Last year, when Dennis DeCoste began looking for equity financing for his software start-up, he didn't bother talking to venture capitalists. Instead, the chairman of High Level Design Systems, in Santa Clara, Calif., opted for a public offering on Canada's Vancouver Stock Exchange. Last September he succeeded in selling 11% of his business for $1.6 million -- a hefty premium, he believes, over what domestic investors might have paid.
The new-issues market in Vancouver has heated up as more and more young companies have seen it as an attractive place to raise capital. During 1992 and 1993 U.S. businesses accounted for more than one-third of Vancouver's total new nonresource issues (that is, for businesses not associated with natural resources, such as minerals). Lately, the Vancouver market has been in the spotlight for the speculative practices of some stock promoters. "The financial community up there tends to focus on short-term profits," says Doug Collom, a partner with Wilson, Sonsini, Goodrich, and Rosati, in Palo Alto, Calif. But Collom and others who have had experience in Vancouver say that it remains a financing avenue to consider, as long as you heed the following advice:
Hire local advisers. Canadian accounting standards and securities regulations differ in many ways from those in the United States. So it's a good idea to use a local law firm and the local office of a reputable accounting firm as well as U.S. counsel and accountants, offers Dennis O'Connor, a partner at O'Connor, Broude, and Aronson, in Waltham, Mass.
Choose committed underwriters. Given the level of speculation that can go on, it's vital to find an underwriter that will provide support after the offering has been sold, says Collom, who worked with DeCoste on his deal. He recommends spending time in Vancouver to interview key players of prospective firms. Yehoram Uziel, CEO of Soligen Technologies, in Northridge, Calif., went further, selecting his underwriter last spring based in part on the underwriter's promise to support the stock for at least a year after its sale. To ensure that he gets the support, Uziel signed an agreement with the underwriter basing the agency's fees on its performance.
Keep your future options open. Even though selling stock in Vancouver doesn't require filing anything with the U.S. Securities & Exchange Commission, many experts advise staying as close to SEC disclosure requirements as possible. That way, you can transfer your listing to NASDAQ or another U.S. exchange without major headaches. -- Stephanie Gruner* * *
If you want more information on the Vancouver Stock Exchange, call 604-689-3334 for a free package of material. It includes a booklet explaining the listing procedures and giving profiles of companies that have raised money there.* * *