The Way I See It… by Michael C. Volker
New CNQ market holds promise for junior tech companies
Raising
equity capital is never an easy task. Financing sources available to companies
are limited and there simply aren’t enough alternatives for those in need of
cash.
Last
month I wrote about the funding gap at the very early proof-of-concept stages
of development (i.e. the need for incentives for early stage high-risk
investors). When a company gets past this hurdle, it is then faced with raising
substantially larger amounts of growth capital – provided mainly by
institutional venture capital investors. However, many ventures are considered
too risky for the portfolios of VCs who, after all, have to exercise great diligence
in investing other people’s money.
A
junior stock market can give companies a choice. It provides a mechanism
whereby a relatively large number of investors can pool their capital and share
in the risk and enjoy potentially high returns.
After all, this is how our resource sector’s development was fostered by
the Vancouver Stock Exchange. The VSE often got into trouble because it was
trying to act like a VC by vetting deals that often backfired. The VSE morphed
into the CDNX that was then acquired by the TSX as its venture exchange, called
the TSX-V.
To
a certain extent, having another financing path also gives encouragement to
first-in investors who know that these companies aren’t at the sole mercy of
VCs. Furthermore, they also know that the junior market may offer them an exit
opportunity.
The
TSX-V enjoys presently enjoys a monopoly. Companies listed on the TSX-V are
burdened with excessive regulations that are inappropriate for their size.
Unfortunately, it’s become a costly and bureaucratic financing option.
Enter
the Canadian Trading and Quotation
System, or CNQ. It has the ring of a Canadian junior Nasdaq. The CNQ is a private sector initiative
founded by Ian Bandeen, a former executive at BMO
Nesbitt Burns and Robert Cook from the TSX Exchange. Based in
According
to the CNQ, it has “combined leading edge technology, a unique marketplace
construct and comprehensive regulatory oversight to create an efficient new
marketplace which facilitates integrity, transparency and liquidity. CNQ has
been designed specifically to meet the needs and characteristics of emerging
companies, their investors and dealers.” This is possible, in large part, thanks to the internet.
Because
of this country’s disparate provincially based system of securities regulation,
companies that wish to trade on the CNQ must become reporting issuers in
At
the same time, the B.C. Securities Commission has proposed its solution to
The
best news for prospective technology companies is the bottom-line impact. The
cost of listing on the CNQ is only $300 per month plus a $10K initiation fee.
There are no filing or processing fees. The CNQ
imposes no additional layer of policies or rules. Company oversight becomes the
responsibility – and liability – of its Board of Directors.
Under
these circumstances even those companies that can attract traditional VC
financing may elect the pubco option as an
alternative financing strategy. Each has its pluses and minuses but it’s nice
to have a choice.
The
way I see it, we need more efficient and cost-effective mechanisms to
facilitate investment in promising technology companies. New initiatives such
as those taken by the CNQ and the BCSC are paving the way.
Michael Volker is a high technology entrepreneur and
director of