This week on the podcast Liam is joined by Dave Patterson from Canadian crowdfunding group Vested.ca to discuss the upsides for small miners looking to raise money and go public via crowdfunding as well as celebrating their recent success listing KAL minerals to the CSE. You can listen on our Soundcloud Channel, using the link below, or you can read the transcript below over a fresh coffee this morning…
Liam Hardy: Good morning everybody, once again you’re joining us in London, on the back of the 121 conference, which was fantastic, over 130 companies represented, really serious meetings and we had a lot of fun as well, the Renewable metals conference was this Thursday, renewable metals connect, which brought together a lot of battery technology groups, not so much on the investment side, but lots of discussion about technology resource supply and sustainability.
We were also the mining investment meeting where a lot of discussion was held on small cap fund raising. So without further ado, today we’re joined by Dave Patterson from a Canadian group Vested, how are you today Dave?
Dave Patterson: Liam. I’m very good, thank you very much for having me on.
Liam Hardy: So for many people vested might be a completely new name, as far as I know, you’re a crowdfunding group based in British, Columbia and you’re looking at alternative ways for mining companies to raise money, is that correct?
Dave Patterson: Good question, in 2015, the BC government changed the rules, many people have been talking about crowdfunding and they’ve been giving money for donations and things like that, but no one had ever done equity crowdfunding.
So the BC government, they came up with a set of rules that made it very easy for start-up companies, private issuers, to go and approach people that weren’t friends and family or close business associates to be able to fund their startup adventures and we saw this as an opportunity.
I’d been in the capital markets for about thirty-five years, been involved in raising hundreds of millions of dollars for mining and oil and gas over my career, and in my retirement, I saw this as an excellent opportunity for me to be able to give what I think is my experience in fundraising to people that were just starting out and trying to get them the ability to be able to raise money for themselves to get on to their track, whether it be in mining or oil and gas and that was where our first focus was.
Liam Hardy: So I’m a geologist Dave, so my knowledge of the finance markets is not quite the same as yours, maybe you could explain to me and some of our listeners, what the difference between this and regular fundraising is on the markets in mining?
Dave Patterson: Okay. Let’s start with the traditional fundraising:
Geologist has a great idea, likes the geology of a certain valley, gets a couple of friends together, tells him what he thinks and what is the model that would be proposing for a deposit in this valley.
Amongst themselves, they raise a few dollars, we call that founders round, with the founders round, he buys maps and takes a look at the gross geology and takes it up a step and can prove that maybe there might be something there, if we spend a little more money.
The geologist then gets another round, we’ll call it a seed round financing, again more friends, relatives, close business associates, maybe some accredited investors thrown in to raise them a little more money.
He likes what he sees, he and his buddies go to a stockbroker, who introduces them to an investment banker and they say we really like what we found in this valley, we like to soil samples, stream sediments, we like the rock core that we’ve managed to cut away from this outcrop and so all of this adds up to: we think we got something good.
The investment banker says okay, go do a 43-1o1, come back with that and see me, they go away, they spend their money to make sure that they have a 43-101, which is the geological report giving the assessment of the topology, well I don’t have to explain this to you, but it is at our reporting Canada of which all geology and for exploration and mining companies hangs around.
They then say okay, this looks pretty good, you’ve got a nice report, you spent some money, it looks like this might have legs, we can raise you two or three hundred thousand dollars.
So now they go to their broker and the broker says okay, I can get two hundred names for you, you’re going to have to pay me upfront, you’re going to have to do an audit, you’re going to have to get a lawyer and you’re going to have to pay me and my lawyer $10,000 each, just to look at what you have.
So you’re still pretty excited about this, you okay guys, you know this is our one opportunity to get this thing, get it public and start raising some serious money, by the end of the day, they wanted to raise $300,000 to do the next work program and what they ended up with was not about well maybe $225,000, probably less.
Just enough for them to get their work program done and survive for a year…
I’ve done a stylized description of a very grassroots company coming to market, it’s very difficult and it’s very expensive and the people that you have involved at the very beginning normally don’t have the skill sets to take it all the way through to get public on a TSX or the CSE.
So now we try crowdfunding:
You’ve got the same group of geologists, same friends, same ‘hey, I got an idea’.
They go out, they spend their money, they get everything in order that they think to do a 43-101, because I really like how this property is progressing, but they think instead of going to a broker and getting 200 names, why don’t we do this ‘crowdfunding’, we know we have friends and friends of friends and friends of family and friends and family members twice, removed, let’s go approach them through this new exemption that BC allows, which is this crowdfunding exemption.
