Why have several early-stage companies turned to the public markets for funding?

April 29, 2014 Michael Kousaie


A View from the Canadian Capital Markets 

Michael Kousaie, Head, Business Development, Technology, TSX and TSXV 

Did you know that, in 2013, 35% of the technology and innovation companies that went public on TSX Venture Exchange (TSXV), the “junior” exchange to Toronto Stock Exchange (TSX), had market values below $10 million?

Whenever I am invited to speak at C100 events, similar questions get asked: Why do early-stage innovation companies bother to raise funding on public equities markets? Why do investors in Canada support these companies? Why has TSXV become a popular listing destination for technology and innovation companies?

My response is straightforward: small- and medium-sized enterprises (SMEs) often need less than $5 million to get started, and listing on TSXV can provide an alternative to Series A or B financing rounds for some startups. TSXV provides emerging companies with reliable access to a well-regulated marketplace to raise venture capital and many public investors are attracted by up-and-coming companies in the beginning stages of their lifecycles.

 In 2013, the average size of a financing in the technology and innovation sector (comprised of technology, clean technology and life sciences sectors) on TSXV was just under $2 million. The companies in this combined sector each completed, on average, about two public financing rounds last year. SMEs have a tendency to undertake more than one round of financing; and TSXV is a marketplace amenable to multiple small financings to help achieve a business’s growth objectives.

With a listing on TSXV, an early-stage company is supported by a sophisticated community of professional advisors, brokers, regulators and investors who understand the unique needs of early-stage companies. The Exchange has an important mandate to mentor newly public companies, and provides a cost-effective entry point for companies looking to access a quality North American public market.

TSXV isn’t just a “novel concept” for a handful of companies, though. There is real momentum in Canada’s public venture marketplace, and the technology and innovation sector continues to stand out. Led by companies such as EXO U Inc. (TSXV:EXO), Sphere 3D Corporation (TSXV:ANY) and Stellar Biotechnologies, Inc. (TSXV:KLH), over 245 technology and innovation companies are listed on TSXV, with a total market capitalization of more than $5.4 billion – an increase of over 70% since the end of 2012. Over the course of 2013 and during the first quarter of 2014, innovation companies on TSXV raised $648 million in new capital through 277 financings.  And over the last 10 years, 61 innovation companies listed on TSXV have graduated to Canada’s senior exchange, TSX, as their business has grown.

Raising capital on TSXV, however, is obviously not the only option out there. You just have to read the headlines about companies like Wattpad, Shopify, HootSuite, BuildDirect (and many, many others) to know that venture capital (VC) money from around North America is playing a hugely important role in funding the next wave of technology leaders in Canada. About $2 billion in VC capital was invested in Canadian companies in 2013 and, of that total, a little over half was invested in information and communication technology sector companies.

So, capital is available to technology start-ups from multiple sources – both public and private. And that’s the point. Canada’s technology and innovation sector is on the upswing because all the different players in this ecosystem are working together – entrepreneurs, angel investors, venture capitalists, public market investors, the start-up community, national and regional incubators, and industry organizations. TSX and TSXV have a strong history of supporting and partnering with the leading VCs in Canada and the U.S. to enhance funding and incubation for Canadian startups. Working together, we’re all playing our part in building innovation leaders in Canada.

 This blog post is provided for information purposes only. Neither TMX Group Limited nor any of its affiliated companies (collectively "TMX") guarantees the completeness of the information contained herein. We are not responsible for any errors or omissions in, or your use of, or reliance on, the information we post or information accessed through links to any third party sites. TMX has not prepared, reviewed or updated the content of third parties on this site or the content of any third party sites, and assumes no responsibility for such information. Nothing in this blog is intended to provide investment, financial, tax, accounting, legal or other advice and you should not be relying on it for such advice. TMX does not endorse or recommend any securities referenced in this blog post. It is not an invitation to purchase securities listed on Toronto Stock Exchange and/or TSX Venture Exchange. © 2014 TSX Inc. All rights reserved. Do not sell, distribute or modify any of the content or materials in this blog post without TMX's prior written consent. Toronto Stock Exchange and TSX Venture Exchange are trademarks of TSX Inc.

 

 

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