In B.C., small is big

These B.C. companies collectively raised $19.1 billion in 2018, or 27% more than in the previous year. However, while B.C.-based investment funds collectively raised $18.5 billion in 2018, that amount represents a 26% decrease year-over-year.

“B.C.’s capital markets continue to be an incubator for emerging companies, with our province now home to 44% of Canada’s listed companies,” says Peter Brady, the BCSC’s executive director. “Our robust venture markets are proving to be a significant competitive advantage for Canada in the global economy.”

B.C.-based listed companies account for 51% of companies on the TSX Venture Exchange; 58% of firms on the Canadian Securities Exchange; and 18% of companies on the Toronto Stock Exchange. The next-largest jurisdiction, as ranked by number of listed firms, is Ontario, which accounts for 26% of the national total.

“Overall investment in B.C. – encompassing capital-raising by B.C. companies and investment funds, and [including] capital invested by B.C. residents, companies and other entities – held steady at $111 billion, compared [with] $112 billion in 2017,” the report states.

B.C.’s mining sector led the province, raising $4.3 billion. But the most dramatic growth in B.C.’s venture-capital market came from the cannabis sector, which took second spot, raising $4 billion in 2018 – a stunning 280% increase year-over-year, the report states.

The boost in the cannabis sector was driven largely by Ottawa’s legalization of recreational marijuana use in October 2018, the report adds. The number of cannabis companies raising money in B.C. jumped to 124 in 2018, vs 69 in 2017.

The third-largest sector in terms of capital raised was real estate, in which B.C. companies attracted $3.1 billion despite a cooling housing market.

B.C.’s technology sector, which raised $1.0 billion, was fourth, and communications/entertainment rounded out the top five, with $715 million raised.

This is the second consecutive year in which the BCSC has published a capital market report. “[The report] gives market participants greater insight into capital raising and investing activities in B.C.,” says John Hinze, the BCSC’s director of corporate finance.

“[Venture capital] is in our basic DNA,” Hinze says. “For decades, B.C. has been known as a good place to raise venture capital for new companies, especially in the public space.” The result is an ecosystem that includes specialized advisors, he says, “such as geologists and lawyers, who support new companies.

“Our regulatory framework is also there to protect investors,” Hinze adds. “So, all these things together create an environment geared to attracting new companies.”

The report notes that mining continues to be the most dominant sector, representing 61% of B.C.-listed companies and 52% of total market capitalization. But technology and cannabis companies are catching up.

Although the report indicates that small companies continue to do big things for B.C.’s enterprise economy, whether this growth will continue is unclear.

Economists such as Jock Finlayson, executive vice president and chief policy officer for the Business Council of British Columbia in Vancouver, are becoming “cautiously unoptimistic” about the global economy.

“B.C.’s economy has certainly been in the top three consistently in the past five to six years, and that’s been reflected in capital markets,” Finlayson says. “But I think we’re in for some very bumpy times globally this year and in 2020. There’s a growing risk of recession and, if the U.S. also slows, which is very likely, then Canada and B.C. obviously will take a big hit.”

Finlayson cites uncertainties such as the U.S./China trade war, Brexit, the rise of political extremism and the Trump administration’s chaotic leadership.

In addition, the current global expansion now is 10 years old. “I think this economic engine is running out of gas,” Finlayson says.

As for B.C. capital markets, Finlayson doesn’t anticipate 2018’s rapid growth in cannabis will last: “Some Canadian cannabis companies are now having difficulties,” he says, “so perhaps that bubble is bursting.”

However, there is one significant bright spot for capital markets and the B.C. economy, says Finlayson: “I think technology will outshine the other sectors in the next few years. There’s real momentum building around things like automation, robotics and the digital economy, where we have strengths in B.C. and Canada. And with all the uncertainty, gold should also do well.”

The report can be viewed at bcsc.bc.ca.