average outperform venture capital-backed IPOs by more than 30% in the three years following listing on the TSX.
Silicon Valley is featured prominently in movies, TV and pop culture. In contrast, in Canada, relatively few people fully appreciate the value and uniqueness of our junior public equity markets. As “unCanadian” as it sounds, we need to celebrate what we have and get the word out.