Magazine

Finance: Into North Country


A few U.S. entrepreneurs are beginning to sing the praises of our neighbor to the north.

A growing number of small U.S. companies are going public on the Toronto Stock Exchange (TSX) through its Venture Exchange, a junior exchange for early-stage companies. That gets them access to capital and public markets just as the market for U.S. initial public offerings is down 12% from last year. It also saves money on Sarbanes-Oxley expenses and other charges related to U.S.-based IPOs.

About 50 U.S. companies are already listed on the Venture Exchange. As of Nov. 16, their shares were up an average of 24%. While the exchange won't say how many more are in the pipeline, as of August, 20 companies had received financing from the TSX in preparation for a junior exchange offering this year, compared with 15 in all of 2004. The majority are involved in mining or energy. "There are more mining and energy companies on the Toronto Stock Exchange than all others in the world combined," says Frank E. Holmes, CEO of U.S. Global Investors (), a San Antonio investment management and advisory firm. As a result, Toronto has a strong cadre of natural resource analysts on the buy, sell, and money management sides.

Regulations at the TSX offer more flexibility than companies would get at home. While U.S. public companies must separate the roles of chairman and CEO, it's merely recommended on the Venture Exchange. Companies are exempt from costly internal audits required in the U.S.

The mechanics of going public at the Venture Exchange are similar to those in the U.S. The cost to go public on the junior exchange is generally about $300,000 and can take about five months to complete.

The catch: Such a listing usually means that a company's official address must be in Canada, restricting the sale of shares in the U.S., says Christopher Barry, head of the Canada practice group at Seattle law firm Dorsey & Whitney.

Still, Brian Reidy thought a Canadian listing could be perfect for eight-employee MicroPlanet, which uses a proprietary voltage regulator to improve the efficiency of energy grids. He had launched the company in 2004 with $3 million from angel investors in Calgary, Alta., and didn't know where the next $5 million to $10 million might come from. "Investors in Calgary are not afraid of smaller deals, and they understand the energy sector better," says Reidy. Those investors suggested the Venture Exchange for his $1 million company, preferring it to the over-the-counter market because of the unsavory reputation of many OTC stocks. MicroPlanet even took advantage of a TSX program that gives startups as much as $2 million to ready a public offering.

MicroPlanet next set up a holding company in Calgary, keeping its corporate headquarters in Seattle. The common shares issued in the U.S. before the public listing are not registered with the U.S. Securities & Exchange Commission, so their sale and transfer are restricted.

The company hasn't given up on a U.S.-based listing. "When the timing and growth of the company are appropriate, we will consider this," says Reidy. Until then, he just might be overheard humming O Canada.

By Jeremy Quittner


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