8 Things to consider before an IPO in Canada

8 Things to consider before an IPO in Canada

For any company, going public is a huge deal, and this comes along with a lot of factors that need to be considered before an IPO (Initial Public Offering).

To go public in Canada, there are multiple stock exchange markets where you can get your company listed. The Toronto Stock Exchange (TSX) is located in Toronto and mainly focuses on listing only the growth-oriented company that has an established performance record with a minimum of 1 million shares to trade with its market value of more than $4 million held by at least 300 holders each with one or more board lot.

On the other hand, the TSX V (Toronto Stock Venture) is headquartered in Calgary and focuses on growing companies that are willing to raise public venture capital. The total shares to be traded are 500,000 held by at least 200 independent shareholders each with one or more board lots without any restrictions about resale.

Any entrepreneur who is about to go for an IPO would have a lot of questions flooding.
It can be anything from, ‘Is this the best time to go public? to ‘What should I keep in mind if I wish to prepare for the process of IPO? These questions can create a lot of stress and confusion and can disrupt the founder’s mindset. So, here is a list of things we suggest before an IPO in Canada.

1. Growth of the company

When the company is about to go public, then the first thing the public investors would be concerned about is the company’s growth and future plans, to get the exponential returns of the investment they are making.

The startup company should not just aim for a short-term plan but should also have a long-term vision for decades to come. Based on this, the investors make their minds about buying the IPO.

The business model that the startup is willing to adopt for its growth is something that the public investors are keen to know about. It can help to predict how it will do in the future in terms of earnings.

The consumer base that the company has, and the percentage of increment in that number is also something the investors would consider in order to ensure that the company will grow in terms of revenue in the coming years with an increase in its consumer base.

2. Market Cap

One of the key features that determine the interest of the investor is how big is the market size of your product. If your startup has a product that is extremely niched down, then the market size automatically decreases and that can create an impact on the company’s valuation when they go for an IPO.

The Total Addressable Market (TAM) means the total market cap that the company aims to target with its products. This is not just a theoretical concept but a significant fundamental aspect that helps to ensure the larger growth rate of the company.

3. Selecting a Stellar team:

If you are willing to take your company public in Canada, then with a team of professionals, you will be able to get your company listed on the Toronto Stock Exchange (TSX) or Toronto Stock Exchange Venture (TSXV). For this, make sure you onboard lawyers, auditors, investment bankers, underwriters, accountants, and consultants who can add their valuable inputs and work as per their expertise and lead a smooth process of taking your company public.

4. Consider SPAC ( Special Purpose Acquisition Company)

A Special Purpose Acquisition Company (SPAC) is formed to raise money through the IPO. SPAC is a company with no existing operations that acquires the existing operating company by the money raised through the IPO.

SPAC is mainly funded by a sponsor that works along with the management team of SPAC that finds and negotiates with the company that qualifies for the acquisition. They are also known as “blank check companies”.

In Canada, SPAC is mainly regulated by Toronto Stock Exchange (TSX) rather than the separate provincial bodies. In order to achieve some specific goals that the SPAC wants, they are bound to apply for some specific reliefs from TSX and other specific regulatory bodies to proceed further for it.

Going through SPAC rather than IPO can save a lot of time and money that goes in the lengthy IPO process of regulatory fillings and also negotiating with the underwriters or regulators.

5. Profitability and steady growth rate :

One of the key differences between private and public companies is their profitability from the beginning. Usually, when the company goes public, it attains certain profitability after reaching a stage, but most high-growth-seeking startups are not at the stage where they are generating steady profits.

The other crucial aspect is how steady is the growth rate of the company over the span of time. The scope of getting more public investors increases when your company has a steadier growth rate. The type of model adopted helps to predict the quarterly or annual reports of the company.

6. Explain the working structure of the company :

To make someone invest in your startup, you need to make them believe that the company has employees and a working structure that is capable enough to manage the operations even when the demand and revenue would become 10x after going for an IPO.

This can be done by showcasing the organisational structure of the company, the way they value their employees as their assets, and the key leadership skills in the top management like that CEO or among the co-founder. The vision that the startup’s CFO (Chief Financial Officer) has, with regard to the revenue is also something the investors would want to know about.

Without trust-building, it is difficult to attract investors with just the statistical data, if they are not aware of the back story.

7. Product of the company :

If the company is willing to go for an IPO, then the product should be strong enough to move the existing market and create a unique space to acquire more consumers. The USP (Unique selling proposition) of the product is what makes the company stand out. Eventually, the brand awareness also increases when the product is more purpose-driven and can promise to deliver results in a meaningful and sustainable way.

The investors are interested to know if your company will be adding new products in order to increase the consumer base which will increase the revenue. They look for the company to become big enough that there are franchises of it in the market.

8. Conduct a Roadshow :

A roadshow is a series of sales presentations pitched at multiple locations to make up an initial public offering between the founders pitching for the company and the potential investors. This roadshow provides a platform to potential investors to interact with the executives of the company on a 1:1 basis and can know in-depth about the company before it actually goes public.

The aspects typically covered during roadshow presentations are the details of company background, the operating heads, future plans and missions, revenue details and projection of future sales and also the IPO goals as well as the potential growth of the company.

Want to know more about the specific things to keep in mind before an IPO of your company? If yes, you can get some experts advice, very specific to your startup by getting on a free 30 min call with the expert team of Kedden. We provide help from accounting to valuation, business plan to the projection of the business, and everything you would require to scale your startup before going public.

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