Intro to CPC’s - Part I: Basics

We’ve all been hearing a lot about “CPCs,” emanating out of Canada. CPC stands for capital pool company. Essentially the program permits shell companies to go public through an IPO, raise money and then hope to conclude an acquisition through reverse merger. The TSX Venture Exchange established the program, which is not available in all Canadian provinces (but is used in British Columbia, where a great deal of activity has emanated from). The program was designed for venture-type financing for early stage companies looking for a “two-step” approach to a public stock. Each CPC is limited to raising $2 million from seed rounds, private placements and its IPO.

So these are not like SPACs in the US, which operate under an exemption from SEC limitations on IPOs of shell companies, because the company must raise at least $5 million to qualify for the exemption. As we know, most SPACs (when they were popular) raised more than $30 million and a good number raised well over $100 million. And clearly SPACs were intended to combine with successful, well-established companies, not venture stage. There are some similarities to SPACs, however. For example, the CPC must find a deal within two years or the TSX can suspend trading or delist the shares. But there are a number of interesting differences between the CPC program and typical SPACs. We will get into this in part II of this series.

The reverse merger is known as a “qualifying transaction” and has to meet certain TSX requirements.  Given the various protections the exchange has provided, this seems like quite an interesting technique indeed. More specifics to come.

Right up front: I’m not an expert in this, and the information here results from research I have done on the program. I am hoping to soon have some Canadian friends provide me with more perspective from “out in the field” where these are happening. In the meantime, I’ll provide my humble armchair point of view of this emerging program.

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