Scope of BC and Alberta’s private capital markets

We have talked about the importance of small and medium sized businesses to Canada and in particular to western Canada. We have pointed out that certain types of small businesses, nicknamed “gazelles,” are net job creators that require capital to focus on growth and R&D. We have pointed out that traditional sources of capital from institutional investors have all but dried up.

So where and how are Canadian entrepreneurs raising money? A surprising amount of money is raised through what we call the “exempt” market where private and publicly traded companies sell their securities under various exemptions, which do not require a prospectus or registration requirements.

The panellists at Capital Ideas 2010 discussed the importance of raising money privately. The conversation began with Bill Rice, Chair and CEO of the Alberta Securities Commission and Martin Eady, Director, Corporate Finance, BC Securities describing the size and scope of this market.

Here’s what they told us. In the first nine months of this year, BC raised $6.1 billion of which over 50 per cent was for mining; 18 per cent for investment and finance; 10 per cent for oil and gas; and the rest for real estate, technology etc.

Alberta raised just over $7 billion. Oil and gas replaces mining for the highest percentage, investing in real estate is higher in Alberta than BC, although BC raises significant dollars through mortgage investment corporations. In BC, publicly traded companies raise two thirds, the other third by private companies. Alberta’s split is 50/50. Both provinces raise significant monies from investors living outside their respective provinces, reflecting the attraction of the resource sector to investors.

Another important factor is that a large portion of this money comes from wealthy individuals. In BC’s case, a whopping $5.3 billion was raised from this sector. Raising money from wealthy individuals is important for both publicly traded companies but even more important for private (start-up) companies.

My next article will address the challenges facing regulators from an investor protection prospective.