Canada needs a variety of reforms to improve early-stage funding in the tech sector, says a new report from Alpha Exchange.
The paper recommends several initiatives that it believes would help nurture growth in the Canadian tech sector, including: allowing firms to raise capital from a wide range of investors, known as “crowdfunding”; the creation of a market to trade pre-IPO equity; and a tax credit for angel investing.
The firm suggests that these initiatives, and others, working together, could help kick-start the tech sector with little public money. “These initiatives need to take place along with a redoubled focus on the host of other factors that create an environment for success for Canada’s technology companies,” says Jos Schmitt, CEO of Alpha Exchange. “With the right choices, we can prevent the impending decline in Canada’s global technology relevance, and support the development of an economy of the future.”
The paper calls on Canadian securities regulators to build a structure that allows retail investors the opportunity to invest in high growth firms, while also protecting them from inappropriate or unknown risks and fraud. “Annual investment caps and regulated crowdfunding marketplaces are practical measures that Canada can deploy to realize a profitable marketplace for all stakeholders that will pull fresh capital into technology companies,” it says.
Additionally, Alpha indicates that it wants to build an online marketplace for Canadian private securities. “A secondary market in Canada will allow accredited investors a new way in and out of pre-IPO markets, and will allow employees and founders to monetize parts of their positions through sales of equity into the market,” the paper says. “The secondary market will result in less risk for investors and will provide a liquidity option for founders and employees that will help them remain engaged as they build larger lasting Canadian firms.”
Moreover, it suggests that a Canadian market for pre-IPO investments, “will encourage innovation within our securities regulatory framework.”
“The regulations should protect all stakeholders: the start-up companies, their employees and their investors. We must resist the temptation to over-regulate and limit what can be traded, when it can be traded, and who can trade,” it says.
Schmitt indicates that Alpha is ready to play a role in supporting tech sector growth, “by improving the funding process and connecting experienced advice and leadership with start-ups”; adding that its first step has been to establish a tech-focused exchange.