THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Thursday, March 12, 2026
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 10:30 a.m. [ET] to study and report on access to credit and capital markets for small- and medium-sized enterprises as the basis for growth and improved productivity in the Canadian economy.
Senator Clément Gignac (Chair) in the chair.
[Translation]
The Chair: Honourable senators, my name is Clément Gignac, I am a senator from Québec and Chair of the Standing Senate Committee on Banking, Commerce and the Economy.
I would like to welcome everyone with us today, as well as those listening to us online on sencanada.ca.
Before proceeding any further, I would kindly ask my fellow committee members to introduce themselves.
[English]
Senator Varone: Senator Toni Varone, Ontario.
Senator Fridhandler: Daryl Fridhandler, Alberta.
Senator Loffreda: Good morning. Senator Tony Loffreda from Montreal, Quebec.
[Translation]
Senator Henkel: Danièle Henkel from Quebec.
Senator Ringuette: Pierrette Ringuette from New Brunswick.
[English]
Senator Yussuff: Hassan Yussuff, Ontario.
Senator McNair: John McNair from New Brunswick, sitting in for Senator McBean from Ontario.
Senator C. Deacon: Colin Deacon, Nova Scotia.
Senator Wallin: Pamela Wallin, Saskatchewan.
[Translation]
The Chair: Senators, this is our fifth meeting on our Special Study focusing on access to credit and capital markets for small- and medium-sized enterprises as the basis for growth and improved productivity in the Canadian economy. I wish to welcome our witnesses.
In person, we have Andrew Creech, President, TSX Venture Exchange, and joining us by video conference is Richard Carleton, Chief Executive Officer, Canadian Securities Exchange, CNSX Global Markets Inc.
I invite you each to make an opening statement of up to five minutes. Afterwards, the senators will be able to ask you questions.
Andrew Creech, President, TSX Venture Exchange: Good morning, honourable senators.
[English]
Thank you to the members of the committee for the opportunity to appear before you today. It’s an honour to be here. I am the President of the TSX Venture Exchange, Canada’s leading public market for early-stage companies.
The TSX Venture Exchange, or TSXV, is a component of TMX Group which occupies a unique position at the centre of the economy: the operator of Canada’s premier equities and derivatives markets, the Toronto Stock Exchange, the Montréal Exchange and the TSX Venture Exchange, as well as the critical clearing and data capabilities that enable financial ecosystems.
Our Canadian public market ecosystem is often misunderstood. When people think of the stock market, they usually picture large, established corporations, but in Canada, most public companies are actually small- and medium-sized enterprises. This is unique to Canada and something in which we should take pride.
Across the Toronto Stock Exchange, or TSX, and the TSX Venture Exchange, 58% of corporate issuers have a market cap of under $50 million. On the TSX Venture Exchange, this figure is 88%. What makes the TSXV unique is that it enables companies to access public capital at a very early stage. The most common listing route to the TSX Venture Exchange is through the Capital Pool Company program, or CPC program, a streamlined vehicle that is much more cost-effective for small companies than a traditional initial public offering, or IPO.
Since the program’s inception in 1986, more than 2,800 CPCs have been created. Of those, approximately 86% have successfully completed qualifying transactions, helping bring new operating businesses to public markets.
CPCs continue to play an important role in Canada’s listing ecosystem. On average, about 32% of TSX Venture graduates began as CPCs. Roughly 53% of all new corporate listings on the TSX and TSX Venture Exchange today are current or former CPCs. You heard that right: More than half of our public companies start out as CPCs.
But this is only the beginning of the story. The TSX Venture Exchange is an important pathway for companies seeking to grow and ultimately graduate to Canada’s senior market. Since 2000, nearly 800 companies have graduated from the TSX Venture Exchange to the TSX. This is how we incubate and grow new Canadian champions, and it starts on the TSX Venture Exchange.
Today, the success of that pipeline is clearly visible in the broader market, where approximately 22% of the companies in the S&P/TSX Composite Index began their journey on the TSX Venture Exchange. More broadly, 34% of all corporate issuers on the TSX are TSX Venture graduates, so a third have graduated from the Venture.
These are real Canadian business success stories. Part of our mission is to make this pathway easier to access for more companies. At TMX, our unifying purpose is to make markets better and to empower bold ideas. It’s an enterprise commitment rooted in a proud history and focused on ensuring a viable future.
Better markets mean more efficient flows of capital, ensuring that Canadian companies of all sizes and across all sectors can fund their business strategies, invest in innovation and ultimately become the next homegrown global success story. We view it as our responsibility to champion them by promoting investment in Canadian companies, strengthening economic prosperity and supporting global competitiveness.
To this end, TMX has put forward several policy recommendations aimed at improving access to capital in Canada. First, we recommend making the mineral exploration tax credit, or METC, permanent. The METC is a critical incentive designed to encourage investment in Canada’s mineral exploration industry; however, it continues to operate on short‑term renewals, most recently extended for only two years. This cycle of expiry and renewal creates unnecessary uncertainty for companies and investors. Making the credit permanent would provide greater predictability and strengthen investor confidence in Canada’s mineral exploration sector.
During the recent PDAC mining convention in Toronto, this point was underscored by unanimous consent from mining companies present at the industry round table with the Deputy Minister of Natural Resources.
Second, we support expanding the use of flow-through shares to additional high-growth sectors. Flow-through shares are a uniquely Canadian policy tool that has successfully de-risked investment in high-risk sectors, like mining, and helped to establish Canada as a global leader in mineral exploration financing. Expanding this mechanism to other emerging industries, like AI or defence, would help unlock new investment and support innovation across the Canadian economy.
