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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):

http://www.techvibes.com/blog/startup-equity-2013-11-13

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

The Capital Pool Company Program

Posted by Shane McLean on February 12, 2013

I recently posted a list of  the top 10 most popular posts from this blog and at #1 was one from May 2009 about the TSX Venture Exchange’s Capital Pool Company program.    I have recently updated that post for the LW Connect Blog and here is the updated version:

The TSX Venture Exchange’s Capital Pool Company Program is increasingly becoming the dominant way to attain a public listing on the TSX Venture Exchange.   The Exchange describes the program like this:  “A unique listing vehicle, the Capital Pool Company program provides an alternative, two-step introduction to the capital markets. The CPC program introduces investors with financial market experience to entrepreneurs whose growth and development-stage companies require capital and public company management expertise.”

For those who are not familiar with the CPC Program, here is a quick high level overview:

  • A group of people, usually between 4 and 6, get together and incorporate a company and form its board of directors.  Together they invest at least $100,000 in seed money into that company with at least $5,000 each.
  • The company has no assets other than the seed money and no operating business.  Because of this you will often hear people referring to a CPC as a “shell” company.
  • With the help of a banker the CPC shell completes an initial public offering.  It must raise a minimum of $200,000 in gross IPO proceeds using a prospectus  from at least 200 public shareholders.  Following its IPO the CPC will trade on the TSX Venture Exchange.  The process is not unlike a traditional IPO except that you have very little business and financial information to disclose because the CPC is relatively new company and has no business or assets (other than cash).
  • Once the IPO is out of the way and the shares are listed on the TSX Venture Exchange, the sole purpose of the CPC shell is to seek out an operating business or other assets to acquire within 24 months from the initial TSX Venture Exchange listing date.
  • Most often, the target business is acquired through a “reverse takeover” in which CPC shell most pays for the acquisition by issuing new shares to the owners of the target business.  The “reverse takeover” part comes in because at the end of the day the total number of shares issued to the owners of the target often represents a majority of the outstanding shares of the public company on a post closing basis, meaning that the previous owners of the target now, as a group, control the overall company.

Why would anyone do this?  For the founders and IPO investors of the CPC, the hope is that the target business will ultimately be very successful and their initial small investment will be returned to them many-fold.   For this reason, the pressure is on the CPC founders to find a viable target with good prospects.   For the owners of the target it is a way to obtain a public listing for their shares, eventual liquidity and it may provide the company with access to capital that is not available to it as a private company.

As you can imagine, there are far too many nuances, qualifications and details about the process to do it justice in this post.  I plan to follow up with a series of posts dealing with aspects of the CPC program in a little more depth so stay tuned to LW Connect.  If you have questions about the CPC program please feel free to give me a call ((613) 599-9600 ext 262) or send me an email (smclean@lwlaw.com).  LaBarge Weinstein LLP has experience acting on both sides of these kinds of transactions (i.e. CPC shell and target).

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

LW Connect

Posted by Shane McLean on November 28, 2012

I have found that blogging is not unlike any other activity that you intend to do, know you should be doing and maybe even want to do (think of exercising). If you get into a routine it works great for a while but if you get out of that routine for some reason it’s easy for a great deal of time to go by before you even realize. It has been over 2 years since my last post to this blog. That’s hard to believe. Don’t get me wrong, I have been keeping busy — since my last blog post I have worked on over $130 Million in financings and about $640 Million in mergers and acquisitions. Having said that, I am going to try to get back into active blogging.

My firm, LaBarge Weinstein LLP, has set up a blog called LW Connect.   I am going to focus most of my energies there.  I will try to link to my LW Connect posts from this space (my most recent post is about temporary pricing relief measures from the TSXV) but I hope that you will visit LW Connect regularly and see not only my posts but posts from my colleagues as well.    As always, if there are any topics that you would like to see discussed here or at LW Connect please let me know.

Thanks.

Posted in Financing, LaBarge Weinstein, Misc., TSX Venture Exchange | Leave a Comment »

LaBarge Weinstein Fall 2009 Quarterly

Posted by Shane McLean on December 22, 2009

See below for LaBarge Weinstein’s quarterly newsletter published this week:

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:

Events & Calander

Posted in Events, Financing, LaBarge Weinstein, MARS, Misc., Venture Capital | Leave a Comment »

MaRS Launches Entrepreneurs Toolkit

Posted by Shane McLean on December 7, 2009

MaRS has recently launched a great new website which includes a  section called the Entrepreneurs Toolkit.  It’s a collection of articles, videos and other tools all aimed at educating and helping entrepreneurs understand the practical and legal aspects of startup life.   At launch the Toolkit boasts 10 workbooks, over 250 articles and over 150 videos live on the site.  The site even includes form documents and agreements that you can download and edit for your own use.

