Saturday, 24 September 2016

Biotech Thrives in Challenging Venture Capital Market

The TSX's two-tiered exchange has been critical to Canadian biotechs needing to raise venture capital in order to get onto the big board and Nasdaq.

The TSX Venture Exchange is either badly broken or doing just what it was designed to do, depending on the sector you canvass.
Junior resource-sector companies and investors say there are systemic problems with the TSX Venture Exchange (TSX-V) and various regulatory organizations that have made it an increasingly difficult place in which to raise venture capital.
Canada’s biotech sector appears not to have the same concerns – though it may be a special case.
Over the last three or four years, the life sciences sector has been one of the few bright lights on the venture exchange, said Joe Garcia, a partner with Blake, Cassels & Graydon LLP.
Garcia specializes in corporate finance, mergers and acquisitions, and has been involved in several recent initial public offerings.
“It’s done incredibly well,” he said of the sector.
Between 2014 and 2015, while more than 200 junior miners were bumped down to the NEX (the exchange’s basement for dormant companies), 24 life sciences companies went public on the Toronto Stock Exchange (TSX) and 10 issued public offerings on the TSX-V.
TSX-V-listed life sciences companies raised more than $900 million in equity during that time, and Garcia said companies on the TSX raised $6.7 billion.
It’s no coincidence that the biotech sector has prospered on both exchanges at a time when resource companies have languished.
“Venture technology is counter-cyclical to venture resources,” said Doug Janzen, former CEO of Cardiome Pharma Corp. (TSX:COM) and current CEO of Aequus Pharmaceuticals (TSX-V:AQS), which has raised $11 million in private placements in recent months.
When resource companies were enjoying a supercycle – which ended in 2011 – the biotech sector languished.
One local success story is Vancouver’s ESSA Pharma Inc. (TSX:EPI; Nasdaq:EPIX). It debuted on the TSX-V in December 2015, but didn’t stay there long.
“Last year we did a direct listing on the venture exchange,” Garcia said. “They did so well on the venture exchange, their valuation was so high, that we almost immediately worked with them to graduate to the TSX and get a Nasdaq listing.”
Another Vancouver life sciences company, Neovasc Inc. (TSX:NVC; Nasdaq:NVCN), last year raised US$87 million in equity.
Vancouver’s Aquinox Pharmaceuticals Inc. (Nasdaq:AQXP) didn’t even need the TSX-V stepladder – it went straight onto the Nasdaq in March 2014. It raised $46 million with its IPO and, in September 2015, raised $98 million.
Were it not for the venture exchange, Garcia said, many Canadian startups might never attract the venture capital they need to go public on bigger exchanges like the TSX and Nasdaq.
“It shows that our market is unique and has advantages with a two-tiered Canadian market. It allows companies to go public early, on the venture exchange, and then graduate at an appropriate time to the TSX. It’s like an incubator and allows companies to get out a bit earlier than they might otherwise be able to get out.”
James Hatton, a partner at Farris, Vaughan, Wills & Murphy LLP and chairman of LifeSciences BC, agreed.
Without the TSX Venture Exchange, he said, “Aequus wouldn’t be a public company. I think there are some companies that have gone public via that mechanism that would have had a tougher time going straight to Nasdaq.”
Biotech stock indexes have generally been down in recent weeks. The Nasdaq Biotechnology Index has fallen 14% since the beginning of the year.
But Garcia and Hatton attribute that to general global stock market volatility.
“Biotechs are doing reasonably well,” Hatton said, “even though the market’s turned down in the short run.”
Added Garcia, “[Market volatility] is not good for anybody. But if we look at it over a period of time, I would say my experience with the venture exchange has been really positive.”

Source: Business Vanvouver

Biotech Thrives in Challenging Venture Capital Market

The TSX's two-tiered exchange has been critical to Canadian biotechs needing to raise venture capital in order to get onto the big board and Nasdaq.

