An Introduction to CPCs
How to raise money by going public
For tech companies that are beyond the initial startup phase - ones that have developed a product and have secured some initial orders, there are basically 2 choices for securing growth capital - private or public equity. Vending your business into a CPC (Capital Pool Company) is one of the public equity options, as an alternative to an IPO.
In the US the typical path is to stay private and deal with VCs until the business qualifies for a NASDAQ Small-Cap Listing or equivalent AMEX or AIM listing (based on market caps above $100M). Staying private involves negotiating specific deal terms with VCs that include 'preferential' share issuances and legal covenants - putting your new investors at odds with the founders and management team - right from the outset. Avoiding the public markets so that you can focus on running your business also means that you likely now have aggressive new investors who can seize your company's assets if you slip up. Not so with the public route . . .
But going public is associated with high overhead costs, both in terms of management time and resources, as well as hard costs (think boards of directors, financial auditors, securities lawyers, and liabilities), and the required pre-disposition on the part of the management team to 'play the pubco game'. Is it all that bad? It depends on your individual situation.
In Canada, the junior (or venture) public markets have always served as a preferred financing alternative to private equity, for both tech and resource based companies, in the order of 2x more monies being historically raised via junior issuer financings, over private/VC sources of growth capital. This relates in part to Canada's history as a junior/speculative resource center, but in recent decades has resulted in a vibrant market for technology companies as well.
Regulation of the Canadian venture markets has advanced progressively to the point where now there is a single national exchange (the Toronto Stock Exchange) managing both the senior issuers (the TSX Exchange) and the venture issuers (the TSX Venture Exchange) - with a reputation for effective but fair and efficient market regulations and administration.
CPCs are a vehicle that allows for the efficient and expedient marriage of experienced investors/mentors/advisors who know the venture markets, and tech companies who know their businesses. A typical transaction (vending into a CPC) can transpire in a few months time - end to end. There is no practical limit to the size of the vend-in transaction, although they are typically in the $5-20M valuation range. Upon conclusion, the resulting entity usually contains a blend of the prior CPC advisors/board members and the vend-in company management and board members.
Your choice of CPC vs IPO will depend on the your market cap and seniority, your time horizon for securing growth capital, and your bench strength in terms of dealing with public markets, amongst other things. By working with our investment group, in particular, our current Shelby Ventures CPC, you will not only gain rapid access to all of the growth capital you need, but you will also be able to leverage very senior talent and expertise that covers all important aspects of managing the public markets, depth and breadth of shareholder and investment banking relationships, and world class tech focused business leadership experience (specifically in relation to wireless and telecom).
For more information on CPCs, from a legal perspective, please reference this excellent document, furnished by Clark Wilson, one of Canada's leading securities law firms specializing on TSX Venture listings: CPC Primer - Q&A Document (PDF - 112K)
For more information on our particular CPC and the team behind it, please click here.