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.

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

Congratulations to Chemaphor Inc. for raising funds in a tough market

Posted by Shane McLean on October 25, 2009

 Congratulations to Chemaphor Inc which announced Friday (see press release) that it successfully raised a round of just over $1.2 Million!  No small task in this still tentative financing market.  Great work was done on the agency front by Bloom Burton & Co.  and others.

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

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

Ottawa Cleantech Event

Posted by Shane McLean on October 21, 2009

LaBarge Weinstein, together with Deloitte and The Ottawa Network, is hosting the “Ottawa Cleantech Retooling Initiative” in Kanata on October 27th, 2009.   Should be a good event.  Here are the details:

“Bringing local clusters and initiatives together to focus the expertise of experienced management and engineering talents on emerging cleantech opportunities.”

Date:  Tuesday October 27, 2009

Time:  4:00 p.m. to 6:30 p.m.

Location:  Kanata Lakes Golf & Country Club, 7000 Campeau Drive, Kanata, ON

Panelists:  Bill St. Arnaud from CANARIE, Tim Angus from ReGen Energy and Albert Behr from Behr & Associates

There is no cost to participate, however pre-registration is appreciated.  RSVP with Diana Lavigne at dl@lwlaw.com or 613 699 6900 ext 210.


Posted in Cleantech, Events, LaBarge Weinstein, Misc. | Leave a Comment »

Update on the Ontario Emerging Technologies Fund

Posted by Shane McLean on October 13, 2009

This is a reprint of a note from the LaBarge Weinstein Emerging Issues Series: Update on the Ontario Emerging Technologies Fund

Over the past summer, our partner Debbie Weinstein has been closely involved in the industry outreach conducted by Ministry of Research and Innovation’s John Marshall relating to the launch of the Ontario Emerging Technologies Fund (OETF), which was originally announced by the McGuinty government in winter 2009. The Fund represents an exciting opportunity for our cash- or syndicate partner-starved clients (startups, venture investors and angels alike) to access government funding in a reasonable and timely way.

If you would like any additional information regarding the OETF, including how to become a “Qualified Investor” or submit an investment for consideration, we would be happy to assist. Please feel free to contact any of our partners via our website at http://www.lwlaw.com// and we’ll try and help you assess whether the program complements your future financing strategies.

What You´ve Likely Heard Already

OETF is a $250 million direct investment fund administered by the Ontario Capital Growth Corporation (OCGC), announced in February 2009. OETF has been designed as a matching fund for investments in Ontario-based companies, providing syndicate support for qualified investors that have sourced, diligenced and led financings. The Fund will invest $50 million per year during the term of the program, and $100 million will be available for funding over the next 18 months.

OETF will piggybacking on the diligence and pricing efforts of “qualified” investors that participate in an fund-sponsored approval process, and lead syndicated venture capital transactions.

OETF can invest in private companies, the majority of whose: (i) payroll is paid to Ontario employees and contractors, (ii) workforce is working in Ontario, and (iii) senior officers maintain their permanent residence in Ontario. Targets must carry on business in one of the OETF’s recognized industry categories, including clean tech, life sciences, digital media or communications.

The minimum initial investment requires target firms to be raising at least $1 million (including the matching money from the Fund), and will be made on the same deal structure terms as those made available to the qualified investor. The Fund will match the largest qualified investor up to $5 million per round. The OETF has adopted some stylized deal structure requirements for financing rounds where the syndicate relationships are more complex, or where the transaction contemplates a material follow-on investment by the qualified investor, and we would be happy to discuss those at your convenience.

OETF can do follow-on financings, which is terrific, provided that the maximum amount invested in any single target cannot exceed $25 million.

What You Need to Know and Do Now

Get Your Investors Qualified: Any investor, regardless of residence or location and whether an institutional venture capital firm or angel, can become a “Qualified Investor”. In order to seek approval, investors are required to submit an application to the Fund and submit to certain background and other diligence checks regarding the investor and its principals. OETF has engaged Toronto’s Northbridge Capital Management Inc. to administer and support granting these approvals. We have been advised that, once OGCG and Northbridge settle upon the set of administrative and diligence procedures to make these determinations, an application to become a qualified investor will take no longer than 15 days to process. Unfortunately, non-institutional investors (angels) are required to reapply for qualified status for each investment that they make.

Get Your Term Sheet Qualified: In order to submit a proposed transaction for approval, qualified investors are required to submit an application to the Fund. OETF has engaged Toronto’s Covington Capital Corporation in order to administer and support the approval and funding of qualified investments. We strongly suggest that interested parties submit applications for investor qualification at the same time as they pursue investment approval. Since accommodating applications this past July, we understand that the Fund has received more than 200 proposals for investment. We also understand that the Fund has every intent of distributing these Funds as soon as possible. It may very well be that the qualified investors who are first to the post will be the first to reap the rewards of their efforts.

