The fund of funds model is similar to the model employed by the Ontario Government and its co investors in the Ontario Venture Capital Fund which I blogged about last April (both the new CPP funds and the OVCF funds are both  managed by Northleaf Capital Partners).  The funding of the OVCF closed in June of 2008 and, as I understand it, it has yet to actually invest much money.   Unfortunately, very little of that money has been put to work so far.

Let’s hope that the CPP’s fund of funds is able to deploy funds a bit faster.  Without much needed capital, Canada’s knowledge based startups can’t get off the ground.  Mark McQueen recently lamented on the Wellington Financial Blog that the wicket is open for tech IPOs but there  isn’t enough “product”  – i.e. quality tech companies of the right size and trajectory.  Fund announcements like this may be too late to help launch companies that could take advantage of the IPO climate we face at the moment, but without a steady flow of funds to support generation after generation of knowledge based companies we will have a very hard time maintaining any kind of  robust public (or private) market for  tech companies in Canada.

Of interest to Ontario based businesses, I expect to see a larger number of vendor disputes and employment matters ending up in Small Claims Court than before.   This includes claims in the $10,000 – $25,000 range that might previously have been brought in Small Claims Court but capped at $10,000 and claims that might otherwise be in the over $25,000 range but are close enough to $25,000 that the plaintiff believes it to be in their interests to limit their claim to $25,000 in order to bring it in Small Claims Court.

1.  What is the Capital Pool Company Program? — originally posted on May 28, 2009

2. Financing Term Sheet Basics — originally posted on June 21, 2009

3. What is a Special Purpose Acquisition Corporation? — originally posted on June 7, 2009

4. What are Preferred Shares? — originally posted on July 2, 2009

5. Unanimous Shareholder Agreements — originally posted on September 22, 2009

6. CPC Combinations Part I — originally posted on August 9, 2009

7. Ontario Green Energy Act — originally posted on September 3, 2009

8. CSA Releases Report on Continuous Disclosure Review — originally posted on July 29, 2009

9. It’s your money, why not grab it? – originally posted on April 27, 2009

10. LaBarge Weinstein Summer 2009 Quarterly — originally posted on September 10, 2009

LaBarge Weinstein Fall 2009 Quarterly

Just in time for the holidays, as our long, gentle fall turns the December corner, even the grimmest winter-curmudgeons among us can’t but feel the public/private financing markets heating up their engines in the driveway for what we all think will truly be a breakout 2010.

Our evidence of the recession’s Chinook from the firm’s recent dealflow?  On the private side, Bridgescale’s permafrost-breaking investment in Bluecat Networks, Celtic House’s investment in Peraso Technologies, and Summerhill Ventures’ follow-on investment in Toronto’s Vantrix Technologies. On the public side, a quarter reminiscent of our pre-bubble roots, with each of IMRIS and Chemaphor completing fundraising transactions, and with Dynex Power launching a rights offering during the same period.

Coupled with energetic M&A interest fuelled both by the usual corporate development suspects as well as a new, brash breed of billion-dollar balance sheeters and pre-IPO roller-uppers, we expect a continued ruddy market glow despite the cold…so let it snow, let it snow, let it snow, and please feel free to contact anyone on the LaBarge team if you need some help shovelling that driveway.

Go Public My Son, Go Public…

Most definitely the last quarter’s biggest buzz has revolved around the pending mini-bubble for North American technology companies seeking to go public early in 2010.The Globe and Mail’s Andrew Willis commented on the TSX’s IPO rush this past November, and KPMG recently reported its Canadian and US annual public market pulse surveys confirming over 60% of industry participants expect IPO activity to substantially increase in the near term. South of the border, courtesy of the Valley’s Philip Smith, a summary of IDC’s predictions for 2010 that includes an industry-consensus view of the markets coming back to the tech neighbourhood in the coming year.

What does it mean to you and your board/management team? If your startup is just out of the blocks, you root for an increased liquidity environment to grease the wheels of the private equity funding cycle. If your company is just hitting its stride, you’re very possibly going to be rewarded for your resilience over the past few years, and you should do you best to get networked among the blue suited Bay Street crowd that is again hitting the airwaves and highways to check out the very best companies across the country. Our team can help, and you should feel free to contact any of our partners if you’d like our perspectives or some helpful introductions.

You’ve Changed, Man…

Our partner Shane McLean recently informed us of a troubling British Columbia court decision which awarded a consultant damages for lack of “reasonable notice” of termination much like an employee. In this case, notwithstanding the parties’ explicit treatment of the individual as a contractor, he was entitled to common law reasonable notice (for our clients, the bigger, badder amount depending on the team member’s length of service). For a more complete description of the case and how your startup can avoid the same result, please check out the enclosed link and please feel free to contact Shane at smclean@lwlaw.com if he can assist further.

Best in (Trade) Show…

With the fall trade show season coming to a close, and marketing folks falling asleep with dreams of sugarplum spring show fairies dancing in their heads, we unearthed a great blog post earlier this fall from Jason Calacanis giving startups advice on how to get most from a trade show experience. We asked a few Waterloo-based software business development and sales gurus for their thoughts on the article’s suggestions, and click this link to check out their responses.

Blogs & Other

Congratulations to a couple of LaBarge lawyers for some great achievements this past quarter, with founding partner Debbie Weinstein being elected to the board of directors of Waterloo’s OpenText Corporation (as well as taking a spin with the Olympic torch this past weekend in Ottawa) and more recent addition James Smith receiving recognition as one of Lexpert’s Rising Stars celebrating Canada’s leading lawyers under 40.

