TSX Venture Exchange (TSXV), Canada’s public venture market, is an ecosystem for launching early-stage companies, funding primary growth and providing investors access to unique small cap investment opportunities.
In June 2022, TSXV launched Venture Forward, a programme that aims to identify the key challenges and opportunities for such an ecosystem.
Best Execution spoke to Tim Babcock, vice president and head of TSXV, on how the initiative has engaged with stakeholders, wider global headwinds and opportunities, and the development of a potentially entirely new exchange for early-stage firms and alternative asset classes.
Elevator pitch
Babcock said Venture Forward is about identifying challenges that exist in the market today and, importantly, looking for opportunities where the firm can shape change, and where it can make positive change.
“Over the last year, we have engaged deeply with stakeholders across the spectrum of players in our market, such as issuers, investors, lawyers and accountants,” Babcock said.
“And through that process, we heard, positively for us, that the market is not broken. While there are some challenges, there are no ‘big fixes’ required.”
Nonetheless, TSXV has identified four ways in which the market could be improved. One is speed; how can the firm increase the turnaround time and its review processes to allow issuers to access capital and their transactions quicker?
Secondly, how can it improve the transparency and the rules it applies to issuers and the parameters in which they operate in this space?
“Thirdly, this is very important to our issuers, and it concerns profile. All our listed companies are small growing businesses, and they can get lost in the noise of capital markets. So, how can we bring visibility to them and give them better access to investors?”
Lastly, how does TSXV leverage its experience and expertise to bring this ecosystem to more companies? “How do we bring more capital for investors to the market to strengthen it for the future?”
Headwinds and opportunities
Babcock said changing investor demographics and technology changes are impacting how people participate in the market and how investors and issuers interact. Additionally, the cost and burden of being a public company, accessing capital and getting in front of investors also act as headwinds for small public companies, Babcock said.
“When we look at the future of our exchange, we’re certainly thinking about how we reduce some of these burdens, how we can give them better access to investors. We also must build some flexibility into our model because some of these future demands are unknown.”
TSXV has taken other steps to open markets to more companies, operating a global business development group. “That group is not only focused on selling the Canadian market to companies but we’re also looking to attract capital to our markets,” Babcock said.
To bring in new firms, TSXV has revised the minimum valuations and financing values for new listing applicants.
Its proposed passport listing process will identify the most advanced new listing applicants and find ways that it can move them through the listing review process quicker.
“What we have put in the report is based on conversations we have had with stakeholders, and some internal dialogue, but these measures are not final,” Babcock noted.
“Over the coming weeks and months, we will be putting out definitive guidance around this process.”
What’s certain, Babcock said, is that the firm’s ability to process an applicant quickly through the listing process is correlated to size and therefore valuation and size of financing will be key metrics.
Increased digital access is also key for issuers. TSXV operates a cloud-based system that allows issuers and their advisors to interact directly with TSX “in a much more efficient manner”, increasing the speed of review and allowing issuers to get answers quicker.
“We’re expanding the scope of that platform to bring in company services such as education and investor profiling tools, with real-time access to these tools when they need them,” Babcock said.
Opening doors
“We’re opening our doors to innovation, we’re saying to the market ‘bring us something new, whatever you can dream up’, as we know the market has historically been very creative,” Babcock noted. “We want to be even more transparent around our listing standards.”
The TSXV sandbox initiative is designed to do just that, allowing TSX to trial novel and innovative firms before listing them.
TSXV also said it will begin the process of evaluating the need for “a new and highly differentiated exchange” to complement TSX Venture Exchange and to open the market up to a new category of early-stage companies, alternative asset classes and investors that do not currently participate on TSXV.
“We don’t yet know what that market might be,” Babcock said. “But what we heard through our engagement process was shifts in the demographics, new issuer models, new pools of capital, new technologies are shaping the way capital markets interact.”
Out of all this ongoing change, Babcock said TSXV spotted an opportunity. “We have deep experience and expertise in operating markets, and we want to explore whether there is another way where capital providers can interact with us, with capital, and whether we can play a role in that.”
While TSXV has not settled on a particular structure, the firm is continuing with its engagement process with stakeholders as well as emerging non-traditional capital markets participants to assess potential solutions.
“Let’s go out and find capital providers that are not operating in the traditional exchange space and see what their needs and desires are and whether there’s a role that we can play.”
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