The TSX Venture Exchange is either badly broken or doing just what it was designed to do, depending on the sector you canvass.
Junior resource-sector companies and investors say there are systemic problems with the TSX Venture Exchange (TSX-V) and various regulatory organizations that have made it an increasingly difficult place in which to raise venture capital.
Canada’s biotech sector appears not to have the same concerns – though it may be a special case.
Over the last three or four years, the life sciences sector has been one of the few bright lights on the venture exchange, said Joe Garcia, a partner with Blake, Cassels & Graydon LLP.
Garcia specializes in corporate finance, mergers and acquisitions, and has been involved in several recent initial public offerings.
“It’s done incredibly well,” he said of the sector.
Between 2014 and 2015, while more than 200 junior miners were bumped down to the NEX (the exchange’s basement for dormant companies), 24 life sciences companies went public on the Toronto Stock Exchange (TSX) and 10 issued public offerings on the TSX-V.
TSX-V-listed life sciences companies raised more than $900 million in equity during that time, and Garcia said companies on the TSX raised $6.7 billion.
It’s no coincidence that the biotech sector has prospered on both exchanges at a time when resource companies have languished.
“Venture technology is counter-cyclical to venture resources,” said Doug Janzen, former CEO of Cardiome Pharma Corp. (TSX:COM) and current CEO of Aequus Pharmaceuticals (TSX-V:AQS), which has raised $11 million in private placements in recent months.
When resource companies were enjoying a supercycle – which ended in 2011 – the biotech sector languished.
One local success story is Vancouver’s ESSA Pharma Inc. (TSX:EPI; Nasdaq:EPIX). It debuted on the TSX-V in December 2015, but didn’t stay there long.
“Last year we did a direct listing on the venture exchange,” Garcia said. “They did so well on the venture exchange, their valuation was so high, that we almost immediately worked with them to graduate to the TSX and get a Nasdaq listing.”
Another Vancouver life sciences company, Neovasc Inc. (TSX:NVC; Nasdaq:NVCN), last year raised US$87 million in equity.
Vancouver’s Aquinox Pharmaceuticals Inc. (Nasdaq:AQXP) didn’t even need the TSX-V stepladder – it went straight onto the Nasdaq in March 2014. It raised $46 million with its IPO and, in September 2015, raised $98 million.
Were it not for the venture exchange, Garcia said, many Canadian startups might never attract the venture capital they need to go public on bigger exchanges like the TSX and Nasdaq.
“It shows that our market is unique and has advantages with a two-tiered Canadian market. It allows companies to go public early, on the venture exchange, and then graduate at an appropriate time to the TSX. It’s like an incubator and allows companies to get out a bit earlier than they might otherwise be able to get out.”
James Hatton, a partner at Farris, Vaughan, Wills & Murphy LLP and chairman of LifeSciences BC, agreed.
Without the TSX Venture Exchange, he said, “Aequus wouldn’t be a public company. I think there are some companies that have gone public via that mechanism that would have had a tougher time going straight to Nasdaq.”
Biotech stock indexes have generally been down in recent weeks. The Nasdaq Biotechnology Index has fallen 14% since the beginning of the year.
But Garcia and Hatton attribute that to general global stock market volatility.
“Biotechs are doing reasonably well,” Hatton said, “even though the market’s turned down in the short run.”
Added Garcia, “[Market volatility] is not good for anybody. But if we look at it over a period of time, I would say my experience with the venture exchange has been really positive.” 
Source:
Business Vancouver



Saturday, 20 August 2016

How This New Car Company Could Soon Beat Tesla at Its Own Game


Startup automaker Elio Motors made it official on Thursday: The Phoenix-based manufacturer of an aerodynamic, three-wheel car became the first small company to list shares on an exchange, following a mini-IPO made possible by new Securities and Exchange Commission rules.
The public offering is a success story that follows years of finagling by regulators, policymakers, and business owners to try to make good on the full promise of the 2012 Jumpstart Our Business Startups (JOBS) Act, which was intended to increase funding and growth opportunities during the recession. The news is important because it shows how the updated regulations can work in favor of small companies, allowing them to raise money in new ways, such as through crowdfundingplatforms, and from a previously inaccessible class of small investors.
"We have lost the meaning of the equity markets, when people were trading stocks at the corner of Wall and Broad Street under a tree," founder Paul Elio said at a news conference in New York. "[The new rules] bring the equity market back to its roots, which is about creating capital for companies to start and grow."
The Financial Industry Regulatory Authority (FINRA) gave Elio final approval to begin trading on the OTCQX Market, an exchange that charges businesses a fraction of what larger exchanges such as Nasdaq do to list their shares. That follows an extensive campaign the company initiated last summer on the crowdfunding platformStartEngine, in which it raised $17 million from 6,600 unaccredited investors. (An unaccredited investor has a net worth of less than $1 million, or an annual income less than $200,000.)
In June, the SEC altered a decades-old rule called Regulation A, which allowed private companies to solicit funding from wealthy investors for up to $5 million. The update, called Regulation A+, allows private companies to raise money in two tiers, for amounts up to $20 million and $50 million, including from non-accredited investors.
"Regulation A+ is the great gift of the Great Recession," said Ron Miller, the chief executive of StartEngine, and a serial entrepreneur himself. Regulation A+ was proposed as part of the JOBS Act, in a provision called Title IV. 
In October, the SEC took things a step further, approving new regulations under Title III of the JOBS Act, which will let unaccredited investors purchase shares in companies that want to raise even smaller amounts of up to $1 million per year. Those changes are slated to go into effect in May, following a public review.
Meanwhile, Elio has bucked the recently sagging stock market. The company priced its shares at $12, and saw a first-day pop of nearly 17 percent. Its shares were trading at $16.50 by midday on Thursday.
The extra liquidity should help Elio fulfill its big plans to sell its cars, which are slated for delivery in late 2016, according to a company spokesman. The cars have an affordable price tag of $6,800 and, the company says, extreme fuel efficiency of 84 miles per gallon. Those features conceivably could give manufacturers of more expensive electric cars--including Tesla, whose lowest-priced vehicle currently costs about $70,000--some new competition.
The low price will certainly be appealing to many consumers, particularly those who are less upmarket than the typical Tesla buyer, says James Gillette, an independent automobile industry analyst in Grand Rapids, Michigan. Still, he says, "I am skeptical [Elio] can make money doing this."
Elio says it has preorders for 50,000 cars, which it plans to build in a 4-million-square-foot facility in Shreveport, Louisiana. Once those are filled, it expects to distribute its vehicles within 24 hours of receiving an order through a network of 120 bricks-and-mortar showrooms in strip malls, which it is still assembling.
"This is just the tip of the iceberg," Elio said. "It marks a fundamental shift in our economy, and for the small businesses that drive our economy and jobs growth."
Source: INC

