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Business Exit Strategies1 – Canada Visa IN
Exit strategies for a Canadian startup company initial public offering (IPO), improved access to capital, enchased corporate image, incentives to management and employees, improved liquidity and exit strategies, loss of confidentiality, increased expenses, liability exposure, dilution of ownership, loss of control, logistics of IPO, sale merger, bankruptcy

Exit Strategies for a Canadian startup company

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Exit Strategies for Canadian Startup Business



DISCLAIMER The information provided here is of a general nature and may not apply to any specific or particular situation. It is not to be considered as a legal advice nor presumed to be indefinitely up to date.


The typical exits for startups include IPOs, mergers/acquisitions and bankruptcy. The IPO was especially popular during the height of the Internet and technology boom, the time when numerous relatively newly formed companies went public. Typically less than one startup in 1,000 ever goes public. Those with venture financing have a much better chance ?one in ten, yet sixty percent of venture funded startups go bankrupt.


1. The Initial Public Offering


IPO is a corporate transaction in which an issuer offers its shares (securities) to the public for the first time. In order to complete an IPO, a company must retain the services of underwriters, securities lawyers, accountants, and financial printers. Before choosing to go public, the owners of a private company should carefully weigh the benefits of a public offering against its burdens. Going public takes a considerable amount of time, effort, and money; therefore, only committed and well informed individuals should undertake it. In deciding whether to go public, a company should consider its long term business strategy and weigh current and future market conditions. A company should also evaluate the advantages and disadvantages of an IPO and consider alternatives. The IPO is only one of several ways for a company to raise capital. Also, once the registration process has started, private fund raising may be difficult if the market window closes. Once a company files to go public, that decision cannot be withdrawn without processing the request with the Ontario Securities Commission (OSC). Unlike a private company, a public company must comply with provincial securities laws, which, among other things, require financial disclosure to the OSC.

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2. Advantages of Going Public


Improved Access to Capital


Public companies generally have access to a wider array of financing options than private companies. The IPO itself should present a company with an opportunity to raise a large amount of cash at a lower cost than a company could through other available financing alternatives. Going public improves company's debt to equity ratio, enabling a company to borrow on better terms in the future. A public offering may result in a higher valuation of a company than a private transaction and in fewer restrictions on the company's operations after the offering is concluded.


A public offering results in an immediate increase in the net worth of the company, thereby facilitating future financings. If the company's stock performs well, the company may be able to obtain additional capital more easily through future public offerings or through private placements. A company can use cash raised in an IPO for any purpose permitted by its articles and properly disclosed in the IPO prospectus, including working capital, repayment of existing debt, marketing, research and development, or diversification of operations. A company that is interested in completing an acquisition may benefit from going public first. The company may use proceeds from the IPO to acquire another company for cash. In addition, publicly traded shares may be an attractive currency from the standpoint of an acquisition target.


Enchased Corporate Image


A company's new status as a publicly owned entity may give a company a competitive advantage over other companies in the same field by providing a company with greater visibility among and credibility with vendors and customers. Public companies benefit from increased attention from the investment community and media than nonpublic companies. Listing the shares of a company on a major securities exchange or on Nasdaq, an option that is only available to a public company, enhances a company's image and makes it easier for a company to raise additional capital in the future.

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