Consolidate Your Angels: The most important limitation of the Fund is that it will only match the investment amount of the qualified investor. This is a real challenge for angel syndicates, but Mr. Marshall’s team has indicated a strong appetite and willingness to consider strategies to consolidate angel investments under a corporate, partnership or trust entity. This should streamline the investor approval process for the affected angels, and by consolidating the Funds to be invested will maximize the OETF’s matching investment in the target.

If You Have A Cross-Border Structure, You’re Still Eligible: Please keep in mind that targets do not themselves need to be Ontario or Canadian companies. If your corporate structure includes a Delaware parent or sister, as with many of our clients’ corporate structures, your qualified investors can still try and access the Fund.

If You are in the IAF Pipeline, Be Mindful of OETF Limitations: There are funding limitations where the target has received substantial concurrent Ontario government contributions, including OCE or IAF (Investment Accelerator Fund) funding. Targets should seek advice regarding these restrictions and how they might the affect the target’s status and eligibility for matching funding pursuant to the OETF.

The Fine Print: What You Should Consider Before Engaging the Fund

The intent is that OETF will act as a passive investor, but like any government-sponsored funding program, there are some traps and challenges to engaging the program.

There are some specific minimum deal terms to be reviewed and incorporated into your investment proposals before they are submitted for approval. More important, OETF investments will be subject to call rights in favour of the Fund should the target lose its Ontario footprint after the date of the investment. This should not affect conventional investment exits, which OETF will review and approve in the ordinary course in its capacity as a shareholder. However, if your firm anticipates near-term growth in its workforce and C-class management in the near term, you should get some advice on how those call rights work. It is similarly unclear as to how such rights will mesh with our venture and bridge loan contracting patterns over the last few years.

Overall, our team remains very bullish on the Fund’s potential for stimulating syndicate formation in Ontario, and we would be happy to assist you in engaging the Fund, and working through its eligibility and approval requirements. Again, please feel free to contact any of our partners via our website athttp://www.lwlaw.com// and we would be happy to assist.

Posted in Financing, Government Funding, LaBarge Weinstein, Law, Misc., Newsletter, Startup, Venture Capital | 1 Comment »

LaBarge Weinstein Summer 2009 Quarterly

Posted by Shane McLean on September 10, 2009

See below for LaBarge Weinstein’s quarterly newsletter published this week:

Summer 2009 Quarterly

With the school recess ending, and some evidence that our recession is history, our team looks back on a very busy summer of M&A and investment activity. Highlighting our M&A dealflow: Exar´s acquisition of Ottawa startup veteran Galazar Networks, and the acquisition of two Waterloo-based clients by industry leaders, EA´s acquisition of social media gaming company J2Play, and Intel´s recent acquisition of multicore development tool firm RapidMind. Of course, we love acting on the other side of the acquisition table, and we congratulate EION and its CEO, Dr. Kalai Kalaichelvan, on its footprint expanding acquisition of Calgary´s Layer 10 earlier this summer.

This trend of balance-sheet strong companies looking north for technology and strategic market development hasn´t been lost on the investment community. Our team has fielded more introductory Canadian outreach efforts from US-based funds (Boston-based Sigma Partners and Valley-based Altos Ventures among them) in the past quarter than in the previous several years. This will hopefully complement investors such as Panaroma Capital and Bridgescale Partners that have, and remain, committed to supporting our tech communities and serving as syndicate partners to the remaining homegrown active funds. Many new US-based institutions have structured their funds to include workarounds to some of our Canadian tax withholding and reporting challenges formerly cited as barriers to local investment. Others, like Bridgescale, have actually opened local offices, in its case in Toronto.

On the whole, very healthy opportunities, especially for experienced management teams emerging from acquisition activities during the previous five or so years. If you and your team are working on the next big thing, we would love to assist, and please reach out to any of our partners to make a connection and get a better sense of how we can support and build momentum behind your new venture.

Back to the VC Future…

The summer has witnessed a raft of VC nostalgia for the industry’s halcyon pre-bubble days (new VC investments in the US, for example, have dipped to pre-1997 levels). One would expect a flurry of hand-wringing laments, but this hasn’t been the case.

A recent New York Times article, for example, cites venture-icon Alan Patricof’s admonition that it is time for true venture investors to “think smaller”. Patricof, the founder of the APAX group of funds which formerly managed billions of dollars in private equity earmarked funds (some of which he invested in former Gatineau-based LaBarge client CML Emergency Services, acquired by Plant Equipment in 2007), now runs a modest $75M fund seeking to avoid the industry “force-feeding” that experts suggest have diminished industry returns. Angel-boosters such as Basil Peters have developed this perspective over the course of the decade, and his book “Early Exits” is a must-read for startup founders seeking to develop business plans that properly account for an exit landscape where the IPO is a less and less viable liquidity outcome.

