The Cross-Border Biotech Blog

Biotechnology, Health and Business in Canada, the United States and Worldwide

Valuation and Other Biotech Mysteries – Part 9: Retail Investors

[Ed. This is the ninth part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

In addition to the private institutional VCs, there are the retail investors who are willing to take similar risks with both private and public companies. I will focus on Canadian retail investors in this post.

Retail investors who invest in private companies usually do so through a fund which offers tax incentives. I have discussed flow-through funds, which are not currently available to biotech companies, in a previous series of posts. Historically, the largest investment vehicle has been the LSIFs or labour-sponsored investment funds, which are now being referred to as RVC funds or retail venture capital funds. There are a number of fund managers and the tax incentives vary by province.

For illustrative purposes only, I looked at the 2010 Annual Report (pdf) of Working Opportunity Fund (B.C.-focused) managed by GrowthWorks Capital Ltd. The report stated that raising venture capital is expected to remain difficult and that overall fundraising remains at historical lows. The financial statements show that redemptions are much larger than new unit purchases for their venture series shares. The venture series portion of the fund invested $4.0 million in the life sciences sector in 2010: $2.5 million in two companies new to the portfolio and $1.3 million in a follow-on investment. The fund also partially divested its investments in two pharmaceutical companies.

Assuming a similar redemption versus new unit purchase situation for other RVC funds in Canada, they are unlikely to be a significant source of funding for new or existing private biotech companies in Canada.

Retail investing in higher risk public companies has been referred to as public venture capital. In Canada, these companies are usually listed on the TSX Venture exchange. Many of these companies burn cash on exploration in the natural resources sectors or R&D and product development in the healthcare and technology sectors.

The following information on the TSX Venture exchange is available from the TMX web site.

2010 Statistics             

  • New issuers listed                       337
  • New equity financing              $9.8 billion      
  • Market cap listed issuers    $71.5 billion    

Issuers by Sector (year end 2010)

  • Mining                         54%
  • Oil & Gas                     13%
  • Life Sciences               3%

The latter data show one of the problems faced by public healthcare companies in Canada – they are competing with an overwhelming number of mining and oil & gas companies for investor face-time and funds.

Public venture capital is probably the only source of funding for companies at early stages of development and with low market caps which are unlikely to attract institutional interest. I co-author a Canadian healthcare sector quarterly review, published by The Equicom Group, which tracks financings by public Canadian healthcare companies. The following information is for equity and convertible debt financings in the first 6 months of 2011.

Public Canadian Healthcare Financings

($ million)





All Companies




Development Stage Companies




     Financings > $10 million each




Number of financings




Financing total




     Financings < $10 million each




Number of financings




Financing total




The $70.1 million raised by development stage companies, where each financing is less than $10 million, represents a total of 40 financings – an average of $1.75 million per financing. For a company developing a novel drug, this might cover the G&A expenses of a virtual company – and only allows survival. For companies which might have a small-market approved device or diagnostic and where EBITDA is almost positive, this might be enough funding to see the company to profitability.

Public venture capital also provides liquidity between events. Most institutional investors do not buy small cap companies in the market. They will wait for financings where they will be able to buy shares at a discount to the market and usually get some additional warrant coverage. As a result, the trading between events is predominantly retail.

In summary, retail investors who are part of the healthcare public venture capital space provide useful funding for the smaller companies in the sector and provide liquidity between events for most development stage companies.

We have now completed a quick overview of the types of capital market funding available for Canadian healthcare companies. In the next part of this series, we will discuss the other major funding source – industry partners.

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