When video game technology company Swarmio Media filed a prospectus last month to go public on the Canadian Securities Exchange, it bucked convention by tapping public markets at a much earlier stage than most companies.
Now, CEO Vijai Karthigesu says the move was spurred by a growing appetite for small-cap stocks from Canadian investors and a dearth of Series A venture capital funding.
Swarmio will list on the CSE via a reverse acquisition of a holdings company, in a deal that will net it $5 million in equity funding -- about the same amount as a typical Series A VC round.
“From our experience of raising funds in Canada, there's lots of abundance of seed funding and pre-Series A funding,” said Karthigesu in an interview. “And when it comes to Series B and Series C, there are companies who can write the $100 million cheque. But Series A capital, there is very little, almost none in Canada.”
“We are a Canadian company. And if we want to stay in Canada, instead of moving out, we have no other options.”
He added that Swarmio having customers in countries around the world and significant market traction, thanks to the pandemic, made the company better positioned to pursue a public listing than many businesses at the same stage of growth.
In 2020, Swarmio made $84,999 of revenue, up from just under $5,000 in 2019 -- about 1,700 percent year-on-year growth.
Karthigesu said the success of other young tech companies in raising money through public markets also made a CSE listing more appealing by demonstrating that it could be a viable path to faster growth.
He cited Toronto’s Enthusiast Gaming Holdings and newly minted Atlantic Canadian unicorn Metamaterial as examples of companies enjoying rapid expansion thanks to funding raised from public markets. Last week, Meta raised $198.1 million from a reverse listing on the Nasdaq, and this week the company said it expects to finish its commercial production facility early next year.
“No. 1, there's lots of capital available on the public market for early stage [companies],” he said. “No. 2, for the industry we are in, which is gaming and eSports with a global view... one of the ways of growing faster is acquisitions.
“Going public will give us the currency and capability to grow faster than private capital.”
Karthigesu said he chose to go public via a reverse listing because it is a quicker and less expensive process than a cumbersome and regulation-intensive initial public offering.
He said the amount of time it will take for the reverse acquisition to be completed is largely in the hands of the CSE, now that the prospectus has been filed, and he doesn’t know exactly when Swarmio will start trading.
The $5 million that Swarmio will net from the process has already been raised, however, with the private placement sale of shares in the holding company including retail investors, high-net-worth individuals and institutional investors.
The sales to retail investors were brokered by financial services firms that included Canaccord Genuity Group and Haywood Securities. And many of the high-net-worth investors bought in thanks to the efforts of Ray Sharma, founder of Toronto-based Extreme Venture Partners.
Once the deal closes, Karthigesu said the money will go towards funding further expansion into new markets, including by hiring more staff.
Already, Swarmio has hired 10 people this month, bringing its employee count to about 40. Some of the other forthcoming hires will be spread around the world, but key functions like financial management and software development will be centralized in Atlantic Canada.
“We will have a globally distributed operational force,” said Karthigesu. “Every country we go in, there will be a small team operating. So, it will be a mix of Canadian hires and also global hires.”