So what does this mean for Canadian startups? Smaller might very well be better for us, and the industry’s “back to its roots” approach seems to align with the strategies to which our best performing local funds, including Celtic House Venture Partners and Tech Capital, have recommitted themselves over the last year.  Fund managers have refocused their efforts on cultivating long-term relationships with quality management teams, and getting involved early. And while the sales cycle remains a long one (and founders should get started as early as possible in building these relationships), our view is that this focus on more intimate partnering with opportunities can only help build bridges between funders and the amazing pockets of talent that our tech communities hold.

Cleantech Diamonds in Ottawa…

If you are a founder or investor taking a look at big picture trends in the cleantech space, our team has continually been impressed with the work of Bill St. Arnaud and his team at CANARIE on the development of clean data centres and the opportunities that they present for Canada. Canada’s leadership in changing its energy mix makes it a great candidate for satisfying what is estimated to be a $600B global market by 2013. In June, CANARIE announced a $3M call for proposals in its so-called “Green ICT” space, and in particular for major zero-carbon data center pilot projects. Bill is a terrific speaker and tireless advocate for Canada’s opportunities in the industry, and we encourage anyone interested to seek him out and get his valuable perspectives.  Looking for some locally based potential winners in the field? Two stand out: Kingston-based Axiopower and Ottawa-based Menova, each of whom have focused on small-project renewable energy as a source of future significant industry growth. If you would like to discuss our firm’s experience in the industry, and our perspectives on financing and other challenges, please feel free to contact any of our partners and we would be happy to do so.

Have Digital Content, Will Travel…

One of our partners, James Smith, was fortunate enough to attend the Stratford Institute’s inaugural conference in June focused on wedding digital media content creation and distribution innovations in a single, dynamic educational setting (James’ views on the conference). The initiative feeds a vibrant trend we’ve seen recently with Canadian-based startups focusing on web- and mobile-based distribution technologies. This includes industry heavy-hitter QuickPlay Media as well as emerging technologies and platforms being proposed by startups such as Spreed, Personal Web Systems, Metranome, DEQQ, LiveHive Systems, Overlay.tv, and Calgary’s MoboVivo. There certainly seems to be enough talent and interest to support a vibrant local digital media distribution community, and we’d be happy to share our thoughts and perspectives with you on this budding industry.

Blogs & Other

For expense-conscious startups, one of our clients Eseri, has generously made available a free trial and a 50% discount on software everyone needs, a complete IT company-in-a-box for small, medium, and growing businesses. Eseri offers a secure, virtual desktop incorporating a range of open-source tools for small businesses, and we would encourage you to take them up on their offer. And while we’re at it, we would encourage you all to check out some tools that our lawyers have been trying out lately, including Mercury Grove’s Network Hippo, Tungle’s scheduling solution, and Eighty Twenty’s desktop sharing applications.

It was disappointing to hear of Rick Segal’s departure from the Canadian VC scene this past July, and we’ll certainly miss his straight talk on the industry and its contributors. For some of his past blog highlights, click the following links, well worth the read.

The fall is venture fair season in Canada, and look for our partners and lawyers at the upcoming Ottawa Technology and Venture Showcase and the Banff Venture Forum , each being held during the week of September 28-October 2nd.

Finally, we enclose a great article passed on to us by Guelph-based startup founder and semantic web guru Greg Boutin describing how angel investors seek to de-risk investment opportunities. Finally, we remind our clients of our firm’s “Angel Connect” initiative, whereby we provide thumbnail descriptions of investment opportunities to our cross-Canada network of angels, and facilitate introductions where appropriate. If you would like to participate as an angel or you have a potential investment opportunity, please feel free to contact our partner Michael Dunleavy at md@lwlaw.com and he would be happy to assist.

Dealflow Report

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

Events and Calendars

Copyright © 2009 LaBarge Weinstein Professional Corporation,
A Business Law Firm. All Rights Reserved.

Posted in Cleantech, Events, Financing, LaBarge Weinstein, Law, MARS, Mergers and Acquisitions, Misc., Newsletter, OCRI, Startup, Venture Capital | Leave a Comment »

IPeak Networks Closes Financing

Posted by Shane McLean on July 20, 2009

Congratulations to client IPeak Networks for recently completing a post-angel round of financing! (see press release)  No small feat in this lean market for VC funding.    I have had the privilege of working with IPeak and its founders since the beginning and am extremely happy to see the company reach this important milestone.  IPeak has found a great funding partner in Miralta Capital.

Great work!

Posted in Financing, LaBarge Weinstein, Misc., Startup, Venture Capital | Leave a Comment »