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The TSX Venture Exchange is a Canadian secondary stock exchange. It covers stock from companies that do not yet qualify for the main stock exchange. Although its name derives from Toronto, the TSX Venture Exchange is based in Calgary.
The idea of TSX Venture Exchange is to aid both growing companies and investors. Companies can use the exchange to raise venture capital to help grow their business. Investors can use the exchange to invest in companies with the knowledge that there is some degree of regulation over those companies. While it is still perfectly possible for a company on the exchange to go bankrupt, being listed on the exchange gives a degree of reassurance to investors.
One of the distinctive features of TSX Venture Exchange is that companies wanting to use it to raise funding do not have to go through a traditional Initial Public Offering, though that option is open to them. They can instead use a process known as a capital pool company. This is a shell company set up by investors and listed on the exchange. The shell company then has two years to find a small business to buy out, which will then be covered by the listing.
There are several potential benefits to this process. The investors may wind up getting a much better deal for their money than buying shares in an IPO. The business owners will not have to worry about the logistics of the IPO process and can simply agree on a sale price. They will also not have to pay for a guarantor to cover the risk in an IPO that not all of the shares will find a buyer.
There is a special process for companies listed on TSX Venture Exchange that want to "graduate" to the main Toronto Stock Exchange. In the first 10 years of TSX Venture Exchange, 451 companies moved to the Toronto Stock Exchange. As part of the process, the $10,000 application fee normally paid by companies wanting to be listed is waived, though once approved, the company will still need to pay the listing fee itself. The amount of paperwork for the listing process is reduced as some documentation from the Venture Exchange is accessible by Toronto Stock Exchange. Applicants for graduation will often be exempted from sponsorship fees that are normally paid to a third party to vet and approve the business before it is listed.