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The screens at the TMX Broadcast Centre in Toronto show the closing numbers of the TSX on July 11, 2012. (Matthew Sherwood For The Globe and Mail)
The screens at the TMX Broadcast Centre in Toronto show the closing numbers of the TSX on July 11, 2012. (Matthew Sherwood For The Globe and Mail)

Public Versus Private

Should your company list on the Venture Exchange? Add to ...

Biotech company iCo Therapeutics Inc. says it made the right decision when it pursued its listing on the TSX Venture Exchange for small-capitalization stocks.

The Vancouver-based developer, which sells a drug for diabetic eye disease as its core product, went public in 2008, and it is now the top-performing life sciences company on the junior exchange. Its market cap growth – more than 300 per cent from April, 2012 to December, 2012 – as well as its share price appreciation, trading volume and analyst coverage were second to none.

“I am confident that iCo Therapeutics has benefited enormously from its relationship with the Venture Exchange,” president and CEO Andrew Rae says. “I have no doubt some of the capital we raised would not have been raised had we not been public. It is hard for me to imagine raising money privately for a Canadian biotechnology company post the global financial crisis of 2008/2009.”

Mr. Rae says he believes that for small Canadian companies with great ideas – especially those that are not in the private investor hot zone of natural resources – the exchange can provide an excellent source of capital and be a catalyst for growth. But for many entrepreneurs, going public isn’t a no-brainer. It is expensive, it’s time consuming and it adds a layer of bureaucracy.

Is going public the right decision for your business?

Two CEOs with a great deal of experience on the Venture Exchange, as well as an expert on entrepreneurial affairs who is a former exchange executive, tackle the questions entrepreneurs should ask themselves if they’re considering going public.

What are you aiming for?

One good reason to join the Venture Exchange is that it’s a stepping stone to greater things. “Graduating to the big boards (TSX, NYSE) to me is the ultimate goal,” says Sean Wise, a professor of entrepreneurship at Ryerson University in Toronto, and a former ambassador to the Toronto Stock Exchange (TSX). “Getting to a point where the company is cash-flow positive, growing strong and has a strong engaged shareholder base is the key to that success.”

Since 2000, the Venture Exchange has incubated 563 companies that ended up on the TSX, says Kevan Cowan, president of TSX Markets and group head of equities at Toronto-based TMX Group Ltd., which operates the exchanges. “Lots succeed and lots don’t. Most companies that thrive in the public market have a very good growth story. It’s about their ability to execute on growth.”

The average market capitalization of Venture Exchange companies is $17.8 million. To graduate to the big board, where average market cap is $1.4 billion, companies need to demonstrate stable production and a solid track record of business management.

Use of the Venture Exchange by entrepreneurs ebbs and flows with confidence in the market. In 2002, there were 208 new listings, and the number increased gradually to 375 by 2007. After a big dip (there were 202 in 2009), listings started to rise again, to 334 in 2011. Last year was quieter, with 240 new listings.

How much does it cost?

Dr. Wise estimates the cost of going public to be between $50,000 and $150,000. “Going public is a big deal,” he says. “If you are raising less than $5 million through the process, you may find it extremely cost inefficient. The lawyers, accountants, the brokers all do well when you go public. The same can’t always be said for the founders.”

Is your team up to the challenge?

Preparation is key. Having a great team, not just of professional service providers but at a management advisory level, is necessary. “You really want someone who has been there, done that,” Dr. Wise says.

In the case of iCo, the co-founders – Mr. Rae and CFO John Meekison – came from a capital markets background. Mr. Rae is a former biotech equities analyst and Mr. Meekison was an investment banker. “We had a very clear understanding of the going-public event and how to position iCo as it went public,” Mr. Rae explains.

Is your company ready?

If you are prepared for growth and you are confident your idea will resonate on Bay Street, with analysts and with consumers, going public on a small exchange is helpful. For instance, you can use shares as currency to make acquisitions. Mr. Rae says it’s important to have a fantastic story to tell, and to be ready for the long haul. “To go public on the Venture Exchange, you need to be poised not just to become a public company, but to stay as such.

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