Three Important Things to Consider When Taking Your Company Public in Canada

August 20, 2015

This week, Michael Kousaie, Head of Business Development, Technology Toronto Stock Exchange and TSX Venture Exchange spoke to a full room of founders at the BCTIA Lunch and Learn.

Prior to joining TSX and TSXV, Mr. Kousaie spent sixteen years as an investment banker in the Toronto office of a leading global investment bank, where he advised corporate boards and management teams on a range of domestic and cross-border capital raisings, mergers, acquisitions, and corporate restructurings.

Over the course of his career, he said, “I’ve seen horrific mistakes made by companies and I’ve seen companies do things well.”

Mr. Kousaie spoke about the opportunities for companies to go public, including the opportunity for small tech companies that are pre-revenue. Technology companies are well represented on the TSX and TSXV, with a tech company going public every seven days on average in Canada.

TSX and TSXV: Canada’s competitive advantage

“When we talk about the TSX generically, we’re actually talking about two exchanges in one: the Toronto Stock Exchange and the TSX Venture Exchange,” Kousaie said.

The TSX is the home to the senior companies, like Shopify. A general rule for companies on the TSX is that they have a market value of $75 million or more.

The TSXV is somewhat unique. The typical market value for companies on the exchange is between $10 million and $75 million, and they typically raise $3-4 million at a time.

“This is the competitive advantage that Canadians have that you won’t find anywhere else in the world,” Kousaie said. “This is the fully regulated stock exchange which brings with it investor protection and all the good and bad that comes with regulations. It works for small companies that want to go public early. This you will not find anywhere else in the world.”

Mr. Kousaie enumerated the common motivations for, and advantages and disadvantages of, going to the public markets for funding, concluding with three key takeaways for companies considering going public:

1. Planning

Do not underestimate the amount of time it takes to prepare for an IPO.

“There’s a massive amount of planning that goes into going public,” Kousaie said.

Shopify began preparation for their IPO a couple of years in advance.

“It doesn’t need to be two years. It can be six months,” he continued. “But there is a planning period involved. Planning in terms of hiring the right people. Planning in terms of dealing with the mindset change that’s going to come. You have to plan.

You have to be aware of all that’s going to be involved.”

2. Execution

Highlighting their ability to execute, Kousaie referenced Amaya Gaming, a Canadian gaming company that also owns PokerStars.

“They went public five years ago,” Kousaie said. “They raised five million dollars when they went public. They listed on the TSX Venture Exchange. No one had heard of them. What did they do? Gaming technology.”

He continued, “The year after they went public, they had grown their business to about $100 million. Pretty good. A year after that, roughly, they were a half a billion dollar company. Really good. They then graduated from TSXV to TSX, continuing to grow their business. About a year ago, they reached two billion dollars in market value.”

With the acquisition PokerStars among others, Amaya continued to increase its value. Why was the team at Amaya able to increase its market value from when it raised $5 million years ago to what is now a multi-billion dollar company?

“Because they executed,” Kousaie said. “When they went public they said they were going to do certain things, and they did them. They grew at the pace at which they said they would grow. They either met or exceeded expectations all along in terms of their business, their customer acquisition, their geographic expansion. The biggest success factor of any company, public or private, is execution.”

3. Partnership

Kousaie emphasized how a company going public has to treat its investors as partners.

If you have the attitude that your company’s IPO is a part of a partnership between your company and the current investors and those coming from via the public

markets, you may want to bring them into the fold before that catalyst occurs.

“You have to recognize that when you’re bringing in partners, they’re looking to make money,” Kousaie said.

When’s the catalyst for the company coming? The next big customer win? The next big contract? When you’re aligning your interests as a founder with your future investors’, you may want to consider, as Kousaie said, “Let’s IPO before that so that all the investors together can benefit from that upside, rather than the founders being the ones to benefit and nobody else seeing that bump.”

He proceeded to highlight a technology company that recently graduated from TSXV to TSX.

He said, “Their partnership story was how they did their initial public funding.” The company’s first public offering was actually a down round. Deliberately so.

“They wanted their new investors to be able to capture the upside of the business,” Kousaie said. “They didn’t want to take the last penny off the table so all the VCs can do great and everybody else has to suffer. The VCs stayed in the company. They’re still investors in the company, and said, ‘We want everyone to join us in the upside of this business, not just us’.

“They have executed, but they’ve also treated their investors as good partners.”