Information on legal and business topics from Canadian business lawyer Shane McLean

My Top 5 Books For 2014

Posted by Shane McLean on December 15, 2014

This is the time of year when we see annual lists start popping up.  I use annual book lists as a way to find new books to read so I thought I would share the top books I have read (or listened to in my car) in 2014.  Some of these books might not be new this year, but I finally managed to get around to them this year so I have included them.  In no particular order, I liked:

1.   Abundance: The Future Is Better Than You Think by Steven Kotler and Peter H Diamonds

A more positive look ahead based on the theory that, as it has in the past, new technology will rise to meet the problems facing humanity and the Earth going forward.   The book is not without its warnings for the future, but overall it presents a relatively optimistic (and usually believable) view of tomorrow.

2.  Enchanted Objects: Design, Human Desire, and the Internet of Things by David Rose

I found this to be a great discussion of different ways in which the “Internet of things” and connected objects might evolve.  It covers some of the design concepts and thinking necessary to make connected objects useful and easy to use.   Good backgrounder.

3.  Do More Faster: Techstars Lessons to Accelerate your Startup  by Brad Feld and David Cohen

This book, from the founders of Techstars, is a collection of essays about various aspects of startup life and building a business.  Very good practical information for any startup founder or anyone who works with startups (like me!).

4.  The Maker Movement Manifesto: Rules for Innovation in the New World of Crafters, Hackers, and Tinkerers by Mark Hatch

Mark Hatch is a co-founder of TechShop, a chain of membership based maker spaces in the US, and he offers up this discussion of the maker movement.  Mark provides a series of discussions based on makers he has met, including the inspirations, challenges and successes faced by makers as many of them turn their hobby or passion into a business.   At times it reads like a bit of commercial for TechShop (naturally) but it is worthwhile if you are at all interested in the maker movement.

5.  Hatching Twitter: A True Story of Money, Power, Friendship, and Betrayal by Nick Bilton

This book had a bit of controversy around the time of its release with a bunch of the folks involved condemning the way the author presented the history of Twitter.    I found it to be a well written book.  The author takes pains to describe his sources and methods for researching the history of Twitter and I suspect some of the people who object to the book are objecting due to the fact that it hangs some part of the blame for Twitter’s early dysfunction on virtually every one of main players.

Honourable Mentions:

Killing Lincoln by Bill O’Reilly and Martin Dugard

The Clockwork Universe: Isaac Newton, The Royal Society, and the Birth of the Modern World by Edward Dolnick

The Story of Earth: The First 4.5 Billion Years, from Stardust to Living Planet by Robert M Hazen

Flash Boys, by Michael Lewis

Posted in Business Structure, Financing, Misc., Social Media, Startup, Venture Capital | Leave a Comment »

Review of TSX Venture Exchange New Listings Activity in 2013

Posted by Shane McLean on January 20, 2014

 Each year the TSX Venture Exchange publishes a summary of its “new listings” activity.  New listings include initial public offerings (IPOs), qualifying transactions through the Capital Pool Company program, companies completing a reverse takeover and companies moving up from the NEX exchange or down from the TSX.  Here are some highlights of the data for 2013:

  • In 2013 there were a total of 158 “new listings” compared to 240 in 2012 and 334 in 2011.  The reduction in new listings activity that we saw in 2012 clearly continued into 2013.
  • Of the new TSXV listings in 2013 there were just 52 IPOs compared to 125 in 2012.  15 of those were traditional IPOs of operating companies (vs 44 in 2012) and the other 37 were IPOs of Capital Pool Companies (vs 81 in 2012).  The rate of both traditional IPOs and CPC IPOs dropped significantly for the second straight year.
  • The amount raised in TSXV IPOs during 2013 was $118.7 Million, down 21% compared to 2012.
  • Mining issuers showed a 40% drop in TSXV going public activity in 2013 compared to 2012.  Only 7 mining issuers went public on the TSXV by way of a traditional IPO in 2013.
  • In 2013 there were 66 CPC qualifying transactions completed on the TSXV (vs 61 in 2012) and 13 Reverse Takeovers (vs 16 in 2012).    These are two categories where the numbers were actually fairly consistent year over year.

Clearly, 2013 was another bad year for TSX Venture Exchange new listing activities.   It continues to be a tough market in which to go public on the TSXV.  Here’s hoping that things turn around for 2014.

