What is a Junior Capital Pool (JCP)?
A junior capital pool (JCP) is a corporate structure by which companies can issue shares to the public before actually establishing a line of business. The purpose of such a capital structure was to provide start-up companies with an easy way to raise capital. With a minimum investment of $ 100,000 from the founders, the small private equity firm could obtain a quote and exposure to the public markets, by providing them with the additional equity necessary for launch.
This new form of “seed” financing was first invented in Alberta, Canada, largely fueled by speculation in the province’s booming oil and gas industry. Since this capital structure is a legal as well as a financial concept, JCPs currently exist only in Canada on the TSX Venture Exchange in Toronto.
Understanding the Junior Capital Pool (JCP)
A capital pooling company (CPC) is an alternative way for private companies to raise funds and go public. The capital pooling system was created and is currently regulated by the Canadian-based TMX Group, and the resulting companies are traded on the TSX Venture Exchange on the Toronto Stock Exchange. A capital pooling company is a listed company with experienced directors and capital, but with no commercial operations in progress at the time of the IPO. The directors of the CPC often focus on the acquisition of an emerging company and, at the end of the acquisition, this emerging company has access to the capital and the quotation established by the CPC.
For example, suppose you are founding a company that plans to explore and extract oil from a newly discovered reserve – but have not yet started drilling and have not yet sold a single barrel of oil on the market. A JPC allows its founders to set up part of their own money, then register the company as a listed entity on a Canadian stock exchange, even if the company is still in the planning phase. Because there is no proven revenue stream yet, capital pool companies are generally considered to be very risky investments.
A junior pool pool company (JPC) is a special type of CPC originally created by the Alberta Stock Exchange. Since its inception, the capital pooling program has listed more than 2,400 capital pooling companies, and as of October 23, 2020, 130 companies were listed on the Stock Exchange’s capital pooling companies TSX growth (TSX-V). JPC is, for the most part, a flat-screen company with no other assets than cash and which has not yet started its commercial activities.