So I can raise a hundred dollars to $1500 per person and I can raise up to a maximum of $250,000. So off I go that’s being one of the crowdfunding portals that is out there, we work with them to do an offering document, we then post that offering document on our website, it allows them to use their social media footprint.
So, in the case of these geologists, they went got their friends and family etc. but they step farther away and got friends of friends and friends of family to also come on to the portal and buy stock between a $100 and $1500.
So now you’ve finished that process, you have c.200 shareholders, they’ve only spent money on their exploration, a small amount on the commission that they would pay Vested, which is 5% of the money they raise and they are ready to do a much larger financing and, because of the results they had that got them here, they’re able to approach accredited investors, these people that make more than $200,000 a year for the last couple of years or have liquid assets of more than $1,000,000 and these people, doesn’t matter who they are, generally where they’re from, they can invest in a startup company like this, because they are accredited investors and they have the skill set to be able to evaluate risk.
So now these people fund the company for the next stage and the total four to getting there is just a little bit that they have paid vested, the amount of money they spent on exploration.
When you compare it to what it took to get to the same stage to go public, you’re looking at about £25,000 to $100,000.
So now is time to go public, now you want to be able to go out there, tell more people about what you found, you want to raise more money and so you prepare what’s called a ‘non-offering prospectus’, so you’re not looking to raise money with this prospectus.
Your lawyer and your accountant work with you to prepare it, you go to the BC Commission, you say this this is it, this is us and we want to trade on the Canadian Securities Exchange. We like the Canadian securities exchange because you know gives an easy access to the capital markets, we need to raise more money and therefore that you do a listing application on the CSE.
The CSC reviews the non-offering prospectus receipted by the BC Securities Commission and then call you for trade.
Probably, you’ve saved 2/3 in dilution, expenses, commissions etc. and it’s doing the work that is difficult to do for everyone in the system, it’s finding the small investor to give you the numbers you need to go public.
Liam Hardy: looking at some of the companies you’re raising for now, you’ve got renewable energy technology companies, marijuana technology companies, as well as mining companies, how did that variety come about?
Dave Patterson: It’s funny how things go because given my business partner and I come from a mining and oil and gas background, we thought that we would be offering more of this service to a network that we had, people that wanted to take junior exploration projects and go through the process and get them public.
What we found though is that there’s a number of people that want to take their marijuana companies this way and they want to be able to get them public without needing to buy… I don’t know if you understand what the term of ‘shell’ or ‘vehicle’ is…?
A ‘shell’ or ‘vehicle’ on the CSE or the TSX would be a company that has say been in the exploration business. The you know management etc. has pretty much exhausted every avenue of raising money for their company and then they need to be repurposed. People are coming in and offering to take these companies and merge marijuana deals into them.
Yeah and you know there’s some big names that have happened recently in that space and I really can’t think of it, just off the top of my head but I know that, you know you hear one that just went public the other day with lots of fanfare, they raised half a billion dollars and they did it by way of acquiring a shell.
Well there’s other avenues for these companies to go public on the CSE and let’s say a marijuana company out of the United States, they’re looking at the only way that they can get to the capital markets, that they can raise significant funds to grow their business is in Canada.
I’m only going to speak of Canada, maybe there’s Europe but maybe there’s South America but only Canada is what I’m thinking of.
So they would approach someone and say
‘okay, I want to take my company that has say ten dispensaries in California, I want to take my company and I want to be public in Canada. How do I do it?’
and pretty much, they have to find a shell on the TSX or the CSE, that is in another business that wants to do a reverse takeover and allow this marijuana company to then operate as the new company on the exchange and that’s brought a lot of money into Canada recently as these companies come up and want to raise more and more money.
Those are starting to become rare, because there has been so many coming up. What we’re seeing is people saying we would like to create a marijuana company from scratch that has the opportunity here to grow in Canada and use the capital markets in Canada to raise money but also the capital markets in Canada to do acquisitions worldwide.
So now we’ve taken it and flipped the table, where now we have rather than the American company being the predator, now you have the Canadian company being the predator and the prey being those companies that want to come to Canada.
I don’t know if that makes a lot of sense to your listeners, you know you have to have a certain amount of understanding of our capital markets up here, but more of how things work of companies that want to be repurposed and that when a company has been around for five, ten years, they had a thesis that they wanted to go do mining in some little valley and they spent their money and found out that in fact there was not enough ore to build a mine, now they have to think about what to do next.
That’s what it ends up happening is that these things can be repurposed into something else and whether it’s a biotech or marijuana or oil and gas company or a bigger mining company, that’s I guess what happens when companies like that reach a point where they cannot sustain themselves and continue to raise money for the projects they haven’t had. Sorry Liam, I know that was long-winded.