The firm is very pleased to announce new offices in Toronto and Waterloo since the end of the summer. In Toronto, we’ve been pleased to bunk with Robin Axon’s and Duncan Hill’s Basecamp Partners group, and its two (and soon to be more) terrific companies housed at 488 Wellington West, Suite 300. In Waterloo, we’ve lucked into a similarly rewarding arrangement with the team at social media analytics firm PostRank, and we’ll look forward to resting our heads (and computers) at its uptown Waterloo Allen Square location as of January 1st. We have a regular group of lawyers and staff passing through the offices, and we look forward to another year of getting closer to their tremendous entrepreneurial communities.

Speaking of networking, we’d appreciate all of you assisting Carleton’s tireless booster Luc Lalande in his efforts to recreate the 2002 poster featuring startups founded by the University’s faculty, students and alumni. In addition, we wanted to pass on a fascinating article courtesy of Luc describing the mathematical foundation of the social networks that form the fabric of tech business community. The article won’t necessarily make that stale croissant any tastier at your next morning biz dev outing, but it makes for great reading nonetheless, thanks Luc.

Finally, James Smith, Mike Morgan and Shane Mclean of the firm were pleased to assist an esteemed group populate a website sponsored by Toronto’s MaRS facility with articles on common startup legal topics. The site was developed principally to support the venture creation efforts among the facility’s tenants, but its content has general application and we encourage budding founders to check it out.

Dealflow Report

Here is a sample of the publicly announced transactions that our team worked in the past few months:

• Bridgescale Partners investment in Bluecat Networks
• Celtic House Venture Partners investment in Peraso Technologies
• Public offering by IMRIS Technologies
• Summerhill Venture Partners investment in Vantrix Technologies
• Private offering by Chemaphor
• Sale of Subsidiary by AirIQ Inc.

Events & Calander

• OCRI’s upcoming events schedule
• Communitech’s upcoming events schedule
• MaRS upcoming events schedule
• Ottawa “Code Factory” upcoming events schedule
• Startup North event calendar
• Startup Ottawa event calendar

I was lucky enough to be able to assist and contribute to a number of the articles you will find on the MaRS site.  It is a great resource for budding entrepreneurs.

The CSA began their review in spring of 2009 in order to assess the implementation of the new disclosure requirements.  70 public companies were reviewed and of that number, the CSA reports that 62 “generally met the [new] requirements”.  However, “most” of the issuers reviewed were asked to improve their disclosure in future filings and 8 of the companies reviewed were required to file supplemental materials because their disclosure did not meet minimum acceptable standards.

The two key areas where most issuers failed to meet the standards expected by the CSA were the discussion and analysis of (i) performance goals and (i) benchmarking.  The CSA believes that companies should be more specific and detailed with respect to the performance goals that are tied to executive compensation.  In addition, the CSA felt that companies that use benchmarking to assess executive compensation as against companies in their peer group did not, among other things, clearly explain the methodologies and many did not disclose the peer group against which executive compensation was benchmarked.

Issuers and their advisors should take note not just of the findings of the CSA review but also of the areas on which the review concentrated in an effort to ensure that future executive compensation disclosure is carefully crafted so as to  avoid the shortcomings described in the report.   In this era of closer scrutiny on executive compensation levels, transparency and attention to detail are crucial.

In a “rights offering” a corporation issues “rights” to its existing shareholders. The rights entitle those existing shareholders to acquire additional shares (or some other form of security) from the corporation for a fixed exercise price over a fixed period of time (called the rights offering period).  When issued by a public company, the rights will typically trade  as separate securities on the same exchange as the company’s shares for the duration of the rights offering period.

Companies often look at rights offerings as a way to provide a presumably willing audience — i.e. those who have already bought the company’s shares — with an ability to buy additional shares directly from the company.  To sweeten the deal and encourage exercise of the rights, the rights are often issued with an exercise price at a discount to the market price of the common shares and may also entitle the exerciser to receive a warrant, preferred share or some other security in addition to the common share on exercise of the right. The “sweeter” the deal, the more likely  the rights will have some trading value, thereby enriching your shareholders just by issuing them, and the more likely they will ultimately be exercised prior to the end of the rights offering period.

Rights offerings of smaller sizes can often be done without prospectus under applicable Canadian securities laws but larger offerings will usually require a prospectus.

Rights offerings seem to have had a mixed reputation in the past with some viewing them as a fund raising method of last resort.  For example, I was told by someone at the TSX Venture Exchange that for many years they have only seen one or two a year on the exchange.  Recently, however, there seems to be a renewed interest in this fund raising vehicle and it’s worth a second look for any company looking to raise funds.

For those of you who are not familiar with the term “venture debt lender”, the term is generally used to describe non-bank lenders that operate in the same or similar market as traditional venture capitalists.  Wellington Financial is an example.   Venture debt lenders typically offer a secured debt facility (that they expect to be paid back on set terms) and take some warrant or other equity incentive on the side.  Interest rates are generally higher than you would get from your traditional  bank but that is usually a factor of the level of risk these lenders take and the amounts loaned which are both generally higher than those a traditional bank would tolerate.

If looking at venture debt as a source of funding,  be prepared to discuss quasi-bank style financial covenants with your venture debt lender.  That typically rules out pre-revenue early stage borrowers.

 Chemaphor is a LaBarge Weinstein client and I have had the privilege of working with Chemaphor for about 6 years.