Tuesday, 17 May 2016

How Entrepreneurs Could Survive A Venture Capital Slowdown

There is widespread worry about what a slowdown in venture capital investment might mean for entrepreneurial companies. The National Venture Capital Association (NVCA) data seem to support the teeth gnashing, at first glance. Funding for entrepreneurial hubs in San Francisco and San Jose was down compared to 2014, and funding in New York, Los Angeles, Boston and Washington D.C. all lagged the national year-over-year rate of growth (19%).
While these areas account for the lion’s share of venture funding invested each year, they don’t tell a complete story of growth. Emerging entrepreneurial hubs in Miami (+37%), Pittsburgh (+20%), Portland, Oregon (+28%), and Raleigh (+43%) all bested the 19% national growth rate for funding.
What’s more, venture funding is only a piece of the overall funding picture. My organization, theCouncil for Entrepreneurial Development (CED), based in the Research Triangle region, released its Innovators Report last week. This report, which tracks venture funding but also investments from corporate strategics, angels, growth equity, family offices and other accredited investors showed that North Carolina entrepreneurial companies raised $1.2 billion in equity funding last year. The NVCA data, which only tracks venture capital, showed North Carolina companies raising $675 million.
So where did the other half of that $1.2 billion come from?
CED’s findings suggest that in emerging tech and life science hubs like the Research Triangle, a more decentralized funding model involving individual investors, angel funds, family offices, corporate strategic partners, international investors, and regional VCs (who often have angels and family offices as limited partners) are forming flexible partnerships to back promising companies at attractive valuations, then help advance their progress through to an exit.
Here are a couple of examples of how both large and small deals came together in the Research Triangle:
Humacyte, a Durham, NC-based regenerative medicine platform company aimed at improving outcomes in vascular surgery, raised its initial $63 million from a single angel investor. As the company prepared for its phase 3 clinical trial last year, it weighed the possibility of going public. However, the management team, which includes a seasoned entrepreneur and former executive from the pharmaceutical industry, thought they might pursue a different path to raise capital that would give them more time to execute their business strategy. Following introductions in Asia, arranged by their initial angel investor, the company had conversations with 32 family offices, of which 27 ultimately signed on to fund additional research and product development. The total? $150 million, none of it from venture capital. The company now has enough money on hand to launch its first product in 2019.

Monday, 16 May 2016

When capital prefers venture over public markets


Market movements in the technology sector — particularly in SaaS tech companies — are causing a stir among investors. It’s always a challenge to estimate valuation ranges for publicly traded companies such as LinkedIn, Salesforce and Workday because these calculations require assumptions of growth. Twitter is another beast. Some people get obsessed about enterprise value; others focus on the gross margins or multiples of R&D spendings of these companies in an effort to come up with a reasonable explanation of what’s happening.
Investors are trying to draw parallels between these publicly traded companies and private venture-funded companies, but a number of differences exist between these two types of investment opportunities (or “asset classes,” as we refer to them in fund lingo). Let’s review some major differences between investing in stocks versus venture capital.