Posted in Capital Pool Company Program, Financing, Misc., TSX Venture Exchange | Leave a Comment »

The Ins and Outs of Granting Equity to Your Tech Startup All Star Team

Posted by Shane McLean on November 13, 2013

This great article by my law partner James Smith is worth checking out if you are considering using equity grants to members of your tech startup team (hint:  you should be):

Posted in Business Structure, LaBarge Weinstein, Law, Misc., Startup | Leave a Comment »

Saskatchewan Proposes Its Own Crowdfunding Prospectus Exemption

Posted by Shane McLean on October 23, 2013

The Saskatchewan Financial and Consumer Affairs Authority (FACC) has announced a detailed equity crowdfunding proposal.  This follows an update by the Ontario Securities Commission (OSC) in August about its own progress on coming up with a new crowdfunding exemption from prospectus requirements (Read more here).

The FACC put out a backgrounder for discussion purposes back in July.  As a follow up to that discussion piece, this month the FACC released a draft order for comment purposes which contained far more detail on what an equity crowdfunding exemption may look like in Saskatchewan.  As with the OSC proposal, the FACC will require that equity crowdfunding be raised through an online portal but the Saskatchewan proposal appears focused on smaller financings than the OSC’s proposal ($150,000 per offering no more than twice a year vs the OSC’s $1.5 Million per year).  On the other hand, the Saskatchewan process seems to be simpler for the issuer, investor and portal than what we expect to see coming out of the OSC.

The high level details of the FACC’s proposed process are as follows:

  • The exemption will be available to private companies only and both the issuer and the investor must have addresses in Saskatchewan (i.e. this is a Saskatchewan only exemption).
  • The issuer must file an issuer information form and each promoter, director, officer and control person of the issuer must file a personal information form ten business days prior to beginning to trade.
  • The issuer must use a defined form of offering document which must be filed ten business days prior to beginning to trade and made available through the portal to investors.  The offering document must disclose how the funds raised will be used and set a minimum offering amount to close the offering, which must be equal to the amount needed to carry out the purpose for which the funds are sought as set out in the offering document.
  • The offering size must be $150,000 or less, no investor may invest more than $1,500 in any offering and the offering period must not be longer than 6 months.
  • There can be no concurrent offering by the issuer or other issuer for the same project.
  • The securities being offered must not be derivatives.
  • The issuer and its promoters, directors, officers and control persons must not use this exemption more than two times in a calendar year.
  • No commission or other amounts are paid to the issuer or its promoters, directors, officers, control persons, employees or agents with respect to the trade.
  • The issuer must file a report of trade within 30 days after the offering closes.
  • Unless another exemption is available, the securities purchased under this exemption will be subject to a hold period until the date that is 4 months and a day after the later of (i) the distribution date; and (ii) the date the issuer becomes a reporting issuer in any province or territory of Canada.

The FACC has clearly set out the requirements it proposes for portals as follows:

  • A portal must file an information form and each promoter, director, officer and control person of the owner of the portal must file a personal information form thirty days prior to beginning to facilitate crowdfunding trades.
  • The portal must not provide advice.
  • The portal must:
  1. Make the offering document of the issuer and certain risk warnings separately available to investors electronically online;
  2. Not allow an investment until the investor confirms online they have read and understood the offering document and risk warnings;
  3. Not release funds to the issuer until the minimum amount to close the offering has been reached and until that time ensure that all the funds received for the offering are held in trust for the investors;
  4. When the offering is closed, provide the issuer with the details of the investors (name, address, telephone number, email address, details of purchase) within 15 days of closing of the offering; and
  5. Ensure issuers and investors have an address in Saskatchewan.

The FACC’s portal requirements are not as demanding as we expect the OSC’s requirements to be (based on the material put out by the OSC to date).  It is interesting to note that under the FACC’s proposals a portal is not required to be registered as a broker or dealer and there is apparently no vetting of the issuer or investor required except to ensure that the investor has read and understood the risks and that the issuer and investor have Saskatchewan addresses.

One potential barrier to the use of equity crowdfunding in Saskatchewan is the small size of the projects permitted.   The maximum amount that can be raised is $150,000, the amount raised must be “the amount needed to carry out the purpose” and no concurrent fundraising for the same project is allowed.  Issuers will have to be creative and careful about how they define the purpose of their fundraising to ensure that they can complete it using not more than $150,000 in financing.

Technically, this is still a request for comment by the FACC, but it is interesting to see another Canadian jurisdiction put out a detailed (but different) set of proposed rules for an equity crowdfunding exemption.   We will be watching to see which jurisdiction is first to actually implement a new rule and then to see how the different rules are eventually harmonized, if at all.

