Cross Border Seminar Series

Transcription

1 Cross Border Seminar Series Seminar Four Cross Border Financing: Private Placements December 5, 2006

2 Welcome 2 Why a cross-border seminar series? Acceleration in cross-border business activity Driven by strong domestic economic growth Continuing trend of globalization and opening up of new markets Canadian companies seeking growth opportunities abroad Going global introduces new business and legal issues Today s seminar: cross-border financing private placements Summary of topics Recent domestic and cross-border financing trends Private placements by private companies Private placements by public companies

3 Key VC Investment Trends in Canada 3 Total VC financing in emerging Canadian companies declining in 2006 down 8% from 2005 total invested funds in 2006 (YTD) = $1.2 billion VC focus shifting to later-stage companies 85% of new funding = follow-on investments Contrast to explosive growth in private equity fundraising up 51% from 2005, led by buyout sector total invested funds in 2006 (YTD) = $7.9 billion Increasing reliance on foreign capital

4 VC Investment Trends in the U.S. 4 U.S. $6.4 billion invested in the U.S. venture capital market during Q $19.1 billion year-to-date 13% increase from last year On track for best year since 2001

5 Canadian VCs: Domestic Orientation 5 Less likely to make foreign investments 58% of Canadian VCs have no plans to expand investments outside of Canada over the next five years Contrast to 44% of VCs globally Top 3 destinations for Canadian VCs U.S. 27% China 23% U.K. 20%

6 Canadian VCs: Favoured Sectors 6 Current: Information technology (59%) Software Communications and networking Internet-based Life Sciences (18%) Future: Energy/environment clean technology Health services Consumer business

7 VC Investments in Technology Sector 7 $500 $400 $300 $200 $ million $100 $ Q Q3 VC Dollars Invested in Technology Sector

8 VC Investments in Canada 8 $1.30 $1.28 $1.26 $1.24 $1.22 $1.20 $1.18 $1.16 $1.14 $ YTD 2006 YTD VC Dollars Invested in Canada $ billion

9 VC Investments in Canada Q Q3 Number of Companies Receiving VC Investments

10 VC Investments - Regional View 10 Ontario $153 million in 39 companies Quebec - $105 million in 52 companies British Columbia - $46 million in 11 companies

11 Growing Reliance on Foreign Capital 11 Non-Canadian VC Investments in Canada $90 $80 $70 $60 $50 $40 $30 $20 $10 $ Q Q3 $ million $54M in Q $90M in Q % of all VC activity in Canada, compared to 25% during

12 Private Company Private Placements - Regulatory Considerations Regulatory environment in Canada and the United States is very similar 12 Canada accredited investor and private issuer exemptions United States Regulation D permits sales to accredited investors and non-accredited investors who are sufficiently sophisticated to make an informed investment decision

13 Private Company Private Placements - Regulatory Considerations Reps and Warranties establish a factual basis for relying on the exemption Integration ensure that separate offerings are not integrated 13 Resale Restrictions Blue Sky Rules each state has different filing and disclosure requirements consider engaging local counsel

14 Private Company Private Placements - Barriers to Investment by U.S. Investors 14 U.S. VCs and Private Equity Funds frequently express concerns about investing in private Canadian companies Three Typical Concerns Non-U.S. company may have trouble doing an IPO Non-U.S. company may have trouble finding a buyer Tax issues

15 Private Company Private Placements - Solutions for U.S. Investors 15 Proper Structuring can Address U.S. Investors Concerns Solutions are largely tax driven Must get it right at time of investment Balance needs of U.S. investors vs. Canadian investors vs. Company Certain Solutions Corporate reorganization of company Continue company from Canada to U.S. Use of special purpose vehicles by investor Seminar 6 will address Cross Border Tax and Structuring

16 Private Company Private Placements U.S. Investors Terms and Conditions Although U.S. and Canadian VC funds have similar requirements, U.S. funds can be more aggressive in certain respects: 16 Stock Restriction Agreements company option to redeem founder s shares under certain conditions (e.g. termination of employment or failure to meet financial targets) Registration Rights - contractual rights that entitle the investor to force the company to register securities Pre-Emptive Rights U.S. venture capital funds more likely to restrict the right of founders to participate in subsequent financings

17 Public Company Private Placements 17 Cross-Border Private Placements Regulatory considerations Cross-Border PIPEs: What are they? Regulatory implications Differences from Canadian-only PIPEs Versus public offerings Cross-Border PIPE Investors Canadian differences

18 18 Private Placements Regulatory Considerations Outbound Canadian prospectus and registration exemption In-bound U.S. registration exemption TSX/ TSX-V Listings U.S. Exchange Listings Hold periods Canada vs U.S.

19 Cross-Border PIPEs What are they? 19 PIPE Private Investment in Public Equity Usual structures / terms: Convertible debt or convertible pref Anti-dilution Registration rights Death spiral or Toxic PIPEs

20 Cross-Border PIPEs Regulatory Implications 20 Registration rights costs, compliance TSX Anti-dilution rules TSX approved discount rules

21 Cross-Border PIPEs Canadian Differences 21 Little toxic PIPE experience Significantly lower costs No registration required 4 month hold

22 Cross-Border PIPEs Versus Public Offering 22 Costs Time to market Type of investor

23 PIPE Investors - Canadian Differences 23 Activists Toxic PIPE Investors Canadian funds / institutions Due Diligence: Agents Investors Lawyers / Law firms

24 Stay Tuned 24 Upcoming Cross-Border Seminars financing public companies tax

25 Who You Gonna Call? 25 For sheer breadth and depth, McCarthys can scarcely be bettered. Chambers Global McCarthys has more "Leading 100 Canada- US Cross-Border Corporate Lawyers" than any other firm - Lexpert/Thomson