Friday, March 30, 2007

Public Market Exits: Is the Door Closing?

Just before Christmas the Ontario Securities Commission slipped out a bulletin proposing changes to several rules. Nestled in the middle of the bulletin was an interesting comment that could spell doom for the junior offerings being used by VCs for some of their long in the tooth investments, and have a chilling effect on acquisitions by public companies. Listen up:

The OSC is proposing that "substantial beneficiaries" of an offering must certify any prospectus filing. In other words, the OSC believes that persons who receive substantial benefits from an offering should be liable for any misrepresentation in a prospectus.

As a lawyer, my eyes grow starry at the prospect. If this rule proceeds, major shareholders, among others, will need to do extensive due diligence for each prospectus a company issues in order to protect themselves. Think of the legal fees! I am picturing mahogany flooring at the summer home the OSC will help me buy. The indemnity agreements that companies pass out to VCs will have to be re-thought. And what about the insurance costs for VCs, given this new liability?

With the potential ramifications, I was shocked to note that only a handful of comments have been received by the OSC, and none of them are from VCs. What is the thinking behind this?

Founders, this impacts you as well. Track this development carefully. The guru in the start up world on securities matters affecing start ups is Naomi Morisawa de Koven. I hope she's going to blog on this matter. Naomi will also be part of the team presenting at our breakfast seminar April 11; come on down and see what she has to say.

Links to this post:

Create a Link

<< Home