Third, we recommend creating a more competitive tax environment for investment in Canadian companies. As one example, reducing capital gains taxes on investments in Canadian companies would encourage greater domestic investment, improve productivity and help attract and retain capital within Canada’s economy.
Finally, we welcome the government’s recent improvements to the Scientific Research and Experimental Development program, which represent meaningful progress in supporting innovation and productivity. For the first time, eligible Canadian public corporations now have access to a 35% refundable tax credit on up to $6 million in qualifying R&D expenditures, correcting a long-standing imbalance that excluded public companies from this key support.
The recommendations I have outlined today are practical steps that can help ensure Canada’s capital markets remain a power engine of innovation, investment and economic prosperity.
Thank you again for the opportunity to appear before the committee. I look forward to your questions.
The Chair: Thank you, Mr. Creech.
We now invite Mr. Carleton to share his opening remarks with us. Welcome. You have the floor.
Richard Carleton, Chief Executive Officer, Canadian Securities Exchange, CNSX Global Markets Inc.: Thank you, Mr. Chair. I apologize for not being present in Ottawa this morning. Unfortunately, Mother Nature and the Canadian airlines and transport had other ideas, although, Mr. Creech, it was obviously easier to get in from Vancouver than it was from Toronto.
I am the CEO of the Canadian Securities Exchange, or CSE. I have held this position for 15 years. My career in the Canadian corporate finance community dates back to the late 1980s and includes executive management roles with the Toronto Stock Exchange.
The CSE is a recognized securities exchange operating across Canada, with primary regulatory oversight provided by the Ontario Securities Commission and the BC Securities Commission. We are headquartered in Toronto, with a significant staff complement in Vancouver, and we have staff members in Montreal and in Calgary.
The organization is a Canadian success story in its own right. We were a start-up in 2002-03. We have raised $38.5 million over the course of our existence to fund what we believe is a more efficient, cost-effective approach to the public capital markets for small- and medium-sized enterprises in Canada.
We have literally walked in the shoes of the issuers we work with to bring it to the public capital markets.
I have included background materials in the remarks, which include the size of the organization and our development over the years, but we’ve lost two companies since I submitted my remarks this morning. We list 737 active companies — no CPCs, no ETFs and no funds. These are active corporate issuers, and over the last five years, the Canadian Securities Exchange has listed approximately 50% of the companies coming into the Canadian market.
As we think about the issues confronting public capital in Canada, we need to understand our position in the world. We often talk about the uniqueness of the Canadian marketplace, and one of the issues, of course, is the very high retail participation rates in these markets, particularly in the early-stage capital markets in Canada historically.
In truth, our only peers at the participation rate level are the United States and Australia. However, we can’t be drawing conclusions from other markets because, again, they are too different. They just don’t have the retail participation that Canadians offer to companies looking for growth capital.
They have been very important. We have built the mining industry in Canada with tremendous support from the retail sector. We saw the legal cannabis industry — in Canada and elsewhere — funded principally by the retail sector. More recently, the blockchain, AI and crypto-currency sectors have been funded principally by the retail sector in Canada.
We also need to think about where we are and understand the interplay between public and private capital sources. Private equity, in many respects, can be seen as a continuum or part of the overall process. At least, that was the way people used to think about it. Early-stage companies would receive angel funding. They would see venture capital in the very early stages, and then when appropriately mature, they would come into the public capital markets, providing a liquidity event for early investors.
Increasingly, that is not the case. In fact, what we are seeing is that private equity sources are increasingly more competitive than public capital sources for a variety of reasons, which I will get into in the remarks.
In the first instance, we’ve effectively cut off retail capital from accessing early-stage investment opportunities in the public markets. Self-directed investors, by definition, can’t participate in IPO or prelisting funding.
Accounts that are managed by investment advisers at large Canadian financial institutions, generally speaking, cannot and will not recommend participation in these investments for a variety of reasons that, again, we can get into.
In many cases, private equity is prepared to offer higher valuations than the public markets are, as they traditionally look at discounted future earnings as the chief way of valuating a company. Instead, the private markets are really looking at growth, and they will figure out how to get to profitability at some point in the future.
As I appreciate the committee has time limitations and given the interesting part of this conversation will clearly be in the question-and-answer period, I have set out a few rapid-fire high-impact issues.
Clearly, as Mr. Creech pointed out, tax policy is critical. We have to be convinced that the overall rate of personal income tax supports the productivity and investment goals in Canada. We may not measure up very well in that regard against some of the competitive economies. We know for sure that individual investors are extremely sensitive to changes in capital gains policy. With the proposed increase in the inclusion rate in 2024, we saw the tap virtually run dry.
We agree completely with TMX Group’s positions on flow‑through shares, the Scientific Research and Experimental Development, or SR&ED, credits and the mineral exploration tax credit. It is unforgivable that we continue to have the flow‑through share program approved on an annual basis only, providing the kind of uncertainty that was referred to by Mr. Creech.
We’ll get into some of the details in the conversation, but the traditional IPO is dead, and it’s not coming back for small- and medium-sized companies. We have seen a complete abandonment from institutional capital of the early-stage market. Canadian pension funds don’t buy small-cap stocks.
We need to take a look at the existing support programs too. Levels of government across Canada are exceedingly generous with a number of different industry groups which have been identified as critical, strategic or whatever. It’s not clear if we are properly evaluating the effectiveness of those programs, and, in fact, we may be crowding out public investment opportunities. One of my big concerns is we are creating a farm team for U.S. venture capital and private equity or trade sales.
