What Is a Junior Capital Pool (JCP)?
Let me tell you directly: a junior capital pool (JCP) is a corporate setup that lets early-stage startups sell shares before they've even set up a real business line. This is something invented in Canada, and it's only allowed there.
You might hear it called a capital pool company (CPC) too.
Essentially, the JCP is a shell corporation—it's got no assets except cash, and it hasn't started any operations. The shares they issue could be seen more like stock options, since their real value gets figured out later.
Key Takeaways
A junior capital pool, or JCP, is a fresh corporate entity that can raise money by issuing shares even before it starts operating.
It's only allowed in Canada and trades solely on the Toronto Stock Exchange.
This structure came about in response to the 1980s boom in oil and gas exploration.
Understanding a Junior Capital Pool (JCP)
This type of startup financing started in Alberta, Canada, back in the late 1980s, mainly to help startups in the growing oil and gas sector.
Over the years, it's evolved into what's now more commonly called the capital pool company (CPC). This has become a way for new private companies to raise funds and go public.
The system is run and regulated by the TMX Group in Canada. These companies trade on the TSX Exchange.
A capital pool company has experienced directors and some capital, but no ongoing operations when it does its initial public offering (IPO). The directors usually aim to buy an emerging company. Once that's done, the acquired company gets the capital and the public listing from the CPC.
The goal here is to make it straightforward for early-stage companies to get capital. With just $100,000 minimum from founders, the JCP can list on the exchange, gain public exposure, and pull in more money to get started.
Since it began, the program has seen about 2,600 capital pool companies listed, raising around $75 billion Canadian.
Example of a Junior Capital Pool (JCP)
Suppose you're starting a company that's found a new oil reserve and plans to explore and extract from it. Your company hasn't sold any oil yet or even begun drilling.
You set it up as a JCP, so you and the other founders invest some of your own money. Then you list it publicly on the Canadian exchange.
Keep in mind, this is still just in planning. With no proven revenue, capital pool companies are typically very risky investments.
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