IIAC released the latest edition of its Letter from the President Wednesday and the news is especially bleak for Canada’s public venture market providing a huge opportunity for equity crowdfunding in this country.
“The plight of the small boutique firm has coincided with the collapse of the public venture market, the TSXV. The extended weakness in resource markets and recent structural changes in the small cap marketplace have battered boutique firms and the small cap marketplace alike,” wrote IIAC CEO Ian Russell. “By any measure, the TSXV has deteriorated precipitously in the past five years, and is close to drawing its last breath.”
The TSX Venture Exchange is estimated to have raised $3.3 billion in total financing in 2015, its lowest amount over the past five years and a mere shadow of the $10.1 billion it generated in 2011.
“Nearly $7 billion in capital has vanished from the small business sector in the past five years as activity on the Venture Exchange collapsed,” said Russell. “The collapse of the TSX Venture Exchange would be an enormous loss for Canada and our capability to finance small and mid-sized businesses across the country.”
However, with the implementation of the new offering memorandum prospectus exemption in Ontario, Canada’s most populated province, any investor in Ontario can invest up to $10,000 annually under the OM exemption without having to qualify as an eligible investor. Those qualifying as eligible investors -- $400,000 in combined assets of both spouses and combined income of both spouses greater than $125,000 – can invest up to $30,000 annually unless they use a an investment advisor registered as a portfolio manager or with an investment or exempt market dealer in which case that jumps to $100,000 in any 12-month period.
Equity crowdfunding looks to benefit directly from these changes in combination with the crowdfunding rules set to take effect on January 25 in Ontario. By the end of 2016 many of the provinces will have harmonized rules making the raising of capital in the private markets far more efficient.
IIAC, however, takes issue with crowdfunding as a method of SME financing.
“The regulators can also contribute to restoring the health of the Venture Exchange. First, the regulators should dispense with the “crowd-funding” initiative,” wrote Russell in his letter. “The TSXV is a far more effective vehicle for raising capital than crowd-funding, and provides far better protection for investors.”
Exempt market dealers would beg to differ.