The lack of harmonization of provincial securities regulation is, in fact, one of the biggest trade barriers that exists in Canada. Mr. Creech referred to the CPC program, which is the most popular means of going public on the TSX Venture Exchange. The Canadian Securities Exchange cannot offer a CPC program because the Ontario Securities Commission, one of our principal regulators, is opposed to that means of accessing public capital. Mr. Creech’s exchange is not regulated by the Ontario Securities Commission but instead by the BC Securities Commission and the Alberta Securities Commission. That’s just a simple example of how a lack of harmonization of regulation can impinge access to public capital. It is a tool we cannot use.
Last but not least, I have some thoughts to share — and I’m sure we’ll get into it during the conversation — about offering greater retail access to private equity as a means of solving some of these issues.
It’s safe to say we are not in favour of many of the measures that have been proposed over the last few weeks, and I believe that we should instead be focusing our efforts on important reforms to the public capital markets and improving retail access to those financial opportunities. Thank you, Mr. Chair.
The Chair: Thank you to the both of you. Those were informative opening remarks. I think we’ll have an interesting session.
Colleagues, we have 45 minutes left. I suggest we limit ourselves to five minutes each, and we’ll see if it’s possible to continue after that. We will start with our deputy chair, Senator Varone.
Senator Varone: Hopefully, I will get two questions in, but here is my first one. Mr. Carleton, it’s been my experience that — and I only read about the public markets, as I’m not very much involved — you are never rewarded for your abundant successes but you’re constantly vilified for the rare failures. In terms of compliance enforcement against bad actors, does the Canadian Securities Exchange have the right tools and the right capitalization to investigate and pursue the bad actors and bring them to justice? Are the penalties commensurate with the infractions, or do the bad actors feel it is just the cost of doing business?
Mr. Carleton: You may think it is a fairly simple and straightforward question, but securities regulation in Canada is a multi-layered approach. At the top of the heap, you have the securities commissions who have broad powers of investigation and resources to police, investigate and ultimately prosecute the bad actors.
From the market supervision perspective, we have the Canadian Investment Regulatory Organization, or CIRO, and they police activity on the markets, so it’s the trading conduct. The principal folks under their jurisdictional purview are the dealers, so they are looking at trading across all markets, including the TSX Venture Exchange, the CSE and so on.
For the Canadian Securities Exchange and the other exchanges in Canada, our primary jurisdiction is over the issuers, so with the assistance of the securities commissions, we primarily ensure that the continuous disclosure provided by the companies is up to date.
In terms of accuracy, that is, in many respects, up to the market to determine or at least to evaluate the risk of the information that is being disclosed. But we are constantly working with CIRO and the respective securities commissions, whether it is on the investment side or the trading side, to keep at bay the bad actors, as you describe them, or at least the behaviour which is contrary to the interests of the marketplace.
Our jurisdiction as a self-regulatory organization is really limited to the issuers, and we have very limited tools to punish the bad actors. In many cases, the only tool in our kit is to suspend the company from trading. As a result, in some cases, that can be unfortunate for the existing shareholders of the company if they are deprived of the market, so it is a bit of a blunt instrument.
CIRO has the power to work with the dealers and, eventually, have fining power and deprive people of their registrations, and the securities commissions have the power to exact additional fines and, in fact, impose jail sentences if those are called for in those particular cases.
Senator Fridhandler: Thank you for joining us today and for your introductory remarks. Those were very helpful.
There was an allusion to the barriers to retail investors participating in the marketplace. The balance between “know your client” and “know your product,” in my view, and then some of the exempt thresholds are overkill on the part of the regulators in terms of allowing market participation. Earlier witnesses have said that we let people buy crypto-currency, go to the casino and blow their brains out, but we don’t let people participate in the junior markets.
I would like to hear both of your comments on the overregulation or the extensive barriers to people getting into the junior market.
Mr. Creech: Thanks for the question.
Yes, we do see that a fair bit, so decreasing regulatory burden would definitely enable more retail participation in the markets. There are subscription forms that investors need to sign to participate in financings that are extensive. Then there is the burden on the regulatory side in terms of the brokerage houses that play in the public sector, and they have oversight by their compliance departments as well.
Having someone participate in relatively modest financing for a venture-sized issuer is extremely difficult, as you noted.
With the self-registered funds, it is hard for them to participate without actually having these broker accounts. There is also gamification out there right now. There are a lot of alternatives. People are investing and taking their risk capital and deploying that more in the online-form gaming apps that are out there.
Mr. Carleton: Senator Fridhandler, you are absolutely right: We have seen a migration of how early-stage capital formation takes place away from the IPO to the non-offering prospectus. What happens now in just about every case where a company is going public is that it will raise the money privately using, typically, the exempt investor or accredited investor — depending on whether you’re in the United States or Canada — exemption to the prospectus requirement. That money is raised, in effect, from wealthy people and, in many respects, from offshore as well. You will note from some of my materials that there is a lot of participation from the United States, Western Europe and offshore, in addition to B.C. and Ontario being the two largest contributors to capital formation in Canada.
What happens is that these securities will be distributed privately to a relatively small group of individuals, funds, family offices and so on. Then they will do the non-offering prospectus to qualify the securities for listing on the exchange. Then when they come onto the exchange, they tend to not have as broad a distribution as they would get under the IPO, so price discovery is harmed, volatility is increased, generally speaking, and it can make it a bit more challenging for the company to raise follow‑on capital as a result of that relatively thin public market they have.
Of course, the benefit of the IPO is that you see a broad inclusion in that offering, with significantly more shareholders, better liquidity, better price discovery and a better opportunity for the company to raise secondary funds once they are in the public markets.
