Silicon Valley North #21 Jul'00

The Way I See Itů by Michael Volker

CDNX is Looking Good for Technology Companies, but....

I'm a big fan of the CDNX - the Canadian Venture Exchange because of the valuable role that it will play in the development of our technology sector in Canada.

Some people, especially mainstream Venture Capitalists, argue that junior companies should not go public and that the CDNX is not a viable "exit" opportunity in contrast to a senior exchange. Of course not. It's an entry opportunity - especially for smaller investors who like getting in early on companies such as QLT PhotoTherapeutics or Westport Innovations which both started off as "penny stocks". 

A boldly stated objective of the CDNX, as articulated by its CEO at a recent Vancouver Board of Trade breakfast, is to graduate companies off the Exchange to the TSE or NASDAQ. It's niche as a junior equity market is well defined.

If you go to a junior hockey game, you know that you're going to see amateurs. You don't expect professional action, because you know that's not the arena you're in. And, it's no different in the corporate world. Only a few companies will make it to the big leagues, but at least they're all given the chance.

I recently dusted off an old video recording of the infamous 1990 episode of Prime Time which portrayed the former VSE as a haven for scam artists. Ever since, the VSE just couldn't be shed its tarnished image in spite of drastic reforms and major improvements which the Exchange implemented in the mid to late nineties. The creation of the CDNX by merging the Alberta (ASE) and Vancouver Stock Exchanges (VSE) last November, as the first step towards a national mandate addressed this image problem, not only in name, but also in substance.

In a recent Globe and Mail guest column, the CDNX's chief, Bill Hess, made some good points relating to the recent controversy around brokers' personal participation in corporate financings and potential conflicts of interest. He argued that, as did the Hagg Committee in 1997, a complete ban on broker participation would make it so much harder for many small companies to raise start-up funds. The recommendation was to improve disclosure, i.e. make more information available to the public so that investors would be better informed and hence better protected. Indeed, this is the driving principle in U.S. markets and it works very well there. Unhappy investors can easily find litigation-hungry class action securities lawyers to help keep companies honest.

I applaud this approach. It's certainly much faster and more effective than having a regulatory body pass judgement on the merits of a proposed deal (which, unfortunately is still the case today). Let the investors assess the merits.

So what's different today from a few years ago? In today's on-line internet world, access to corporate information has never been easier. Still, there are some gaps. A comprehensive disclosure policy, along with an expanded repository for such information, like SEDAR ( will go a long way towards ensuring fairness in the marketplace.

We do need more rules on what has to be disclosed. For example, complete, readily accessible backgrounders on company directors and managers would be a good start (including both their successes and their "learning experiences"). How about details on broker shareholdings (along with prices paid) and more information on holders of substantial stock positions? I recently learned of a financing in which a broker acquired a million shares (5% of the total) at a dime and then he opened trading in the stock at more than a dollar. He was not identified as such in a company press release!  

It's easy for startup entrepreneurs seeking risky startup capital to get sucked in by smooth talking financiers. These quasi-insiders often flip their stock positions for tidy profits and then move on to their next deal leaving behind struggling companies and frustrated investors.

With full disclosure in place, when failures or scams do occur - and they both will - it'll be clear who's to blame and it won't be the CDNX that takes the rap.

The way I see it, the CDNX is a wonderful financing vehicle for emerging ventures. It's off to a great start with a nice fresh image. Let's not blow it.

Michael Volker is a high technology entrepreneur and director of Simon Fraser U's University/Industry Liaison Office. He is a former executive director of the BC Advanced Systems Institute and is chair of the Vancouver Enterprise Forum. He may be reached at

Copyright, 2000.