It’s early November 2022, and sentiment toward TSX Venture-listed issuers may be the poorest of my 15-year career in the industry. TMX Group recently reported that financings raised from Venture-listed companies in September totalled roughly CAD$255 million — a far cry from the nearly CAD$1 billion monthly average for 2021.
Long and short, raising venture capital in Canada isn't easy. Yet, despite being in a uniquely bearish and challenging economic time, publicly traded companies seeking venture capital are returning to the same playbook when communicating with shareholders…
Often, a publicly traded junior will announce they are raising capital, and immediately, their stock suffers, sometimes overwhelming selling pressure. It causes many venture capital-seeking publicly traded companies to re-price their financings — the last thing any CEO wants. Poor shareholder communication plays a role in creating this dilemma.
Too often, these companies seeking venture capital will announce the financing, provide the basic information and terms, and proceed to conduct the raise on best efforts. That’s not good enough in this current environment. Shareholders are jittery. They need reassurance and strategic understanding. They need to understand that, although this financing is dilutive to their position, it’s for good reason and to potentially help propel the company’s valuation higher in the future (after this economic storm passes).
World-Class Communication is Needed Now More Than Ever
When a publicly-traded venture announces it intends to complete a financing, it must thoroughly explain the WHY. The shareholders are owed that.
It’s not enough to say this raise is for business development and general working capital. What is a shareholder supposed to think of that? Too boilerplate. We are in extenuating circumstances. Intelligent and thoughtful communication is required to succeed. Publicly traded companies need to be world-class communicators.
It would be refreshing and even inspiring as a shareholder to read a financing announcement that explained, in a professional way:
“Although no one likes to see our share price where it currently trades, we are raising this capital to pursue the business strategies which we believe give the company the best opportunity at commercial success in the fastest timeline. While we intend to protect our capital structure and minimize dilution, we are a venture and have not yet reached profitability. To grow our market capitalization over the long-term, we need to hit the below milestones:
1. Milestone 1
2. Milestone 2
3. Milestone 3
4. Milestone 4
Completing this equity financing will provide us with the opportunity to quickly pursue Milestones 2 and 3 within six months of closing…”
You get the idea. A detailed “Here is why we are raising the capital” would go a long way in shareholder retention during these sometimes tense days of trying to close a financing in a bear market.
To better shareholder communication,
Aaron