I should add that last year in Canada, there were 10 IPOs. The CSE did five of them and, I think, raised a grand total, in our case, of $8 million with those five IPOs, which tells you that all they were doing was qualifying securities that had already been or previously issued to investors. This year, in the first two months, there have been three IPOs, all of them done on the Canadian Securities Exchange. Again, that market has effectively dried up because who would you syndicate the offering to? You will not syndicate it to bank retail clients. Obviously, the self-directed money is off limits completely, and that is where the majority of retail assets are going. Exchange‑traded funds, or ETFs, aren’t going to be buying a new offering where the old mutual fund money used to be. The only time you will see institutional participation in an IPO is when the company has a reasonable prospect for joining the S&P/TSX Composite Index.
Senator C. Deacon: Thank you, Mr. Carleton and Mr. Creech, for being with us. It’s been really excellent testimony so far.
We did a report three years ago called Needed: An Innovation Strategy for the Data-Driven Economy. We saw a lot of challenges facing Canada’s highest-growth companies. As someone who has come from that space, one of the ones I’ve seen is the need for a liquidity event as early investors get to a certain age of the investment that they put in, and that is usually put into their deal when they are putting the money into the company.
Regarding liquidity events, inevitably what dominates is acquisition by a foreign entity, so we don’t get that future growth. Just as these companies are starting to scale and have their go-to-market strategy clear, and just as they’re raising money to put the pedal to the metal and grow their companies, we lose them. As someone who started his career in the investment industry in the 1970s and 1980s, I see a huge vacuum around independent investment dealers.
We used to have a vibrant owner-operator market of investment dealers across this country that would have participation in early-stage investments. Now the industry is entirely dominated by the big six banks, and it seems the regulatory structure suits the banks because it’s a very heavy regulatory structure, and the burden is too much for our independent dealers.
As part of the issue you’ve been speaking about, Mr. Carleton, and I think we spoke about this earlier, Mr. Creech, how do we reverse that trend and get the decision making away from six doors and instead broadened out to a number of owner-operators and independent dealers run by those who are putting their own money at risk?
I will start with you, Mr. Creech, followed by Mr. Carleton.
Mr. Creech: Great. Thanks for that question.
You mentioned a liquidity event. The TSX Venture Exchange is a public market, yes, but when issuers list with us, they are not listing for a liquidity event on day one. The TSX Venture Exchange is a growth platform. It’s where small enterprises can come and list, access capital and use their shares for acquisition — so they can either pay cash or issue shares that have a quoted trading price — to build their business. Usually, it is combined with a roll-up strategy, where they are accessing capital from the markets and also acquiring other entities out there.
As it relates to growing their business, it is a two-stage process. They, then, execute upon their business plan, have some success, move to the TSX and graduate there and then access broader pools of capital.
As it relates to possibly being taken out by other enterprises south of the border or the deeper private pools of capital out there, as Mr. Carleton mentioned at the start, sometimes they can find a better valuation in the private markets. What makes it more interesting for management is that we have to set the preconditions to make investing in the Canadian capital markets more interesting. That is the tax reform and supporting the market infrastructure out there as well. When you invest in infrastructure, not only just roads, bridges and airports, you invest in the Canadian capital market infrastructure as well. We are doing our part too because last year, we invested in a critical CDS clearing platform to make the technology more efficient to clear all the trades and settlement from that perspective.
Mr. Carleton: We have to figure out how to unleash the retail capital that is available. Yes, some of it is with the independent dealers. A good deal of it is actually in the self-directed accounts, which are either with the disruptor brokers or inside the big banks.
A way to do that is by looking very carefully at the accredited investor definition or exemption and broadening it.
As you say, we let people who are in a disruptor account buy crypto or other high-risk investments, yet we deprive them of the opportunity to invest in pre-public offerings, like a distribution done through an exemption to the accredited investor definition.
Getting back to interprovincial trade barriers, in some provinces, they have expanded the definition and permit individuals to self-identify and self-certify as accredited investors. In Ontario, we can’t. So if you’re running a national brokerage operation, whether you’re a large bank, an independent dealer or whatever, it raises the risk and compliance issues associated with attempting to put those dollars to work.
I think that is a key area that we can look at. Certainly, Mr. Creech’s comments about tax policy are absolutely critical.
Again, I echo the concerns that you have expressed: We’re seeing a lot of private companies which have been funded and supported through a variety of programs but never see the light of day in the Canadian public markets. Instead, they are looking for a trade sale or a quick trip down to Boston, New York or Silicon Valley for a seed round or an A round from U.S.-based venture capital.
The Chair: Thank you. I think we try to have one economy, but it seems as if we have not harmonized regulation in this country in the capital markets, as you know.
Senator Loffreda: Thank you, Mr. Creech and Mr. Carleton, for being here; it was excellent testimony.
Mr. Creech, you did mention in your opening remarks that Canada’s most public companies are small- and medium-sized enterprises, or SMEs, which is unique to Canada.
Mr. Carleton, you mentioned that the IPOs are dead and not coming back for SMEs.
I will continue with Senator Deacon’s question later on, but you would both agree that access to capital is a major concern for our SMEs. The federal government, through the Canada Growth Fund, is purchasing shares in public companies to support the critical minerals sector, which is extremely important. Should they do the same for SMEs? Would that increase listings? Should they play a more significant role in supporting them through investment in capital markets?
They currently do so through federal loans. The Business Development Bank of Canada, or BDC, plays a huge part there, and I hear many of my counterparts and former clients tell me that it’s very helpful. But it’s concerning because, to Senator Deacon’s point, once the outside investors come in, the return on capital becomes an issue, and when it becomes an issue, you either go public or sell your company. Without mentioning those numbers — I’ve done it a few times at the Banking Committee here — we all know there is a lot more liquidity outside of Canada than there is in Canada. The statistics do show that when you do sell your company, many of the investors are outside of Canada.