Publicly Traded CompaniesPrivate Venture- Funded Companies
Investment horizonOpen3 to 7 years
Deal flowAlwaysSequential
Access to dealsOpenDifficult
LeverageYesNo
RecycleYesLimited
DerivativesYesNo
HedgingYesNo
Correlation (return)YesNo
Return distributionNormalLognormal
Impact of investmentLimitedSignificant
Value movementsFluidStepwise

When we invest in private companies, the capital we infuse makes a big difference for the company — or at least it should. After a seed round, a startup becomes a bona fide company. After Series A, it becomes a contender. In public markets, with the exception of activism, equity trades make no difference for the company’s activities and margins.
So if a market correction does take place and the stock plummets, the investor loses value significantly — and that’s value the company did not earn operationally to begin with. In venture investing, every dollar invested should make the company better.
So if I were to put my money to use, why would I invest in stocks just to be at the mercy ofMr. Market? Private equity and sovereign wealth funds agree with this notion (that’s why we saw more unicorns last year).
In public markets, you can buy and sell equities and their derivatives at any time. In the venture capital world, we don’t have that luxury. We buy into a company at some point, and we must exit at another point. The exit generates either a profit or a partial or full loss. But within the confines of a fund, we want to keep the invest-to-exit period as short as possible, regardless of whether we profit or not. If we profit, we boost our IRR.
If we lose, we cut our losses quickly and move on. We don’t hold long positions in portfolio companies due to our fund mandates. And because the deals inside a venture capital fund are finite, a fund itself must be finite — and it is.
Deals in venture come sequentially and often in bursts, and a deal today will not be available tomorrow (unlike the public markets where one can buy and sell any security, any time). Deal flow and access to deals are vital for VC firms.
So, at any point, the challenge in venture capital is to choose the most favorable deal in the current set of deals in the pipeline, which will soon change. And choose we must. We’re constantly running out of time inside the fund, because we have a set investment period. Therefore, another problem emerges: How many deals should we invest in, and how big should the checks be?
One shortcut is to invest in as many of them as possible, which would create high visibility in the marketplace, but the check sizes will be small, and the returns probably won’t move the needle. Another solution is to invest in x number of companies per partner, which is even more arbitrary. It’s actually a difficult stochastic problem, and understanding return distributions, the nature of the deal flow, the overall size of the fund and the investment horizon are some of the parameters that would go into solving it.
If we invest in stocks, we can buy derivatives contracts to hedge our bets. Those are like insurance for which we pay a premium, and we are covered if the market moves against the direction of our bet. We can do this on both the long and short side. We can’t really do it for our VC bets, other than, perhaps, shorting the Russell 2000 index. So if you make a bet, you’re stuck with it.
In VC, there’s no leverage — but that’s a good thing. We invest only if we have capital in the fund. Therefore, our losses are capped at the investment level. One wrong bet in a leveraged scenario in the public markets can wipe out a fund several times over. Public market stocks are correlated to one another because of the existence of their historic returns. We don’t have this situation in VC, so Markowitz won’t apply, which makes portfolio formation much more complex.
Meanwhile, the path to liquidation has changed for VC. Before, the path to liquidity was to go public or sell to a larger company. Now, it is via private sales to sovereign wealth funds (SWF) or private equity. Institutional funds have built tremendous amounts of capital that are sitting on the sidelines. There has been a surge in the number of “family office” establishments (mainly in the last two years).
Capital is being funneled to a number of new investment vehicles that have a high level of thirst for advanced, and often exotic, investment products. The most recent sale of Lyft shares to Prince Al-Waleed Bin Talal is just one example. (The value of Prince Bin Talal’s 34.9 million Twitter shares has shrunk by about $500 million since last October, when he upped his long position). Capital is moving around investment vehicles in different ways than before; right now, it is liking venture capital.
Is venture capital immune to macroeconomic events such as fluctuations in GDP, inflation or unemployment rates? Of course not. A sizeable decline at the institutional level will necessitate portfolio rebalancing. When that happens, the influx of capital into the venture capital industry typically declines, thereby causing investment activity to drop.
However, VC-funded firms are founded on the premise that they will disrupt existing markets by introducing innovative products and services, which depends less on capital and more on talent. So a correction should actually lift venture returns in the long run, particularly if it hits certain sub-verticals like SaaS. It would then be easier for newcomers to recruit talent away from incumbents.
These corrective declines in the stock market work to the benefit of venture-funded firms and the VC industry, as long as they are not catastrophic. Capital is moving in all sorts of directions right now (other than the stock market). Let’s just hope that more of it finds its way into venture capital.