The decline of the $10 million IPO, and why it matters

The part about small caps being sold and not bought is particularly interesting to me.

Right now I'm working on a stealth project that will address the needs of small cap and private companies wishing to raise cash on equity. We've had amazing feedback from the small number of companies and investors already involved. Think Kickstarter except getting equity instead of cheap plastic trinkets. We'll also have the ability to get someone to call you who can speak knowledgeably to the details of the deal and can connect you with a licensed & regulated professional to handle the execution. $10 million IPOs are very common, look at an exchange like the TSX.V it's filled with small IPOs in the Resource sector. A large part of the logic behind the proposed TSX / LSE merger is to address exactly the concerns of the resource sector and have a single exchange which is dedicated to the resource sector.

We're going to rock the startup finance scene pretty hard. If you're looking to IPO think Canada, not California. Our financial institutions are as rock solid as the Canadian Shield.

http://www.theglobeandmail.com/news/national/toronto/globe-t...

HFT is much less common in Canada, and it's a perfect market to do a small IPO. In the last 20 years Canada has drastically changed it's tax code in relation to corporations. We also don't have Sarbox and other onerous requirements. I'm not an accountant but IIRC the small biz tax rate is something like 11%. A $10 million IPO is never going to make the front page of the NYT but they are definitely out there.

Back in the day, when a $10 million IPO was too big and you wanted to raise only a million or so one of the places you turned was to the Vancouver Stock Exchange. (It was also the place to lose your shirt or gain a fortune betting on penny stock mining firms).

It's changed hands and is now known as the Canadian Venture Exchange, and is still a great place for sub-$10 million IPO's. It's last IPO was for a mining firm who raised 5.75 million dollars selling shares at 50 cents a pop.

I think there is a couple of things going on here, though. Decimalization made stock market-making less profitable for Investment Banks. And the re-regulation of stock analysis prevents banks from using research analysts to tout stocks. By making it worth less to investment banks to invest in research, every customer has to invest more in research. Arguably this isn't too bad a problem - until it comes to smaller stocks, where the knowledge-base of the market is getting hollowed out - and liquidity dries up since no-one who is not in the stock has much incentive to do the initial research.

The same thing happened in High Yield Bonds. The NASD (FINRA) brought in reporting system for bond prices (TRACE) that made trading bonds inherently less profitable for the middle-men (though much more transparent for investors). That meant that there was less incentive for the middle-men to do research, causing researchers to leave to join hedge-funds. So the end-game is a very fragmented market, where if an investor wants to sell a bond, they don't have an audience that's had any consistent commentary on the situation from a 'neutral' middleman.

Hehe, forgive _my_ ignorance..these companies are doing pretty much what I was suggesting. I'm not that versed in the details of reasonably young companies.