Should the government play a bigger part in supporting SMEs? What can they do to encourage Canadian acquisitions of Canadian companies? We have two significant leaders in our industry here this morning, and I would like your points on that.
Mr. Creech, we can start with you.
Mr. Creech: Thank you for the question. You mentioned a few different things there: the deployment of the Canada Growth Fund and BDC. We do see BDC participate in some of our issuers, particularly in the growth and innovation sector. It’s not as much on the mining side of things, but we do see issuers that have reached cash flow status participate with funding from BDC. So I definitely like to see that.
We want to create the right conditions where we can decrease the regulatory burden and make it easier for issuers to go public and stay public. There’s the introduction of the semi-annual financial reporting, making that available to all venture issuers.
You also talked about liquidity. In particular, 40% of the liquidity that happens on the TSX Venture Exchange is generated from outside of Canada. It is an international marketplace where we have a lot of eyeballs from Asia, Europe, the U.S. and Australia. There is a lot of participation across the globe in the marketplace there.
Again, going back to my opening comments on the tax reform as well, it’s about providing incentives for people to participate in the Canadian capital markets, and we do see Venture companies merge with other Venture companies as well. Trying to keep that successful listing in Canada sometimes also generates spinoffs from those. You might have two issuers that own part of the same project in a mining issuer. They will come together and form a larger mining company. They might have a portfolio, and they are interested in one or two key properties and spin out some of the smaller properties to generate another new listing to keep, effectively, two listings in Canada over time. Make it more of an incentive and decrease the regulatory burden to enable that.
There is duplication right now in annual information forms and MD&A disclosures, so try to rationalize disclosure requirements for these issuers because if there is a bunch of duplication, you are paying lawyers to look at two or three sets of documents that say the same information. It’s about making it easier that way as well.
Senator Loffreda: Thank you. Mr. Carleton, any comments on your side?
Mr. Carleton: The single best thing that the federal government can do — I’m mining focused here — is address the infrastructure issues that the mining industry has, particularly in Ontario and Quebec, such as access to power, roads, shipping facilities and rail. The key one, of course, is getting funding for smelting and refining. That will open up the exploration side because they are suffering as a result of a lack of clarity on how they are going to get their products to market if, in fact, they move from the exploration to the production phase.
[Translation]
Senator Henkel: Do you have any recent statistics on the success or failure rate of initial public offerings by SMEs over the past two years?
[English]
Mr. Creech: We have talked about IPOs a couple of different times at the meeting so far. On the Venture side of things, we did have over 70 new listings last year. In terms of IPOs, there were less than five.
I talked about the Capital Pool Company program and qualifying transactions. We had 28 new listings via qualifying transactions and another 30 or so via reverse takeover-type transactions. In total, there were over 70 new listings.
On the TSX side of things, their new listings were primarily graduations from the TSX Venture Exchange. Notwithstanding that the TSX didn’t have many IPOs last year, they did have over 10 graduates from the Venture side of things.
In terms of statistics overall to paint the picture, in 2015 the total market cap for the Venture side of things was $40 billion, and in 2025 the total market cap was $152 billion.
In 2015, the average market cap per issuer was about $12 million. In 2020, it was about $40 million. And in 2025, it was approximately $100 million.
[Translation]
Senator Henkel: I would like to know if the OECD countries, Australia, New Zealand and France have reviewed their regulatory frameworks to make it easier for growing companies to access capital markets.
In your view, which of these reforms could Canada draw on, would apply here and could be put in place by our governments quickly and easily?
If they did it, perhaps we could too. Which ones would be the easiest to apply in Canada?
[English]
Mr. Creech: Thank you for the question. I am not too familiar with Italy and France, but for Australia, they have the semi-annual financial reporting. That is something that the Canadian Securities Administrators, or CSA, has proposed, and we strongly support that to make it available for all venture issuers.
In terms of the federal government, it is the tax reform that we talked about at the opening there. We strongly support the SR&ED credits that are now available for public companies, which are proposed to go through in the next budget. We would love to see that happen. Also, provide tax incentives for investors to make it efficient and economic for them to participate in the Canadian capital markets, so make the capital gains rate effective there.
Mr. Carleton: I can speak to the Australian market. We purchased an Australian exchange in October of last year, and we are in the process of building out a venture market for Australia. One of the major differences in Australia is that their pension funds still buy individual stocks. They opted not to have these behemoth Maple 8-style pension managers. Instead, there are roughly 38 to 40 so-called superannuation fund managers who are all small and nimble enough that they are, in effect, making active bets in the marketplace regularly and purchasing small- and medium-sized cap stocks.
That provides for a much more liquid market. It means that offerings to the market are actually well supported not just by individuals but by institutions as well, who are supported by research analysts and so on.
And at this point, I believe it is the participation of those institutions that, in fact, provides better market valuations for equivalent companies in Australia than you see in Canada.
We are now seeing a number of Canadian companies which are looking to access that liquidity but also the better valuation by cross-listing their securities in Australia.
That is something we are looking to take advantage of with the exchange that we have acquired in Australia over the last year.
Senator Wallin: I have two questions, and I will start with Mr. Carleton. Everyone here is in general agreement about the tax issues, tax credits and capital gains, which I think are three times higher in Canada than they are in the U.S.
You specifically said that when it came to retail access and recent events in the last couple of weeks, there are signals you have been receiving from government and/or markets. Can you be explicit on that? What things are concerning you directly? Then I have a question for Mr. Creech.
