The operator of the country’s largest stock exchange is expanding into the private sector with a new business aimed at helping Canadian startups raise money, and eventually go public.
The idea of connecting these small- to medium-sized firms with capital investments is not entirely foreign to TMX Group (TSX:X), says Kevan Cowan, president of TSX Markets and group head of equities at the company.
“For decades, we’ve been engaged in facilitating the growth and financing of young companies… These elements are not new to us,” he said in an interview Tuesday.
“We are looking to capitalize on that experience and that expertise and expand it into this area.”
TMX said the launch of TSX Private Markets will give registered dealers “access to unique investing opportunities” that will assist private firms secure key capital in the early-to-mid stage of their development.
The company, which operates the Toronto Stock Exchange, said it anticipates the service to be launched in the third quarter of this year, pending approval by the Ontario Securities Commission. The service will be overseen by TMX subsidiary, Shorcan Brokers Ltd., along with a registered exempt market dealer.
The exempt market is a cheaper alternative for companies who are not publicly listed, but has been criticized for being an easier place for fraud to take place because listed firms do not need to provide detailed documents to investors.
The move by TMX Group comes as it prepares to compete against a new proposed exchange, Aequitas Innovations Inc., which is backed by Royal Bank (TSX:RY), BCE Inc. (TSX:BCE), Canadian pension fund PSP Investments, and a number of Canadian and international brokerages.
Aequitas could be up and running later this year if it receives regulatory approval.
Cowan said the new TMX service will help address what has long been a problem for Canadian startups that find it difficult to secure the money they need to develop.
“A lot of people are looking for ways to enhance the financing opportunities for small to medium enterprises,” he said.
“We all realize that small to medium enterprises play a crucial role in our economy: they grow, they employ people and they provide investment return.”
Last week, the OSC proposed new rules to allow startups and early-stage businesses to raise up to $1.5 million a year from individuals through registered crowdfunding web portals.
Under the proposed OSC rules, investors would be limited to a maximum of $2,500 in a single investment and $10,000 per year.
Other jurisdictions including Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia are also considering the new rules, which are subject to a 90-day public comment period closing June 18.
Cowan said if these OSC changes go ahead, TMX can look at expanding its TSX Private Markets offering to retail investors.
Websites like Kickstarter have raised the popularity of crowdfunding, which allows entrepreneurs to pitch their ideas directly to large numbers of consumers, who then invest typically small amounts.
Canada’s Venture Capital and Private Equity Association said being able to easily secure capital funds is vital to keeping startups in Canada.
“We have undercapitalized venture capital in Canada … particularly vis-a-vis the United States,” said Mike Woollatt, chief executive of the group, which represents 180 Canadian venture capital firms.
“As these venture capital funds are more capitalized, there are more and more opportunities to invest in innovation in Canada, to see it all the way through and to help keep these companies in Canada.”
In the past, Woollatt said many companies have moved to the United States where there is more funding access at the early, mid and late stages of a business’ development.
“Everybody is recognizing this is an issue,” he added.