The journey of taking a company public is both challenging and rewarding. My first experience doing a direct listing as CEO involved acquiring a software application along with its data and intellectual property, completing a series of private placements, and simultaneously completing audits, financial statements, and the non-offering prospectus (NOP). This approach was very streamlined and enabled us to go public in a relatively short (5 – 6 months) timeframe.
Starting with only $600,000, and a basic asset, we were able to complete the direct listing. Our intention was to amalgamate or acquire a larger business in the cleantech sector, which ultimately proved to be successful. Our direct listed public company (Dimension Five) amalgamated with Aduro Energy and subsequently formed Aduro Clean Technologies, which now trades on the NASDAQ under the symbol (ADUR). This transaction has resulted in significant value creation for shareholders from humble beginnings of $5M market capitalization on the Canadian Securities Exchange to over $200M and completing an IPO in 2024 and listing on the NASDAQ.
Canada offers a great starting point for public companies to access the United States public markets. Canada on its own however, offers a robust capital markets ecosystem, especially for early-stage companies and emerging opportunities. Many entrepreneurs are unaware of the significant advantages available to those willing to put in the work. If you’re serious about creating value and building something substantial, the Canadian market offers a pathway to win investor trust and, ultimately, achieve financial success.
Key Requirements for Listing
When considering a direct listing, it’s important to review the policies of the exchange where you plan to list. Below are some key requirements:
Canadian Securities Exchange (CSE):
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- A minimum of 150 shareholders holding at least one board lot of stock, free from restrictions.
- For listed issuers not yet generating revenue from business activity, exchange will not consider application where builder shares have been issued for less than $0.005 in the previous 24-month period.
- Ratio of shares in post-offering capital structure must not exceed one builder share for every three non-builder shares.
- Activity for non-mining sector companies: (a) For the most recent fiscal year, positive cash flow, or $100,000 in revenue from operations or $100,000 in development expenditures; or (b) For the three most recent fiscal years, either $200,000 in operating revenues or $200,000 in expenditures directly related to the development of the business.
TSX Venture Exchange (TSXV):
- A minimum of 200 shareholders holding at least one board lot of stock, free from restrictions.
- The Tier 2 listing is more lenient compared to Tier 1.
- Tier 2 (non-mining): $2,000,000 Arm’s length financing, $750,000 NTA, or $500,000 in revenue.
- Adequate working capital to carry out business plan for 12 months with $100,000 in unallocated funds.
- The exchange will assess the capital structure for excess and imbalance. If there has been shares issued for less than $0.05, the exchange may request additional information and the issuer may have to amend its capital structure.
How Direct Listings Differ from IPOs
Unlike an IPO, where funds are raised by selling shares to the public through a prospectus, a direct listing relies on private placements to arrange shareholder distribution and financing. Once the listing conditions are met, the company files a non-offering prospectus (NOP) with the exchange and securities commissions to complete the process.
Pros of a Direct Listing Over Other Methods
- No liabilities from inheriting a shell company (as in a reverse takeover, or RTO).
- Less dilution compared to acquiring shareholders through an RTO.
- Reduced legal fees and financing costs.
Cons of a Direct Listing
- Limited awareness from the investment community compared to IPOs.
- Financing and shareholder distribution must be arranged through private placements.
- Regulatory approvals with securities commissions must still be secured.
A direct listing is an excellent way to start small and grow efficiently as a public company. It allows companies to maintain lean operations while gaining access to the benefits of the public markets. If you’re considering going public in Canada, this approach could provide the launchpad you need for long-term success.