The pool of money available to smaller-scale businesses in Nova Scotia just got deeper. The province has become the first on the East Coast to join the TSX Venture Exchange’s capital pool company program, which holds out to junior companies the promise of easier access to venture capital and a listing on the TSX Venture Exchange.

“We believe the introduction of the capital pool company program in Nova Scotia will help encourage small and medium-sized businesses to investigate the public venture capital route,” says Les O’Brien, chairman of the Nova Scotia Securities Commission in Halifax. “It should translate into exciting new opportunities for our local entrepreneurs.”

Indeed, the new program is tailor-made for Nova Scotia — and for all of Atlantic Canada, says Kevan Cowan, senior vice president of the TSX Venture. “The [program] is specifically designed to ease going public and help companies deal with the burdens.”

The Capital Pool Company program divides the normal IPO process into two. First, a shell company is set up on the TSX Venture Exchange with experienced directors at the helm. “These directors look for businesses that might benefit from going public. The process [of doing an IPO] is managed by the directors. [Entrepreneurs] are not manoeuvring through this process alone,”
says Cowan.

Going public is a daunting process — and an expensive one. Cowan estimates it costs about $125,000, on average, to take a company public. That figure will probably remain the same for companies in the capital pool program. And that, of course, is where access to venture capital will make the difference between public success and private failure.

The program will be of interest to entrepreneurs, angel investors, businesses, directors and officers who have experience with junior public companies. Once experienced directors form a capital pool company, the work begins to raise between $200,000 and $1.9 million in an initial public offering. This amount is used to seek out an investment opportunity in assets or a business with growth potential.

Companies listed on the TSX Venture are classified into distinct tiers, each with minimum listing requirements based on financial performance, stage of development and financial resources at the time of listing.
Tier 1 is for senior companies with the most significant resources and comes with the bonus of fewer filing requirements. Tier 2, a rapidly growing segment of the venture market in all industry sectors, is for early-stage companies. And, finally, there is Tier 3, a special-purpose tier for companies previously quoted on the Canadian Dealing Network.

Generally, says Cowan, the capital pool program offers companies one more route to success: “We hope that Nova Scotia businesses that have growth potential will have another tool in the toolbox.”

But the program offers companies more than the rustle of money and the lure of an A listing. “We hope they also take advantage of acquisition currency — businesses can often acquire a company with publicly traded money,” notes Cowan. As well, the venture exchange listing can also be an important factor in attracting and retaining employees.

“Research and experience tell us that it is the retention and expansion of companies that already exist in our community that will generate the bulk of new investment, new jobs and new opportunities,” says Stephen Dempsey, president and CEO of the Greater Halifax Partnership.

There are systemic issues that growing companies must grapple with, he adds.
Access to financing is a significant barrier — and one that will be addressed by Nova Scotia joining the venture capital program.

Canadian companies have been relying on venture capital to get them where they’re going for more than 100 years, much longer than most other countries. The reason: as a resource-based economy, young Canadian firms in this sector offered significant potential for profit. As a result, Canada was an early pioneer in the area of venture exchanges. Now it is an old pro.

That experience has paid off. In the 1990s, a lot of venture exchanges failed, notes Cowan. “We kept going strongly through that period. Now there is talk about setting up markets in Europe and Asia,” he says.

The TSX Venture is Canada’s first foray into helping raise capital for junior companies, at least on the national level. The exchange is the result of five exchanges from Alberta, Manitoba, British Columbia, Quebec and Ontario coming together. The merger was born of necessity, says Cowan. “Canada is a fairly small market on a worldwide scale.
The junior market is even smaller. To fragment that [market] wasn’t working.”