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Tech IPOs in Canada? Really? Wildeboer Dellelce’s Rob Fonn talks funding options

Rob Fonn: “There is a new generation of entrepreneurs/founders in Waterloo Region that does not have the benefit of having witnessed RIM, Descartes, Open Text, Com Dev, MKS and DALSA (to name a few) raise capital in the public markets.”

It’s a curious time in the Canadian tech funding landscape.

Most everyone involved in the Canadian technology scene would agree that the pool of privately listed companies is at least as strong as those that are already public. Many think of stalwarts Hootsuite, Shopify and Desire2Learn as falling into this category. But there is another wave of companies, such as BuildDirect, Vidyard, and Vision Critical that may soon enter the popular imagination.

The private side of funding tech has, by most accounts, grown more difficult over the past year. The public side? It is mostly characterized by a lack of product and a scarcity premium for those techs that are publicly traded.

On Tuesday, October 28th at the Tannery Event Centre in Kitchener (click here to attend), an enviable group of presenters and panel discussion participants will discuss the lessons that can be learned from the successes and failures of recent going public transactions.

Rob Fonn, a partner with Wildeboer Dellelce, which is a sponsor of the event, has worked with every stage of tech, from start-ups to multinational, multi-listed organizations. He talked to Cantech Letter about the recent success in the space, the role of incubators, accelerators, angels, and which kinds of companies should not be thinking about going public.

Rob, can you tell us a bit about the event you are hosting in Kitchener October 28th?

Over the last several years, the TMX Group has done a great job promoting its new listings business in major Canadian markets (Toronto, Calgary, Vancouver and Montreal), throughout the United States and globally (including Israel and China). Given the significant number of public companies that call Waterloo Region home, it was taken for granted that the region was equally informed about “going public” transactions and stock exchange listings vis-à-vis TMX.

There is a new generation of entrepreneurs/founders in Waterloo Region that does not have the benefit of having witnessed RIM, Descartes, Open Text, Com Dev, MKS and DALSA (to name a few) raise capital in the public markets. This, coupled with the fact that it has been quite some time since TMX formally presented its new listings business in Waterloo Region, led us to believe the time was right for an information session on this topic. Wildeboer Dellelce will be joined by the following presenters and panel discussion participants in discussing the issues and considerations relevant to a company considering a going-public transaction:

– Toronto Stock Exchange and TSX Venture Exchange – Michael Kousaie, Head of Business Development, Technology
– Difference Capital – Tom Astle, Head of Investment Strategy
– Mackie Research Capital – Paul Rajchgod, Managing Director, Investment Banking
– Paradigm Capital – Barry Richards, Managing Director, Corporate Finance
– QHR Technologies – Al Hildebrandt, President and CEO

There is a new generation of entrepreneurs/founders in Waterloo Region that does not have the benefit of having witnessed RIM, Descartes, Open Text, Com Dev, MKS and DALSA (to name a few) raise capital in the public markets.

How would you characterize the financing landscape for Canadian tech right now?

It is encouraging to see financing activity across all stages. Anecdotally, over the last two years we have seen tremendous activity with earlier-stage companies raising funds from incubators, accelerators, angels and matching government and private funding sources. During that time, we also observed increased and significantly larger venture capital and private equity investment activity and more robust new issue business in the public markets (both IPO/RTO activity and follow-on financings). Despite the volatility in the public markets over the last month, the investment themes that led to the increased financing activity (particularly in the public markets) continue to resonate.

I find that sometimes it seems the public markets don’t exist in the minds of younger tech founders. It doesn’t seem to be an option they think of. What are your thoughts?