Mr. Carleton: I’m actually not sure what you’re referring to, Senator Wallin.
Senator Wallin: You spoke about access, and you said there are recent moves that give you pause and that create concern. I don’t know whether that’s about the activity of pension funds or what you were referring to.
Mr. Carleton: There has been nothing within the last few weeks. This is a trend that we’ve seen really over the last maybe 10 to 15 years. We’ve seen it steadily. Senator Fridhandler referred to this: the regulatory structure around how retail accounts are regulated and managed by the institutions that are offering those services.
We’ve seen a dramatic narrowing of, in effect, what is on the shelf for those investors. In many respects, if you are at a big bank — and there was a story to this effect in The Globe and Mail this morning — those investors are limited to products that are developed by that particular institution. They are not going to recommend individual stocks, even ones that are already trading, because of the “know your product” rules.
They are certainly not going to get access to an issue that is being marketed by another dealer to raise funds for a mining company, life sciences, AI, quantum computing, et cetera. It is simply not part of the environment that we’re in now. Those companies have to look to other sources to secure that capital.
Senator Wallin: Mr. Creech, just to follow up on earlier comments from Mr. Carleton, he said that governments are dead and what we’re doing is kind of creating because government funds may be generous, but we are not assessing what is successful. So we end up being a farm team for the U.S. and investors there.
Is that your experience? Do you have numbers on that? You have a lot of people who come in, but how long do they last and where do they go?
Mr. Creech: Thank you for that. We do actually invest in generating new listings from around the globe. We have people positioned in Israel, the U.K., the U.S. and one in Australia, and we do drive business from and help support U.S. businesses list in Canada and access Canadian capital markets. We have had over 200 companies list up here to provide Canadian investors with retail and institutional opportunities in some of those growth sector stories.
If you were to go to a U.S. CEO and ask if they want to list in Canada or on the NYSE or Nasdaq, they are obviously going to say the NYSE or Nasdaq. But the TSX Venture Exchange is a growth platform where we can provide those early opportunities.
There is no equivalent to the TSX Venture Exchange in the U.S. It is just those two big boards. By providing access up here, we get Canadian investors and retail access to those growth stories early. They come up, raise $2 million to $10 million and execute their business plan, probably in the last two to five years on the TSX Venture Exchange, then they graduate to the TSX and then they generally seek an interlisting when they qualify for the NYSE so that they are dual-listed in Canada and the U.S. Then it becomes a function of where the trading happens after that.
If 98% of your trading is happening in a foreign jurisdiction, the issuer will move to the foreign jurisdiction. But if you can still show a decent amount of volume, they will stay listed. In general terms, someone coming from abroad and listing up here lasts between five and eight years.
Senator Yussuff: Thank you both for being here. Given the size of our country and our population compared to the U.S., which is much larger, are Canadians more risk-averse in early‑stage capital venture because of the size of the country and because people are more worried about the risk they are taking, while also recognizing we are a small population and don’t have the level of interest that people would have compared to the United States? Is that a problem?
Second, given the longer history of the U.S. in terms of its support for SMEs and growth for smaller companies, does this present a huge problem in terms of how Canadian companies quite often get bought up or are taken over by U.S. companies? They don’t mind investing because they see the return on capital in the long term, and they have a longer interest compared to when you look at Canadian investors.
Mr. Creech: A couple of things are there. If you can show CEOs access to capital and liquidity, they will list. If we can set the preconditions to make it worthwhile for issuers to access the capital they need, they will stay in the jurisdiction. If we can make it more favourable for those issuers to stay here, then they will because they can tap that pool of capital.
In terms of Canada overall, we’re actually doing very well. We are punching way above our punching power. It is quite strong. We’re in the top five in the globe in terms of the number of listed issuers, number of new listings and amount of capital rates. We are doing very well globally, but we can always be better in terms of creating a stronger financial market for Canada. Those tax regimes I’m talking about would then help bring in broader pools of capital to support those issuers, so they might not need to go south early.
Mr. Carleton: I don’t believe that risk aversion is an issue in Canada, nor do we lack entrepreneurial spirit. In fact, Canada generates more company starts or business starts per capita than any other nation on earth.
We are, as Mr. Creech mentioned, in the top five in the world in our public equity market — in effect, it’s the size of our public equity capital markets.
I’m right now on the seventy-second floor of First Canadian Place looking across Lake Ontario. I can see New York State, and their capital market is 14 times our size. So, yes, there is a gravitational pull to those markets for very specific kinds of companies, but it is not all companies. Mining companies aren’t going south to the United States to raise capital, but certainly in very fashionable sectors, they are.
As I say, we need to have that infrastructure which enables these companies to go from the start-up phase into the public markets and afford Canadians the opportunity to enjoy the growth that comes during those fast-growing times of the company’s development.
Senator Yussuff: Given our relationship with the Americans right now, do you see any of this manifesting in the marketplace currently?
Mr. Creech: Yes, for sure. With the political instability out there right now and the geopolitical situation, people are looking for safe havens. There’s a lot of demand for gold and silver, and the TSX Venture Exchange strongly supports the minerals sector. We’ve seen a lot of capital deployed into the venture space.
In financing last year on the Venture, we had over $10 billion raised. That was in the top 2 years over the last 15 years and the top 5 years over the last 25 years. There was a lot of flow of capital into the Canadian capital markets to support those mining issuers. Those are management teams predominantly based in North America that are supporting and developing projects around the world. As a result of that, we’ve seen a big flow of funds in.
