Silicon Valley North #2 Dec'98

The Way I See Itů by Michael Volker

There is a Future for the VSE

We may be missing a great opportunity to mobilize more capital for emerging technology companies in British Columbia.

For a long time, I've been a fan of the VSE (Vancouver Stock Exchange) and how it could be used to boost our tech sector in much the same way that it fueled the growth in resource companies.

Several well-known tech companies, including Spectrum Signal Processing, ALI Technologies, QLT Phototherapeutics have got their start on the VSE. Yet, whenever its name is mentioned, snide remarks are echoed, and technology CEOs tend to avoid it.

How can you raise a few million bucks if not from the handful of venture capital funds such as Ventures West or the Working Opportunity Fund, which may be committed to high tech but are few in number? In theory, at least, you do it through a junior public offering.

Thanks to diligent investigative media reporting, many flaky, rigged deals have been exposed to the public. Regulators have responded by tightening up the rules so much that legitimate companies are greatly discouraged from seeking a public listing because of the increased cost and red tape.

But more public companies are needed to build critical mass fot he exchange and companies should be encouraged to seek public financing, not discouraged. The VSE is starting to pay a little more attention to listed companies, which after all are is main assets, and should go out of its way to woo new technology listings.

There are scams on all exchanges. It's just a little easier for shady operators to work the junior exchanges because the stakes are smaller and companies don't need a proven track record to get a listing.

Here are a few suggestions for change that will help create a truly viable junior venture capital exchange to provide capital to emerging technology ventures.

First, how about a name change for the VSE? Or, at least a uniquely named board or sub-exchange for technology ventures? A "TechExchange" will attract new listings, positioned as a junior NASDAQ.

Second, Let's focus less on the technical aspects of the deals and more on the people behind them. Who are they? Who's on the board of directors? What are their track records? How about simple, plain, true and full disclosure instead of high priced consultants attempting to produce technical analysis?

Third, the brokers need to get real. They've got to learn how to raise money for these deals and not rely on the insiders to do this job for them. This means second and third rounds of financing. They need to better understand the technology industry and they need to figure out how to get the large institutional capital pools into the game.

Last but not least, we the retail investors ought to get into the act and get behind the companies we like with some patient capital. Let's apply a little bit of Buffetology, i.e. invest in an industry you know, invest for the long haul and invest in undervalued companies. More retail and institutional trading in the juniors will help to mobilize capital and create a healthy liquid investment environment.

The way I see it, the VSE could be the vehicle to blow the doors open for capital to flow to emerging companies. But a few attitudes will have to change before this can happen.



Michael Volker is the Director of the University/Industry Liaison Office at Simon Fraser University, chair of the Vancouver Enterprise Forum, and a technology entrepreneur. Contact: mike@risktaker.com.

Copyright, 1999.