The technology industry in Canada is broken. We see technology acting as a critical engine of economic growth around the world, particularly in developed economies. It is not that we lack great technology entrepreneurs or that we do not have capital to invest; in fact, technological innovation is thriving in Canada. The problem is that capital and technology entrepreneurs don’t meet each other in a way that fosters successful new-generation technology companies.
The figures speak for themselves:
- at the end of 2011, technology firms only represented four per cent of overall market capitalization on Canadian exchanges , according to the TMX. This is a very weak performance in comparison with other developed economies
- the price/earnings ratios of Canadian technology companies listed in Canada consistently underperform technology companies listed abroad, including Canadian ones (BDC Venture Capital Industry Review 2011).
This means promising technology entrepreneurs either seek an early exit—selling their companies—or move south to find the capital and listing environment that will make them successful.
It is time for change, and that is the goal of the Alpha Exchange, the new-generation Canadian exchange that starts operations in April 2012. Alpha Exchange is part of the Alpha Group, an organization set up by nine leading Canadian financial institutions in 2007 to reinvigorate trading in Canadian markets. In the trading space, Alpha Group’s Alternative Trading System (Alpha ATS) brought needed change:
- beginning operations in November 2008, Alpha ATS now commands approximately 20 per cent of all Canadian volume traded across Canadian listed securities
- Alpha ATS substantially helped improve liquidity in the Canadian markets, as demonstrated by the volume in Canadian listed securities repatriated from U.S. to Canadian markets
- Alpha ATS significantly helped reduce the cost of trading in Canada
- Alpha ATS brought innovation; for example, the Alpha IntraSpread dark pool, launched in June 2010, already represents a good three per cent of overall trading in Canada.
Driven by the same entrepreneurial spirit that made Alpha ATS accomplish its goals in the trading space, Alpha Exchange will seek to reinvigorate the listings business in Canada with a particular focus on the technology industry. To fulfill this mission, Alpha Exchange has developed a holistic strategy based on three core pillars.
The first is the approach to listings: Alpha Exchange’s listing requirements are more stringent, providing investors with better quality listings and preventing entrepreneurs from listing too early. Also, listing requirements are transparent and unambiguous, market making is approached in a new and innovative way—Alpha Exchange foregoes revenue to unleash liquidity—and listing fees have been established on the principle of value-for-money: credibility, liquidity, exposure to the right investors and efficiency are provided at extremely competitive fees.
The second pillar of Alpha Exchange’s strategy is a commitment to building the right ecosystem around entrepreneurs. Finding initial and early-stage investors followed by an IPO fuels the transformation of an idea into a commercially successful company. To accomplish this, entrepreneurs need to be mentored and educated about what it takes to be successful. The Backbone Alpha Exchange Innovation Campaign is the first example of Alpha Exchange’s commitment to education and building an ecosystem that will allow entrepreneurs to thrive. This campaign will provide technology entrepreneurs and investors with the unique opportunity to follow a selected technology firm, growing a product into a commercial company over the course of a year. We will live their challenges and their successes, we will benefit from the advice and suggestions of mentors, and we will learn what works and what does not.
The third pillar of Alpha Exchange’s strategy is not public yet, but will be unveiled over the course of this Innovation Campaign—because being an entrepreneur also comes with timely communication about new and transformational initiatives.
Jos Schmitt is the Chief Executive Officer of Alpha Group. Prior to Alpha, he served as EVP Head of the Americas and Global Head of Capital Markets for a global professional services firm and held senior positions at a European Derivatives Exchange and Clearing House, a European Indices Publisher and a European Stock Exchange.
Start Me Up! Backbone/Alpha Exchange Innovation Campaign