Exempt Market Dealers and the Brokered Financing
Exempt Market Dealers and the Brokered Financing
Woodbridge corporate and securities lawyer, Joseph Chiummiento, of Core Lawyers, provides tips on preparing for a raise of capital with the help of a “broker”.
Understanding what to expect when raising funds through the help of an Exempt Market Dealer or “broker” as they are known in the finance world can make the process run allot smoother.
What is an exempt market dealer or broker?
EMDs often help with important capital or related transactions for established, early stage and pre-public companies, and are registered with securities regulators (ie. Ontario Securities Commission, etc…) on a province by province basis in Canada.
The Private Capital Markets Association of Canada defines Exempt Market Dealers (EMDs) as “fully registered securities dealers who engage in the business of trading in prospectus exempt securities, or any securities to qualified exempt market clients a registered company or individual” (see: http://www.pcmacanada.com/?page=ESM).
What can you expect from an exempt market dealer?
What to expect if a broker is helping me raise money?
In some situations, an EMD can assist companies that are looking to raise money by selling shares to qualified accredited investors. If an EMD is engaged you or your company can expect some of the following:
- An engagement letter or agreement will be signed requesting you to agreeing on terms such as price per share, indemnification of the EMD, agreeing to due diligence, reimbursement of all expenses (including legal), rights of first refusal to assist you on future financing and compensation of the brokers in cash, shares, warrants or a combination those.
- A negotiation of an “Agency” agreement which will be a much more detailed version of the engagement agreement and set out further indemnities, rights and promises of the parties – including the authorizing of the EMD to act as your agent.
- A due diligence document review in which the EMDs lawyers will want to review your corporate minute book, your stock options, your share certificates, every agreement signed by the company, review patents, discuss every business relationship surrounding the company and its business plan.
- A due diligence phone call to discuss all of the holes in the documents or the document paper-trail to determine all of the “risk factors” the business is facing and to ask you why you chose not to deal with these risk factors.
How to close your financing quickly
From our experience, a busy CEO and corporate team are typically driven by similar priorities which include closing a capital raise as fast as possible and spending the least amount of money to do so (time and money). While EMDs also care above saving and making money their underlying priority is also focused on how this deal will impact their reputation amongst their peers (ie. now, 6 months from now, 12 months from now and 18 months from now).
The best way to balance these priorities and close quickly is to ensure you build and reinforce the credibility of your EMD in three simple ways:
- Have a complete due diligence binder or electronic documents ready – no dribs and drabs as providing things piecemeal to lawyers for the EMD hurts the credibility for both and causes unnecessary delays.
- Show up 5 to 10 minutes early for each appointment and send a thank you email the morning after the meetings to all involved.
- After closing your financing ensure you provide an update to anyone you met in your meetings within three months.
Going forward, the above will help ensure you have created a raving fan in your EMD and a good reputation amongst those in the EMD world will carry with you as your company grows.
To discuss your situation you can contact me at
905-851-8180, ext. 2
joseph@corelawyers.ca