IPOs AREN’T JUST FOR THE SUPER-SIZED
MORE SMALL, MEDIUM FIRMS GOING PUBLIC
It’s been a few years since Hamed Shahbazi, founder and CEO of Vancouver- based TIO Networks, took the company public. He was a mere 23 years of age when he started his company as Info Touch Technologies in 1997 and listed it two years later on the then- fledgling Canadian Venture Exchange (which became the TSX Venture Exchange in 2001). He changed the company’s name in 2006. This year, he closed an acquisition deal with PayPal.
The venture community has made great strides since those days, he says. “The angel environment is stronger, and there are more growth- cap options than ever.” He believes public venture capital is a great opportunity for small business to get access to funds at lower cost and with fewer regulations than their U. S. counterparts.
Canada is relatively unique in having a venture-based exchange, Shahbazi says. “Typically, exchanges will take a company public when it’s a bit more mature and revenue models are established. TSX Venture Exchange is an exception to that, because it allows you to take your company public at an earlier stage and de-risks the investment for early- stage investors. It’s an interesting option.”
For some startups, VC funding is not necessarily the ideal choice, he says. “They can get really deep inside your structure. Public markets are more forgiving, because investors understand you may need to pivot to transform.”
When Shahbazi listed his company with the Venture Exchange, it was dominated by mining startups. But that is not the case today, says Michael Kousaie, head of business development, technology for TMX Group in Toronto. “Over the last several years, the tech and innovation sector has been … our most active sector for companies going public. Last year we saw a record of 41 new technology and innovation companies going public.”
Almost all listings on TSX Venture, which accounts for half of all exchange listings in Canada, are SMBs, he reports. “It’s good for us to see the transformation (in tech) and good for those investing in the new generation of companies.”
Kousaie says the tech sector has become a very well- trod path entrepreneurs are trained to understand and follow. “The incubators and accelerators are doing such an important job in forming these businesses.”
But the preconceived path in most people’s minds goes like this: funding from friends and family, angel funding, venture capital. “While venture capital is a hugely important source of funding, it’s not the only one,” Kousaie says. “There are plenty of cases where VC is the best option, but not always. Entrepreneurs need to understand the full range of choices available to them.”
In fact there are even more avenues available for entrepreneurs if they do their homework, he explains. “I would say there are five to 10 options entrepreneurs should be looking at, including government grants, subsidies, venture capital and bootstrapping. Many of these can even complement each other. Founders who take just one path may be doing themselves a disservice.”
The biggest misconception about listing is that you need to be big to go public, he says. “People need to be reminded that in Canada we are fortunate to have one of the only stock exchanges geared to small-cap companies.”
So why do entrepreneurs opt for the IPO route? Kousaie says it’s typically for these three reasons: “First is their desire to retain greater influence over business decisions and gain access to a broader group of investors. Second is that it enhances their profile and credibility with customers and employees. Third, it can facilitate future growth. You can grow through acquisition more easily and efficiently because you can quickly raise capital or use public shares as currency.”
Granted, there are some complexities and costs associated with filing and ongoing reporting requirements. “There may be higher standards of disclosure for a public company,” he says.
For Shahbazi, the disclosure demands were a positive. “It created a discipline around reporting for our management teams. It was a very good road for us and gave us the capital we needed to grow. It’s tough to argue we did the wrong thing.”
To help entrepreneurs, TMX. com provides free online toolkits that include a number of educational and information resources on going public, including listing requirements for specific industries. TSXignite.com is another resource that can help founders and entrepreneurs.
THERE ARE MORE GROWTH-CAP OPTIONS THAN EVER.