Senator Ringuette: This committee has strongly voiced our support for the removal of interprovincial trade barriers. There is buy-in from all the provincial premiers, and the premise is that one province will accept the standard that has been established in another province.
From your comment, Mr. Carleton, I believe that you have seen no movement in regard to removing any kinds of barriers from the provincial securities commissions. Am I right? How would you see this premise of accepting the standards of another province on the securities scale? Thank you.
Mr. Carleton: My colleagues at the securities commissions would be horrified if I was suggesting that there was no progress, but the progress we have had is spotty, slow and not as effective as it ought to be. As I say, Mr. Creech and I can lay out any number of examples of how barriers between the provinces raise the cost of capital for companies, interfere with their ability to raise capital in Canada and genuinely, as I say, cause friction in the marketplace.
I was certainly in favour of Mr. Flaherty’s project to create a national securities regulator. As we know, it’s a long, complicated, unhappy story as to how it did not come to fruition. Again, you would have to ask the provincial securities regulators why they were not able to come to a consensus on specific issues, like the definition of an accredited investor. The rules around crowdfunding, again, are different all across the country, which makes it impossible for anybody to run a crowdfunding platform in Canada when there’s one set of rules in the United States for that capital market to provide these vehicles to raise prospectus-exempt capital from individuals.
We do need to tighten our game. People are looking at it. There are efforts, and the move to provide semi-annual financial reporting for some public companies is an important first step, but it’s very slow and inconsistent, and we should be doing a lot better.
Mr. Creech: If I could just jump in on that, Mr. Carleton raises some great points there.
Stepping back slightly on that, the global perspective around Canada right now is that there is fragmentation. There are 13 different places that you need to deal with versus the benefit of walking up and dealing with one window.
Be that as it may, regulators need to harmonize as best as possible to operate as one system. Currently, there is a passport system, so if companies want to raise capital and file a prospectus, all the jurisdictions are participating in that, except for the Ontario Securities Commission. It would be great to see the Ontario Securities Commission join the passport system. Then if you don’t have a national regulator, at least they are all playing as one at that point in time. That is something we would strongly support as well.
Senator Ringuette: Mr. Carleton, you say there’s the cost of not moving forward with harmonizing or removing trade barriers, particularly for trade. And with securities, you said that you have identified a list.
Have you also identified a way to move forward for provincial governments in regard to the securities?
Mr. Carleton: There are pain points that we have identified and are actively working with them on. They have their own priorities at a provincial level as well as nationally. I’ll give you another example.
The Province of Quebec requires, not surprisingly, official French-language documents for companies’ disclosures. That’s really expensive and adds to the cost of capital. As a result, Quebec is bypassed on many of the offerings that are, in fact, conducted. It’s an unintended consequence perhaps, but as I say, companies are realizing that the investment is perhaps not worth the expense of raising capital in Quebec.
Senator Ringuette: Could you provide the information to our clerk in relation to the question I just asked? I think it would be very helpful for our committee.
The Chair: Thank you, senators.
Is there any other senator who wishes to intervene? Otherwise, we have five minutes left.
If I understand correctly, we have barriers between provinces, which is not helpful. We have the “know your client” and “know your product” rules that explain why retail investors are not really there, and we have this big pension fund which people explained to us is for small companies and big companies at the same time, but for them, the Canadian market is not really as attractive.
I’m optimistic by nature. I have worked for 25 years in the capital markets with national banks and insurance funds. We have to find a way to make our recommendations and observations in this committee. We will have the securities regulators come to the table, and we will hear from them. Perhaps we should think about inviting representatives of the pension fund also because they have huge capital.
Colleagues, we have five minutes left. Here is my suggestion: Each senator has 30 seconds to ask their question, and the witnesses will either answer or decide which questions they will offer written responses to. Each senator will ask their question, and you will reply at the end.
Senator Varone: Thank you. I fully endorse the harmonization of one federal regulatory regime, but does compliance follow that as well in terms of one federal authority across Canada?
How do you intermingle the regulatory body and the compliance body? Is it all one across Canada? Or do we leave it as sporadic, as you highlighted in your answer to my first question?
The Chair: Thank you, Senator Varone. Witnesses, please take notes because maybe we will need a written answer from you.
Senator Fridhandler: I hear all the time about the costs of going public, and people would rather stay private and grow their companies. You have identified semi-annual financial reporting as a cost savings from the quarterly and annual.
Are there other things from the stock exchange perspective on the cost side of the equation that can be improved upon, whether it’s adjusting regulations or adjusting your rules or whoever can influence it?
Senator Loffreda: We have an extremely low number of IPOs. Are there any long-term consequences for the Canadian economy?
When it comes to policy tools that the federal government could use, which ones work best? In terms of tax incentives, we used to have the Quebec Stock Savings Plan in Quebec, and that’s no longer there. Would bringing back some of those tax incentives improve access to capital for our SMEs and increase our listings?
Senator C. Deacon: I’m focused on businesses that are not in the tangible sector — not resource businesses but our high‑growth digital and technology-based businesses — where Canada has really fallen behind in the ability to fund the growth of those businesses. That is where there are non-tariff export opportunities around the world where we do create those companies, but they migrate very quickly out of the country. I would like to hear your specific ideas as it relates to that. Thank you.
Senator Yussuff: We hear a lot about whether or not a company wants to go public or remain private. I can understand if I’m the creator, I would want to keep my company private. What’s wrong with that? I can also hear the argument for going public.
Maybe you can share some of your thoughts in regard to the obvious question as to what are the advantages and disadvantages?
The Chair: For the benefit of our colleagues and people watching us, if you could take two or three minutes each and pick the question you want to answer and also follow up with a written answer, if you can.
