Silicon Valley North #32                                       June, 2001


The Way I See It… by Michael C. Volker 


Will a TSE owned CDNX work for Tech Companies?


The biggest single challenge facing technology startups is raising capital. It’s tough enough for companies to attract investors these days without the added burden of dealing with archaic securities regulations. 


Although the number of angel investors and venture capitalists has been increasing steadily, there is a far more greater number of small investors willing to gamble a few thousand dollars on a startup. The easiest, and probably only, way to tap this huge investor base is by becoming a public company on a junior stock exchange such as the Canadian Venture Exchange (CDNX”).  I’ve been a big fan of the CDNX (and its progenitors, the Alberta and Vancouver Stock Exchanges) for many years because it may present emerging companies with the only means of accessing small amounts of risk capital from a large number of investors.


There are many examples of companies which started out this way. We tend to forget that companies like B.C.’s QLT Inc., Westport Innovations, and Burntsand Inc. were penny stocks on the CDNX.


In the interests of protecting the investing public – a noble objective – our Provincial Securities Commissions have each developed their own inconsistent set of rules and regulations. The CDNX, which is a self-regulated organization, must comply with the rules in each Province where it intends to do business. It also has its own policies under which companies must operate.


In its bid to become a truly national exchange, the CDNX – which started in B.C. and Alberta – is now heading east by becoming a subsidiary of the Toronto Stock Exchange (TSE).  Will a Bay Street controlled market add even more red tape?

It is already unnecessarily complicated, i.e. expensive, for small companies to raise modest amounts of capital. Presently, it costs a company about $100K to raise $1M. That's outrageous.  I doubt that any regulator, let alone any of the CDNX’s governors, has ever been in the shoes of a startup CEO. They haven’t the foggiest idea.

Investors betting on a CDNX company are investing pennies - not dollars! So, why apply dollar rules to penny situations? Why not simply make the "red herring" a little bolder? i.e. - less regulation in favor of more disclosure and caveat emptor warnings. Let the market take care of itself. Investors must understand that failures are the norm, not the exception.

B.C. is one of the best jurisdictions (this is news to many entrepreneurs) in terms of lower sophisticated investor thresholds and so-called financing exemptions. For example, as little as $25,000 can be raised by a company without a full blown prospectus level disclosure. In Ontario the entry level is over $100K! The CDNX's “small financing exemption”, which allows companies to raise up to $1 million from retail investors in B.C., is yet another benefit for its listed companies. There’s a real fear among Westerners that the CDNX will attempt to unify provincial rules and go with the highest common denominator.

We've all seen what happens with acquisitions: Big company acquires small company. Big company culture is imposed on small company and small company is assimilated into big company. Why will this be any different when big market TSE takes over little market CDNX? 

I'd love to see the day when a company CFO with a few securities courses under her belt can complete all the documents and forms for a financing - without spending tens of thousands of dollars on legal bills.  And, why not require a single filing and allow any Canadians to participate in a startup – regardless of their residence?

In all the talks about the future of the CDNX, there's one sadly missing element: input from the companies themselves. It's always amazed me how rules are set in the complete absence of input from the customer. A rule which may make sense to a regulator or broker may be totally unworkable from a practical perspective.

We need radical, sweeping, changes to securities regulations in Canada - especially as they pertain to junior companies. We need a massive overhaul. Legislation is not keeping up with technology. This infrastructure is impeding business progress.

The way I see it, company executives must be at the table, along with the regulators and agents to create an efficient marketplace for early stage capital formation. If the TSE takeover of the CDNX doesn’t move us in this direction, it may as well shut down.


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