Public vs Private Funding in Canada

Speaker 0: how does a regulatory framework differ from raising capital privately versus publicly in canada? yeah. i think that's a really great question, and it sort of summarizes an important concept for people to be aware of. when you're raising capital publicly, i'll start with that sort of first. when you're raising capital publicly, not only are you going to the market the first time with your ipo when you sort of approach the public markets and you're selling shares for the first time. but, also, because the markets are public, you need to be providing information and ongoing reporting to the market and to the regulators so that a secondary market can exist. so just quick definition. a primary market is when you are the creator of a good or service, and you're selling it directly to a customer. so i make hats. craig is buying the hats from me. a secondary market is when people are buying or selling goods that have already been created by somebody else. so craig has fifteen hats. they're vintage, really nice hats. he then wants to go out and sell his vintage hats. he didn't make them. he's owned them for a while, but he's taken good care of them. he wants to sell them or like jordans or whatever it is. when he's selling that, that's now a secondary market. so when you look at the public stock exchange, the majority of transactions taking place there are actually secondary transactions. it's investor number one selling to investor number two. the company is only selling shares to the general public a few times. they'll have their primary issuance when they actually go and do their ipo and launch on the market the first time, and they may have some subsequent, you know, secondary issuances or other times when they have a new issuance to the market, but it's not as frequent. so the responsibility of the regulators and of public companies is really just ongoing reporting and meeting those requirements. so audited financial statements once a year, accountant prepared internal statements provided quarterly, being available for investor calls, all this sort of stuff you're doing on an ongoing basis so that you can ensure all market participants have equal and fair access to information about your business so that the market can buy and sell in, hopefully, an efficient way. now private companies are doing things quite differently. right? if we assume that the public company setup is the, quote, unquote, norm, private companies do things a bit differently from the norm. private company transactions are almost always primary. so it's almost always the company selling shares to investors, not investors selling shares with each other. also, there isn't ongoing reporting that's structurally required by the regulator. there's no secondary market. and so the regulator is more focused on ensuring that people in the private space are not engaging in fraud and are doing things in a way where as they start to get bigger, as they start to raise more and more capital, the required reporting gets larger and larger. so initially, when you're raising smaller amounts from a few people, there isn't that much or there is no reporting that you have to do. the main thing the regulators are concerned about is ensuring that when you do this private transaction, both people engaged in the private transaction are protected. so you, as the company, are making sure that people who are investing in you are either accredited or friends and family so that they have the right skills to judge whether the investment in you is right for them. and then, of course, you have them sign the risk disclosure so they know, hey. this is a private investment, high risk. i know what i'm getting into type thing. as you start looking to go to investors that you know less and less well, so you wanna start marketing to a broader network or you wanna do crowdfunding or do an offering memorandum, you wanna go further and further field, the regulator slowly starts increasing the requirements of the work that you have to do to, one, provide information to potential investors, but, two, to make sure that investors are understanding and aware of the risks that are involved. as you start raising more and more capital, they also want you to start using intermediaries who can help protect the funds and ensure that they're flowing properly and there's no fraud involved. and that's sort of where exempt market dealers start coming into play, which is what my business is. so we are licensed to sort of act like very miniature broker dealers sort of exchanges in the private market to help the flow of funds from private investors to private companies so that people can know they're doing it in a safe and sort of compliant way. and then eventually, you get big enough that, you know, it might make more sense just to go public. but the way the regulators operate is a little bit different public to private. with private, they're more focused on making sure that people are suitable, and they know the risks involved in making the investment, and there's nothing fraudulent there. whereas in the public space, it's more about ongoing disclosure and making sure all the information is being evenly distributed on an ongoing basis to investors.