Q&A W/ Olympia Trust Founder Rick Skauge
1) What was your background before starting Olympia Trust Company?
Before starting Olympia I was involved in raising drilling money for small oil and gas companies that I started. I started 30 private oil and gas companies. Each of the companies only raised about $500,000. After I had raised the money for 10 of the companies some of my investors were reluctant to invest more unless I had a liquidity option. To that end I formed my first public company that was used to provide liquidity to the private companies.
2) When did you start Olympia Trust Company and why did you start it?
Olympia received its letters patent from the Alberta government in September, 1996. It then took about 5 months to raise $2,300,000 from 50 investors plus employees and in March 1997 Olympia commenced business.
At the same time I was in the oil and gas business, I owned a mutual fund dealer and we managed our own self-directed RRSP accounts, as agent for various trust companies. All the trust companies went broke because they were in the lending business. Finally, B2B Trust took over the accounts from a now defunct North American Trust Company and when we asked to continue our agency agreement to operate self-directed accounts, they refused. Well I knew then that I was in trouble. We were selling flow through shares in start-up oil and gas companies and then having our customers contribute them to their RRSP’s before we spent any drilling money. The thought of having to explain this to someone in Toronto prompted me to start my own trust company.
3) Olympia Trust started as what would be known today as an Exempt Market security. Even though it’s now publicly traded, what would return profile look like for one of your original investors that still holds their shares?
Well, they’ve done pretty well. We started paying dividends around 2001. Since then we have increased the dividend every year so that now we are paying out $2.80/year in dividends. Not a bad annul return on a stock you paid $2 for. The market value of the $50,000 initial investment….not counting dividends….is about $1,000,000 today!
4) Why after starting out private did you decide to become listed on the TSX-V?
Before we became a listed company, we took an unsuccessful public oil and gas company that I had started and used it to takeover Olympia Trust. In the process, this made the company a reporting issuer and all the shareholders now had free trading shares even though they were not listed on an exchange. This at least gave those that wanted out a way to exit.
In Olympia’s original offering memorandum, I had been granted some performance stock options. I didn’t want to build a successful company and then lose control. The options were for 4 sets of $125,000 worth of shares that I could purchase for a nominal amount. I could purchase my first set of options when Olympia made 50 cents per share of pre-tax profits, another ¼ when the company earned 75 cents per share pre-tax profits, another ¼ when the company earned $1.00 per share of pre-tax profits and the balance when the company earned $2.00 per share. So the last option was only exercisable when the company earned pre-tax profits per share equal to the investors’ initial investment. Needless to say the stock exchange was not going to list the company with these options outstanding and I was not about to give up the options. After 10 years of work, all my options were vested and the company was listed. It came out in May of 2007 at $17/share.
5) How do you feel about the exempt market now that it’s much more tightly regulated with implementation of 31-103?
I think that the EMD’s are a positive step both from an investor protection initiative and providing a facility for small business to raise money.
6) What changes do you see coming for the exempt market in the future?
We expect it to continue to grow. Hopefully with the formation of WEMA, the government agencies and advisors can make headway at creating a less adversarial climate in which both groups can work together to provide better investor protection without unnecessary regulation and examination. For our part, we have designed a new structure that will allow an issuer to use Olympia as subscription > agent, transfer agent, custodian and distribution agent. With this design, investors can avail themselves to many different kinds of issuers but the issuer will never be in position to use the funds other than as provided for in the Offering document. This has been a problem in the past and we believe this is an affordable and effective solution to the problems the pre 31-103 exempt market has faced.
7) If you could change one thing in the exempt market today what would it be?
I would eliminate the need for an audited financial statement for new issuers who have insignificant amounts of capital. The new system of requiring audits on all new issuers, regardless of size, is a huge deterrent for young entrepreneurs wishing to use the OM exemption. It adds 4 to 6 weeks delay in the process, it adds at least $5,000 to the cost of raising money, and it accomplishes nothing in terms of investor protection.
8) Anything else?
The rules governing this market as set out in 31-103 were put in place when the industry did not have an organization to dialogue with the securities commissions.
The idea of a KYC is fine at the time of purchase of an exempt product however updating it when there aren’t any transactions really shouldn’t be necessary.
Ongoing KYCs are invasive and ineffective in the exempt market. If a Dealing Rep does an ongoing review of a previous purchaser and finds out their situation has changed, there is nothing that can be done anyway. As stated in the Offering Memorandum…there is no market for these kinds of securities...there is no way out, so who cares if the investor’s circumstance has changed.
The KYC rules were put in place to try and create a level playing field with IIROC and MFDA registrants but they completely ignore the inability of an investor in exempt products to sell their investment and reposition. Ongoing KYC’s in the exempt market should be eliminated because it creates a huge amount of work and anxiety on representatives and exempt market dealers and produces no value.
9) For those that don’t know you, what do you like to do for fun?
I am an avid downhill skier, an avid scuba diver, a boater, a hunter, a golfer and a great dad for my kids to have fun with.