THE UNIQUE WORLD OF PUBLIC VENTURE CAPITAL W. JUSTIN KATES – 63
Updated: May 28
The public venture markets in Canada are increasingly recognized as a unique ecosystem for supporting the ambitions of entrepreneurs and the success of early-stage public companies, but not all capital is good capital.
Today, we’re talking to Justin Kates, a partner of DuMoulin Black, where he is a securities lawyer. His practice is focused on advising companies through their growth curves on how to properly structure financings, and help execute M&A transactions.
It doesn’t matter what stage you are at in your company, a bad deal is a bad deal, and you need a trained eye on your team. The fact is, raising capital on bad terms can have immediate and long-term impacts on your business. That is where Justin comes in – to provide that balance, help you negotiate equitable terms, and ensure that you’re on the right side with the regulatory bodies that oversee raising capital in both private and public scenarios.
In this episode, we discuss a shared passion of ours: the unique market ecosystem we have of public venture capital. Many people do not realize that, in Canada, we have an outstanding public market ecosystem that enables early stage companies to access growth capital, and provide a path to graduate their businesses to larger stock exchanges, like the TSX or Nasdaq.
Justin talks us through some of these topics, as well as how to approach raising capital within our markets.
KEY POINTS FROM THIS EPISODE:
Justin introduces himself and shares a bit about his background and practice.
Advice for an early stage company preparing to go public – pay close attention to how and who you are raising venture stage capital with.
Not all capital is good capital – public companies cannot control who is buying or selling stock.
It is important to put lockups in place in earlier financing rounds to avoid selling cheap stocks.
The insider lockup applies to everyone that holds more than 10% at the time of going public.
Insider lockup period is 3 years – 10% released upon listing, and 15% every 6 months, with the last release 36 months after going public.
Hot topics in the evolving securities markets include restricted periods on private placements.
There is a push to do away with the restricted period and start free trading right away.
Justin’s predictions – he sees the market getting rid of the 4 month hold period.
A warrant entices an investor into a private placement, used often in the public market.
Justin’s advice for pricing and structure of financing, warrants, and acceleration provisions.
Justin’s passion for the unique public venture capital markets in Canada and reasons for it.
The Canadian regulatory system is cost effective and attractive to investors in public markets.
Public versus private venture capital – private capital can be restrictive on management.
The process for international businesses listing in Canada as a parent company.
Ways and benefits of going public – Justin explains a reverse takeover or a CPC transaction.
Who should you trust? The lawyer, the banker, or the advisor?
Do your due diligence to find someone to partner with when you’re looking to go public.
Two key ways to maximize your relationship with your legal council – stay organized, and keep your lawyer in the loop.
Read your term sheets before you sign them! There are binding terms you might overlook.
Final thoughts: prepare to run two companies when you’re looking to go public.
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