Posted in Crowdfunding, Financing, Law, Misc., Startup, Venture Capital | Leave a Comment »

Crowd funding in Ontario’s future

Posted by Shane McLean on September 5, 2013

In December 2012 the Ontario Securities Commission published a Staff Consultation Paper seeking comments on a number of potential new prospectus exemptions.  One of the potential exemptions that created a bit of excitement in the startup community was an exemption which would allow Canadian companies to raise equity financing through crowd funding, which is essentially a process of raising financing from a large number of small investors through an online portal.

Borrowing heavily from the concepts established by the US regulators in the JOBS Act approved in early 2012 (most of which has yet to be implemented in practice), the OSC described the following possible crowd funding structure:

  • The funding would have to be raised through a registered funding portal that meets certain qualifications.
  • A company would not be able to raise more than $1.5 Million in a 12 month period using the crowd funding exemption.
  • An investor’s investment in any one company would be limited to $2,500 and the investor’s aggregate investments in a calendar year using the crowd funding exemption would be limited to $10,000.
  • Investors would have to sign a form of risk acknowledgement.
  • Investors would have a 2 day cooling off period during which they could withdraw.
  • The company would be required to provide a pre-defined level of disclosure about the company, the financing and the funding portal.
  • The company would have certain ongoing disclosure obligations to investors that came in through the crowd funding exemption.

On August 28, 2013 the OSC released a progress report.  The good news for crowd funding fans is that the feedback received by the OSC on the crowd funding proposal has been positive.  As a result, the OSC will continue its work to come up with a definitive framework based on the proposed structure.  The key area where further deliberation and focus may be required seems to be on the role of the funding portal including the qualifications needed and the processes to be followed by such intermediaries.

The bottom line is that it sounds like Ontario companies and investors can expect to be able to someday take advantage of a crowd funding prospectus exemption for equity financings along the lines described above.   Regulators in other Canadian provinces are looking into this issue too and we would hope that any structure ultimately settled on will be rolled out as a harmonized policy across the country.

Posted in Crowdfunding, Financing, Law, Misc., Social Media, Startup, Venture Capital | Leave a Comment »

TSX Venture Exchange Temporary Pricing Relief to Expire August 31

Posted by Shane McLean on August 28, 2013

Since August 2012 the TSX Venture Exchange has allowed temporary relief from pricing rules including the following, which were typically prohibited by TSXV Policies:

  • Share/unit offering with an offering price below $0.05
  • Debenture offering with a debenture conversion price below $0.10
  • Offerings involving a warrant with an exercise price below $0.10

Earlier in August the TSXV announced that they would not be extending the temporary measures further and, therefore, they will expire on August 31, 2013.  Any private placements intending to rely on these measures must be completed by August 31, 2013.  At the same time as the TSXV announced the end of these measures, it announced certain permanent changes to its pricing policies.  For further details, see Some Important Pricing Policy Changes at the TSX Venture Exchange. 

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TSX Venture Exchange Rescinds “Founder Share Restrictions”

Posted by Shane McLean on August 19, 2013

Since 2007 and 2008 the TSX Venture Exchange has had restrictions regarding the number of “founder shares” that could be outstanding after any new listing such as an IPO, reverse takeover or Capital Pool Company qualifying transaction.  Although other types of shares are included, the “founder share” definition was often employed to catch shares that were originally issued for less than $0.05 per share.  Unless a qualifying major financing happened at the same time as the new listing, the restrictions prohibited new listings where the “founder shares” would represent more than 15% of the outstanding shares post closing.

Companies completing an RTO or a Capital Pool Company QT would often run up against this restriction, especially if the private target company had a small number of shareholders who received their shares for a minimal investment amount.  In those kinds of deals, the private company founders often end up holding a large piece of the public company, triggering the “Deal Structure and Founder Share Guidelines”.  In my experience, the TSXV was often flexible in applying the Founder Share Restrictions and would sometimes accept that the dollar value paid by the founders for their initial allotment of private company shares was not really indicative of the full value “paid” by the founders through their years of effort in growing the company.  But even in those cases, coming up against the Guidelines could slow a deal down while you work on building an argument and dealing with the Exchange.

The TSXV recently announced that they have rescinded the Deal Structure and Founder Share Guidelines.  This is a positive change in my view.  The guidelines seemed unnecessary in light of the many other safeguards built into the TSXV policies around new listings to ensure that the deal value is justified and that private company founders stick around for a while after closing.

Posted in Capital Pool Company Program, Financing, Law, Mergers and Acquisitions, TSX Venture Exchange | Leave a Comment »

Some Important Pricing Policy Changes at the TSX Venture Exchange

Posted by Shane McLean on August 12, 2013

In the first week of August the TSX Venture Exchange announced some important changes to its policies around pricing of certain securities.   The changes are summarized by the TSXV as follows.

