Montreal, August 7, 2019 – Sharing economy giants like Uber and Airbnb took more than ten years before finally holding an initial public offering this year; in the 1990s, Yahoo and Amazon took just one and three years, respectively. An MEI publication launched today shows that these delays are due, among other things, to the fact that the United States is increasingly closed to regular investors.
“American public markets are now a plaything of the rich. They have become inaccessible to regular investors who don’t have the million dollars needed before a venture capital fund manager will even return their phone calls,” explains Peter St. Onge, Senior Economist at the MEI and co-author of the publication. “Compliance costs and risks have become so significant that small businesses are pushed out.”
Indeed, it can cost as little as $50,000 to list on the TSX-Venture exchange and requires only $500,000 in annual business revenue. The comparable US thresholds are several times as high.
It is therefore not surprising to find that the number of companies listed on public markets has plunged by about half since the 1990s, and by nearly a quarter since the 2002 Sarbanes-Oxley bill, which imposed new, more restrictive accounting and financial transparency rules.
“Canada has done quite well after the adoption of this US law, having implemented much more flexible regulation,” adds Michel Kelly-Gagnon, President and CEO of the MEO and co-author of the study. “Canada’s public listings almost tripled in the first year following this major reform, and continued to climb in the ensuing decade.”
This decline in the United States echoes across the start-up world. In 1996, public markets were the primary outlet (70%) for venture capital investors, but today, roughly 85% of such exits are via mergers and acquisitions.
While Canada can be proud of its prudent regulators, there remains much work to be done. In the past six years, the relative trend has reversed. Compliance costs here have risen, as have the number of shareholder lawsuits.
“Canada must certainly not follow in the footsteps of the United States. It must instead improve its IPO model in order to bring more investing opportunities to all Canadians, and improve young entrepreneurs’ access to capital,” concludes Mr. St. Onge.
The Viewpoint entitled “Canada Shows the Way on Stock Markets” was prepared by Peter St. Onge, Senior Economist at the MEI, and Michel Kelly-Gagnon, President and CEO of the MEI. This publication is available on our website.
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