Donne W. Smith, Chairman and CEO of the New Brunswick Securities Commission, discusses the need for access to more capital for New Brunswick businesses in a TJ column today. I kinow some of you don’t like the NBSC taking on a developmental role when they are a regulatory body but because BNB and any othe group theoretically should be in this business – isn’t – the NBSC has stepped in and bully for them.

In addition to the well known fact that there are almost no publicly traded firms in New Brunswick, the big banks don’t really lend any money to business here either. I went through the 2006 corporate social responsibility reports of the big five banks and looked at the amount of debt financing authorized to business. On a per capita basis, here is where New Brunswick ranks for debt financing to business from the big five banks:

TD – 2nd last among the provinces at $252 per capita (Ontario $8,500 per capita)
CIBC – better – mid pack – but still less than half of Ontario
BMO – last in the country at $785 per capita – compared to $4,600 in Ontario
BNS – n/a
RBC – second last among the provinces

Now, some will say we have a stronger credit union biz in New Brunswick but I don’t buy that.

In addition, it would be interesting to see how much of that ‘financing to business’ is backed by government loan guarantees.

No, the truth is simple. There is no public equity in New Brunswick. Very little bank financing (relatively speaking). And almost no angel and venture capital.

That’s why guys like me call for the attraction of firms that already have their financing in place (FDI). It is really hard to build a capital market in a place like New Brunswick. All of our pension and RRSP money is invested elsewhere. And a point that gets lost but I think is key – in my opinion the majority of our businesses that could be targets for private equity don’t want it. They would rather own 100% of 10 bucks than take a risk at 50% of a thousand bucks.

So to the NBSC I say keep it up until such time as Business New Brunswick realizes that this should have been their role.

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  1. Anonymous says:

    Good points, I also did that search of the banks, what I found was quite interesting.

    Let’s take CIBC. In the piddly under 25 million range PEI is half of New Brunswick even though its population is miniscule. Yet in the 25-50 million range it is more than half, and that continues until we get the high end of the scale where PEI has 91 million vs NB’s 110, so its almost equal to it.

    At that range PEI has more clients, 44 to NB’s 32, meaning that NB’s companies are bigger, but they don’t have that much more debt equity, which means I can guaranteee that if we counted up the jobs there PEI would come out WAY ahead.

    I suspect PEI is in the same boat as far as business structures, I’m not sure how many more publicly traded companies they have, but those are pretty impressive numbers for an economy the size of PEI.

    So FDI IS an option, as is public trading, however, it isn’t the ONLY option. The industrial structure plays a big part too.

    But public trading does accomplish a lot of things, many of them bad, and I suspect the regulatory environment in the province will only serve to foster the bad, but leaving that aside let’s look at that:

    First, angel investors enter the game at the second stage of financing after family and friends. Here, NB is not alone as outside huge areas people have limited access to these people and little understanding of them.

    An angel investor doesn’t need to be a multi millionaire. So the access is there. They also don’t need to be local. Here the government can help simply by providing information on patenting etc. I posted awhile ago about the guy who invented the painting machine and who will get a royalty from each one sold. I suspect he made that deal because he has absolutely no idea how to market it or patent it himself.

    That’s why I say that you should have a logo for the ‘dragons den’ on your site, that at least is a show that brings these issues of publicly trading out.

    Take a new example, I recently came across Medbridge, a Fredericton company that makes translation devices for the medical profession. They are not publicly traded, however, a Toronto fund has just injected one and a half million into their product which is already in many markets. Yet they aren’t publicly traded, but get public funds. So being ‘traded’ isn’t necessarily the issue, having the industry is.

    To use a personal example, I’ve mentioned before the doctor in NB who was pushing for more research dollars for cancer research and he got it. That’s good, its government money, but here’s why its important. My wife works for a small publicly traded research firm. Not only do they have plant products but now they are into disease research with over a dozen patents and deals with Bayer and Meristem.

    Her boss, the VP in charge of Research is one of the most famous scientists in Canada and the company is backed by one of the richest families in the states, who owns most of the shares.

    With all that going for it, and with exciting new research coming, their share prices are in the toilet. They typically have only enough revenues to last six months, and had to split their stocks last quarter to raise more revenue.

    And this company is the poster child for public trading research. They have everything going for them, yet public trading hasn’t helped them a bit, in fact at trading bulletin boards most investors are saying at some point some private organization will buy them and investors will be screwed.

    And that’s in one of the best markets in Canada, with millionaires backing them, research that has already had major breakthroughs, for example, one of my wifes big breakthroughs, in a nutshell, involves the blood that is extracted from the deceased in order to treat diabetic patients. Diabetic patients can get X amount of blood that is treated which cures their diabetes for up to a year. Previously, a large number of deceased was needed, but thanks to this research, it has been reduced by one third.

    That is CONCRETE marketable science, whereas the guy in NB talking about public markets has only a vague hypothesis that he thinks MAY work. Like I said, he was clearly fishing for government money, and he got it, and good for him because there is NO WAY IN HELL that that research can get anywhere being publicly traded.

    So publicly traded isn’t necessarily the answer, it is A answer, but probably only for specific industries and products. I suspect as we look deeper into numbers like from the banks, we’ll find out more what the problem is, and how to overcome it.

    Just as one more aside, recently the city of Waterloo unveiled the ‘accelerator centre’ which is an ‘incubator’ for entrepreneurs. It is ‘filled to capacity’, but by looking at it, it is filled mostly with governmental organizations as well as some new entrepreneurial companies who so far don’t even have products so are clearly being subsidized. Recently a marketing blog went on to talk about how lousy Waterloo was with Angel Investors, even though it is full of millionaires, and that’s quite true. The technology group is not very entrepreneurial and feeds off RIM.

    Most site Ottawa, where many of the wealthy also have a politial connection, and Toronto and Vancouver as the only real ‘angel investor’ markets in the country. So this is hardly a problem unique to NB. Sorry to ramble…