Liam Hardy: Not at all Dave, I think is great to take the time and go over these topics properly, like I said I’m a geologist and there’s a lot of people in the industry, in geology, in geoscience academia and the media side that probably don’t understand the markets as well as they should, so taking some time to go over them is brilliant.
Do you think, while there’s a lot of companies coming to the CSE via this route now, do you think this is going to be a quick launch and lots of people are going to start doing this or do you think it’ll be a bit of a slow burn?
Dave Patterson: It’s one of those funny things, it will happen slowly and then you will not believe how fast it will happen.
It’ll be ticking along and you know you’ll hear one or two maybe a month and then all of a sudden, the floodgates will open as we hit a tipping point and people on both sides of the border get, how to be able to create a pathway to go in public, and how this could be a much more efficient use of capital to go public.
Liam Hardy: And how about the competing markets with Canada, how about the AIM and the ASX, do you see a similar scope for a project like this there?
Dave Patterson: I have talked to people that consult in the markets in Europe and, our rules are slightly different and when I say slightly, a lot different. We couldn’t see a whole lot of ability to mesh the two systems.
British Columbia, I can’t speak more highly about how the BC Securities Commission put together the startup crowdfunding rules. They are trying to make it as easy as possible for a unsophisticated group to start a company and be able to finance that company and move it through the various stages, without hindering them with so much red tape, that they can’t move forward.
When I look at what it takes to take a company from scratch and go public, you have to pay, there’s professionals all the way that have to guide you because it has gotten so difficult to do with all the rules and regulations, the exemptions and things you can and cannot do, that to get there requires a lot of professional help.
In this case to get where you need to be, it doesn’t require a lot of professional help. You do need a lawyer and you do need an accountant, but you don’t need them drafting 100 documents for you to go raise a few hundred thousand dollars, this is our document to raise a few $100,000, I think there’s maybe seven pages long.
Liam Hardy: So with the simplification of the paperwork, the application process and the lessening of human hours involved to come to market, do you think we might be a risk of lowering the quality and the caliber of companies that do make it to market on the whole?
Dave Patterson: Well, you’re talking about private companies and startups and the very nature of that is an unsophisticated company and so from our part we try and help ensure that they tick all the boxes.
We want to make sure who they are, what they are, that they’re thinking of how their project is going to be funded makes sense, you know from a marketer’s standpoint.
We can pass no judgment on the quality of their company etc. but we can look at their past, we can look at them and obviously, we do background checks etc. to make sure that the people that are coming through have clear backgrounds, let’s say because of course, we don’t want to let this be an avenue for people that are up to no good.
It’s my name on it, my livelihood and most important is I want to be able to pass on a legacy that doesn’t have stains all over from others.
Liam Hardy: So tell us about your first successful listing that actually went live just last month?
Dave Patterson: Our very first one that we did was [I used it as kind of to describe our process] was a company called KAL minerals and the now trades on the CSE and KAL started out just like that; a geologist with an idea who managed to convince a number of his friends to be able to fund a company and say okay, follow my thinking here and here’s what I want to do, they gave him… that wasn’t a lot of money but they gave him money to go do it. At each stage of the process, he’s come back and said okay, well this looks better and better and so as final.
He was able to raise I think it was $500,000 from accredited investors because the story was able to tell, was that you know I’ve taken this project with this group of people and we have, on the geology side, we think we’ve done very well.
Now they’ve built a company around him, with a CEO and a CFO and board of directors and their public and you know and I look forward to seeing the next press release that announces how well they’re doing on their work program and it all started with them coming through the portal is the very first one.
Liam Hardy: Yeah, I think KAL have got a lot of people rooting for them, they’ll be very good for the market as a whole to see one of these alternatively funded companies come through. It’ll either prick the regular routes into simplifying their services or encourage more smaller miners to get involved. So thank you very much for joining us today Dave, it’s been very interesting to chat.
Dave Patterson: Thank you, cheers.
Liam Hardy: So thank you everybody for joining us on this week’s mining our podcast. We’re going to be at Mines and Money at the business design Center in Islington, London this week, we’ve got a booth, feel free to drop by, ask us any questions about the podcast or if you’re interested any of the companies, we would be more than happy to put you in touch.
You can catch up with all of our live content from the conference on twitter @miningIRmedia, Instagram @miningIR and obviously via our website www.MiningIR.com
I’ve been Liam Hardy. Thank you very much for listening, I’m sure we will speak again.
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