Minimum Price for Warrants and Options: The minimum allowable exercise price for share purchase warrants and incentive stock options will be reduced from $0.10 to $0.05 per share. This will apply to the full term of the warrant or option.

Minimum Price for Convertible Debentures: The minimum allowable conversion price for debentures will be reduced from $0.10 to $0.05 per share for the first year of the term of the debenture. It will remain at $0.10 per share for the balance of the term of the debenture.

Minimum Price for Initial Public Offerings: The minimum allowable offering price for a non-Capital Pool Company initial public offering will be reduced from $0.15 to $0.10 per security.

These changes will be welcome relief for issuers that regularly trade at sub 10 cent levels, particularly as they relate to the pricing of warrants and options.

Warrants are often issued as a free “sweetener” in connection with the sale of shares in a private placement transaction.  As an investor incentive, 10 cent warrants are obviously not as attractive as warrants priced closer to market value.  Allowing companies to issue options at or around their market price may serve to generate more investor interest, which is always a positive for the companies.

As for option pricing, clearly the perceived value of options as an incentive to employees, directors and consultants is greatly reduced if the exercise price is higher than the trading price of the company’s shares.  Allowing companies to go with an exercise price below 10 cents will increase the perceived value of options as remuneration, possibly allowing issuers to save some much needed cash.

The TSXV says further details will come later this month.  No effective date for these changes has been announced, but the TSXV has indicated that it will consider allowing issuers to rely on the intended changes right away.

Posted in Financing, Law, TSX Venture Exchange | 1 Comment »

Review of TSX Venture Exchange New Listings Activity in 2012

Posted by Shane McLean on May 14, 2013

Each year the TSX Venture Exchange publishes a summary of its “new listings” activity.  New listings include IPOs, qualifying transactions through the Capital Pool Company program, companies completing a reverse takeover and companies moving up from the NEX exchange or down from the TSX.  Here are some random reflections after reviewing the data for 2012:

  • In 2012 there were a total of 236 “new listings” compared to 334 in 2011.  I would not think the reduction in new listings activity comes as a shock to anyone that works in or follows public markets in Canada.
  • Of the new listings in 2012 there were 121 IPOs.  44 of those were traditional IPOs of operating companies (vs 47 in 2011) and the other 77 were IPOs of Capital Pool Companies (vs 112 in 2011).  The rate of traditional IPOs is fairly steady year over year.  The year over year drop in CPC formation would seem to line up with market sentiment over a good portion of 2012.
  • In 2012 there were 61 CPC qualifying transactions completed on the TSXV compared to 87 during 2011.   It would be interesting to know whether there is a causal relationship between this statistic and the drop in CPC formation during 2012.  For example, did the drop in qualifying transactions in 2012 lead to a drop in interest in forming a CPC or was it the other way around?  It is not possible to say from reviewing the publicly available data but with CPC formation and qualifying transactions accounting for 60-65% of new listings activity on the TSXV over the last couple years, any drop in CPC activity hurts the Exchange.
  • In 2012 there were half as many Reverse Takeovers on the TSXV as in 20112 (18 in 2012 vs 36 in 2011).  I would hazard a guess that this is closely tied to the general drop in investment activity that was felt by market participants in 2012.  If doing an RTO will not open up new sources of funding for private enterprises it greatly reduces the incentive.

All in all, the 2012 TSX Venture Exchange new listing statistics do not reveal any surprises and seem to confirm what those of us who work with companies in the public markets felt in terms of market sentiment and availability of capital during much of 2012.  Here’s hoping for a pick-up in 2013!

Posted in Capital Pool Company Program, Financing, Mergers and Acquisitions, TSX, TSX Venture Exchange | Leave a Comment »

TSX Venture Exchange Announces Further Extension of Temporary Pricing Measures

Posted by Shane McLean on April 17, 2013

The TSX Venture Exchange has announced a further extension of temporary private placement pricing measures that have been in place since last August.  Subject to certain limits, terms and conditions, the temporary relief from TSX Venture Exchange pricing rules include the following, which are typically forbidden by the Exchange’s policies:

  1. Allowing a share/unit offering with an offering price below $0.05.
  2. Allowing a debenture offering with a debenture conversion price below $0.10.
  3. Allowing offerings involving a warrant with an exercise price below $0.10.

The Exchange has extended these measures until August 31, 2013 and has fine-tuned some of the conditions and requirements.  If you would like to know more about these temporary relief measures please refer to the Exchange bulletin dated April 12, 2013 or contact Shane McLean (

Posted in Financing, TSX Venture Exchange | Leave a Comment »