I tend to agree. Younger tech founders that participate in incubator and accelerator programs (i.e. Hyperdrive, Extreme Startups, Y Combinator, Techstars, Alchemist Accelerator, to name a few) are led down a specific path that typically proceeds as follows:

– Friends and family round
– Seed round
– Incubator round (with matching BDC or incubator sponsor participation)
– Series A financing
– Series B / Exit

The public venture capital market does not typically factor into the decision making process for these entrepreneurs.With specific regard to Waterloo Region, there is a new generation of entrepreneurs/founders that does not have the benefit of having seen the likes of RIM, Descartes, Open Text, Com Dev, MKS and DALSA raise capital in the public markets.

I have heard of term sheets on the private side of things that seem much more onerous than anything the public markets might reveal. Have you seen the same?

Indeed. Deal terms for VC private investments (and, increasingly in the terms provided by incubators and seed investors) include governance participation, restrictive covenants and increased shareholder approval requirements; and, generally, constrain management’s discretion.

Institutional and retail investors do not typically actively manage their investments in public entities in the same manner that venture capital or private equity investors do. Investors in the public markets do not have the benefit of imposing constraints and approval processes on their investee companies that are usually included in private company shareholders’ agreements. Accordingly, these public markets investors provide significantly greater deference to the board of directors and management of public companies.

If you’re not in some stage of growth (and, depending on the stage of development that may mean either revenue growth or earnings growth), the public markets aren’t for you.

What role does Wildeboer Dellelce play in advising tech companies of various sizes?

Our firm is uniquely positioned in the Canadian marketplace. Given our size and structure, we are able participate at all levels in a technology company’s lifecycle from formation through to going public and mergers and acquisitions. We work with start-ups to multinational, multi-listed organizations and all of the capital providers along the way. We are often approached by prospective technology clients as a result of our broad network of capital providers, our strong relationships with the Canadian investment dealer community and our reputation for providing high-quality, pragmatic, responsive legal advice.
Although we are predominantly known for our corporate finance activity (including our debt products practice), we have significant M&A experience and provide a broad range of business law advisory services, including tax advice.

What kind of company should NOT go public?

Simply put, companies that do not have a compelling investment thesis should not go public. “Growth” is the proxy. If you’re not in some stage of growth (and, depending on the stage of development that may mean either revenue growth or earnings growth), the public markets aren’t for you.

You have had some clients become significant successes. What are some of the most recent examples?

Over the firm’s 21+ year history, we participated in many of the capital raising transactions for Canada’s leading technology companies, including Blackberry, Open Text, Wi-Lan, Leitch, Evertz, Descartes and Com Dev. Over the last few years, we have been involved in going public transactions for Avigilon, ViXS Systems, DIRTT Environmental Solutions, Wind Power, AcuityAds, Cricket Media and Element Financial.

We are particularly proud of our capital markets activity in 2014. We represented investment dealers in transactions for Avigilon, BSM Technologies, EXO U, AcuityAds, Versapay, Radient Technologies, Isis Lab, Northern Power Systems, The Trendlines Group and D-Wave. We are also involved with a number of exciting private companies in various technology fields including healthcare, wearable computing, mobile payments, pharma and biotech, which we anticipate will be involved in transformative transactions within the next year.

Who should attend this event and what should they expect to learn?

We anticipate a dynamic panel discussion led by Tom Astle. Tom manages Difference Capital’s portfolio of late stage private technology and media investments. As such, Tom has a unique perspective as both investor and advisor to a number of prominent Canadian private technology companies that have been the subject of much near-term IPO speculation. In addition, we will hear from leading investment dealers on their assessment of the current market, public investor demand for technology investment opportunities and the characteristics of successful going public transactions. Finally, Al Hildebrandt will share his going public experience in and how the public markets have assisted QHR in achieving its success to date.

The session will cater to those persons who have a keen in better understanding recent activity and the current state of the public markets, the process of completing a public financing and a stock exchange listing, preparing for, and establishing best practices to succeed, being a public company. It will be of particular interest to founders of early-stage companies, management teams of later stage companies, advisors to such businesses and technology investors generally.

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About The Author /

Nick Waddell
Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.

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