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The Venture Company Association made its debut at the recent Cambridge House show.

The problems of the Toronto Venture Exchange, where most junior mining companies are traded, have been covered on these pages, especially in recent months, when the exchange has fallen to levels not seen since the dark days of recessionary 2009. 

Now, an advocacy group has formed to try and petition governments to better understand the role that venture capital plays in Canada, particularly in the junior mining sector, which is so reliant on capital raisings to move projects forward and create wealth and jobs.

Joe Martin, Cambridge House chairman, moderated a panel at the recent World Resource Investment Conference in Vancouver, where the group was vetted and a lively discussion ensued concerning the root problems of the Venture Exchange. The panelists were Eric Coffin of HRA Advisories, John Kaiser of Kaiser Research, Don Mosher of B&D Capital, and Richard Carleton, CEO of the Canadian National Stock Exchange (CNSX).

Martin pointed out that it is increasingly apparent that the large banks that own the exchanges are not interested in venture capital since it plays such a small part in their businesses and the banks are more interested in selling their own products, like mutual funds. Contrast that attitude to the dominant role that Canada plays in mining, with around 60 percent of worldwide exploration done by Canadian companies and roughly a third of all mines founded by Canadians, said Martin.

Mosher agreed, noting that “it’s common knowledge small businesses create jobs and venture start ups are not meant to make money, they’re meant to explore and innovate and spend money.” The business consultant with B&D Capital created quite a stir with his provocatively titled “Strangulation by Regulation — Is the Venture Exchange on Its Deathbed” interview with The Gold Report, in which he argued that the TSXV’s woes are a symptom of the overregulation that is slowly killing a whole sector of the Canadian economy.

“Having capital is a real requirement for us, and when you put up barriers not only do you shut off access to capital, but job creation disappears along with it,” said Mosher, noting that in the United States, no venture capital market exists beyond the over-the-counter (OTC) market.

As an example of such overregulation, Mosher said there are currently three levels of regulation on the Venture: the securities commissions, the IIROC, which sets and enforces trading rules, and compliance departments within brokerage firms. In addition, due to the rules surrounding accredited investors and private placements, “98 percent of Canadians cannot participate in our markets,” said Mosher, and “that’s shutting down the venture market in Canada.”

John Kaiser, who wrote a now-infamous post on his Kaiser Bottomfish website stating that hundreds of junior mining companies could disappear in the next couple of years due to insufficient operational funds, said the biggest problem with the Venture right now is “the disappearance of the broker’s role as a gateway of capital into corporate treasuries.” Kaiser said with the lack of public financings plaguing the market (no IPOs were done in the first quarter of 2013), private placements are the only mechanism to raise funds, but that is hampered by the accredited investor threshold where an investor must have a minimum of $1 million in assets not including real estate holdings.

“The ability to create wealth for shareholders is compromised, and I think it could result in the disappearance of a Canadian institution, venture capital in the resource sector, which is paralleled only by the Australians to some degree,” said Kaiser.

Another problem, said Kaiser, is that the junior market has gotten sucked into the maelstrom of high-frequency, or algorithmic, trading, where large blocks of shares are bought and sold instantly, catching the retail investor in the downdraft. Kaiser said the first-come-first served principle that underpinned the old Vancouver Stock Exchange’s move to electronic trading has been abandoned.

“Now there’s no clear logic as to where the orders get routed … to me this fragmentation of the market in terms of order execution is a recipe for abuse.”

Eric Coffin weighed in on electronic trading by saying that “a lot of the time it’s naked shorting and they turn around and buy it back at the end of the day, and as long as they can make the order book balanced it’s all good. That kind of thing really freaks people out.”

Coffin said that the accredited investor restriction is also a problem, but he joked that “if people are allowed to go to the Venture Exchange and get their heads handed to them they might as well at least get a warrant for it,” to chuckles and applause.

Carleton said it’s equally important right now to look at solutions as well as problems with the Venture, and pointed to one such change: the Canadian Securities Administration looking into amending the “early warning regime” when an investor buys 10 percent or more issued and outstanding shares of a company. He said the administration is thinking of dropping the threshold to 5 percent and changing the frequency and content of reports that investors must file when they change that percentage up or down. But he said that change should be resisted because it would force institutional investors to sell 5 percent of the companies in their portfolios to meet the new rules. “This is absolutely the last thing this industry needs at this point,” he said.

Mosher had the last word when he compared the situation to the US, which has no real venture capital market and is looking for something to model one on. “We should just open it back up to the public,” he said. “We have what they [the US] need, we just need to fortify it and simplify it.”

The Venture Company Association is hosting an event on June 18, 2-4 pm at the Four Seasons Hotel in Vancouver to discuss ways to reform the TSXV. To register for the event, visit their website at


Related reading:

The TSX Venture is Broken: Here’s How to Fix It

Bring Back the VSE! Christopher Ecclestone on how to Revive Canadian Capital Markets


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