Your retail stockbroker is a global economic hero
By Rick Peterson,
Special to the SunSeptember 11, 2009

If you want to see the real heroes fighting for Canada in the global economy today, go down to your local stockbroker's office.

Perched behind the blinking computer screen, sipping coffee and casting an eye on Business News Network on the TV in the corner while the phones are ringing off the hook, is very likely the person who is doing all the heavy lifting these days in making sure that Canada's best emerging resource, technology and life sciences companies, survive and thrive.

How can that be so? Don't we have venture capital funds and big Bay Street investment bankers and other deep pockets of smart money to do this job?

We do, but often they are not as agile or flexible or focused as you might think. The size of an investment required by an early-stage company in these crucial sectors is sometimes simply too small to make a difference in the venture capital fund portfolio, or will not generate sufficient investment banking fees or trading commission to attract the major investment banking houses.

So, here's where your local stockbrokers step into the breach, providing anywhere from $3 million to $20 million in financing, that critical stage after family money and angel investors have been tapped out and fledgling companies are in their most capital intensive growth stage. Alone or working in small groups of like-minded colleagues, these investment advisers, who are really retail investment bankers, will go out and literally finance Canada's future.

But, their job has never been tougher these days, for a number of reasons:

Risk Controls: Banks and their brokerage firms are always trying to reduce the risk and liability they have towards their clients. As a result, brokers are very strongly discouraged from investing in private or early-stage public companies -- exactly the ones that need capital -- on behalf of their clients. "Know Your Client" rules, designed to protect clients, are in fact helping to suffocate our most promising companies. There are a few brokers in the bank-owned firms who have the knowledge and skill and to invest in these early-stage companies, but most of this crucial business is being done in the independent brokerage firms and boutique shops here in the West.

Regulatory mayhem: The patchwork of Canadian regulatory authorities makes it impossibly expensive and unwieldy for many companies to raise money from investors across Canada. Translation costs and approval processes in Quebec keep many public companies out of what is a sophisticated, deep and risk-tolerant investment pool. Progress on this file is glacial, at a huge opportunity cost.

Performance: The very high management fees, restrictions on investments and resulting dismal returns that many government sponsored venture capital funds are carrying have led many investors to sour on these vehicles. This hurts the overall appetite for venture capital investing.

The markets: In dismal markets, even good companies with great people and projects get shut out. Those particularly hit have been in the biotech sector, which went into a bear market even before 2008. Any Canadian company that has raised money in this sector in the past two years and continued to meet their milestones has an excellent chance of being a winner.

Given all this, we're lucky to have smart retail stockbrokers in this country who are carrying this very important load. But, they could use some help, and David Emerson is right on the money when he advocates for a large, global venture capital fund here in the West (Vancouver Sun Issues & Ideas Sept. 9).

Let's set up this fund. Let government, retail and institutional investors put money into it. Keep the fees low. Don't handcuff it with tax credits and investment restrictions. Put some smart people at the helm. Keep the government away from it. Allow it to invest in the best Canadian companies it can find and let the managers roam the world looking for great ideas, great partnerships, great deal flow. All of this would help our brave retail stockbrokers and the CEOs of the companies they finance. Until it happens though, hug your broker and thank him or her for the lonely and difficult job of keeping Canada competitive in a global economy.

Rick Peterson is president of Peterson Capital, a Vancouver firm that assists private and early- stage public companies with their financing.

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