I will start with you, Mr. Creech, please. You have two or three minutes maximum to react to a question that you choose.
Mr. Creech: Great.
To your question about why public or why private, obviously, you give stuff up when you go public. You have to disclose everything. When you’re a private company, you can do certain transactions and not need different approvals.
To go public, obviously, they are generally trying to access pools of capital to grow their business and leverage using their share capital also as acquisition tools. It has prestige as well. We’ve heard numerous times that when a fledgling company comes on and lists with us, they actually get meeting opportunities where they wouldn’t have gotten them before because they can say that they are listed on the exchange, and that can get them access to new contracts to bid on and whatnot. It provides access there.
The cost of going public was one of the questions. To improve that, obviously, decrease the regulatory burden. I mentioned before there’s a lot of duplication out there around disclosure regimes.
We are definitely big proponents of market integrity, and we want to ensure that the investors and shareholders have the information they need to make investment decisions, but do they need a 30-page subscription agreement to sign off to be able to participate in that transaction?
Again, just to mention the semi-annual financial reporting, there’s a proposal out there. It’s to be limited to certain venture issuers. I think it should be made available to all venture issuers, but kudos to the Canadian Securities Administrators, or CSA, for proposing that term overall.
Then there was a compliance question earlier about intermingling if you went with one regulator or not. We do have a sophisticated compliance team at the Toronto Stock Exchange, or TSX, and the TSX Venture Exchange comprised of chartered accountants, securities lawyers and geologists to review the applicable disclosure that’s out there and also to vet the principals that participate in our market. We get personal information forms and do background checks on all these individuals to ensure there’s integrity there.
When we get shareholder complaints, we review those, and depending on what we need to do, if it affects a transaction submission that we have, then we factor that into our decision making. If we find actors that are acting in bad faith, we refer those to the securities commissions. The securities commissions are the sheriffs in terms of being able to actually make judgments and fines and other requirements there.
On the innovation sector, I just wanted to point out that this year, between the TSX and TSX Venture Exchange, the mining market cap hit a record of over $1 trillion, which was amazing. On the growth sector side of things, that sector hit a record market cap of $97 billion. We had both sectors hitting record market caps this year, so we are definitely trying to diversify our listing base, and we are working with issuers in the tech and growth sectors all the time, trying to get more opportunities for Canadian investors to participate in those growth stories.
The Chair: Thank you. That was very concise in three minutes. Congratulations.
Could you do your best as well in three minutes, Mr. Carleton, to react to as many questions as you have received?
Mr. Carleton: The first thing from the regulation perspective is that it is national effectively now. The exchanges are operating nationally. The Canadian Investment Regulatory Organization, or CIRO — the market regulator — is operating nationally. The Canadian Public Accountability Board, or CPAB — the overseer of the accountants — is operating nationally. It’s just the securities regulation that is the issue. Again, that’s where the intention, I believe, is required.
Really, all of the other questions come down to the question of the cost of capital. Who is providing a lower cost of capital at a given time? Is it private investors? Is it the public markets? The TSX, TMX Group and us and other participants in the field are looking at every way we can to reduce that cost.
There are a couple of things I haven’t mentioned which address other countries. The United States implemented vast new avenues of prospectus-exempt capital that permits individuals to participate under the so-called JOBS Act, specifically Regulation A and Regulation A+, which permits companies to raise $50 million to $75 million — and those numbers have been increased — without a prospectus and going directly to individual retail investors.
Capital gains are, obviously, I think the biggest tool in the federal government’s arsenal to encourage or discourage investment from individuals and others. Really, the comments on the cost of capital apply every bit as equally to the knowledge-based industries as it does to the manufacturing and mining space.
Again, what we are seeing more and more often now are Canadian entrepreneurs who have been to the U.S. venture capital/private equity mill two or three times and are actually saying, “You know what, I don’t want to do that again. I want to look at a different approach, and I’m prepared to take the plunge into the public capital pool.”
It’s not all sweetness and light and valuations and all of that stuff. There are some real challenges for companies. In many respects, running a public company in those areas, Senator Deacon, gives you more control over that enterprise than if you are subject to the whims of the venture capital or private equity fund that is your controlling shareholder.
Again, we do have advantages. It’s not all doom and gloom. We are continuing to address these costs and attempting to attack the issues as they arise.
Again, as Mr. Creech said, we punch way above our weight as a country in the public markets, and we are going to be an important part of the economic feature for Canada.
The Chair: On behalf of me and my colleagues, we want to thank you. This session was very informative with you. We appreciate very much your testimony. It would be very helpful to maybe identify for us some witnesses whom we should invite, and maybe analyze a little bit more what is going on in the U.S. market to help us understand more. Maybe you can identify some changes that we could make to just increase the relevance of this special study.
[Translation]
Colleagues, we will now move on to our second panel. We are continuing our study on access to credit and capital markets for small- and medium-sized enterprises as the basis for growth and improved productivity in the Canadian economy.
Welcome to our witnesses. We have with us Miwako Nitani — I hope I’m pronouncing your name correctly — Associate Professor, Co-Director of the Microprogram Capital Markets; Ian Telfer Teaching Fellowship, University of Ottawa; and Ari Pandes, Associate Professor of Finance, Haskayne School of Business, University of Calgary.
[English]
Welcome to the both of you. You probably have some opening remarks to share, so I propose a maximum of five minutes each. After that, we will go around the table with some questions. We will start with Mr. Pandes. You have the floor.
Ari Pandes, Associate Professor of Finance, Haskayne School of Business, University of Calgary, as an individual: Chair and honourable senators, thank you for the invitation. As was just mentioned, my name is Ari Pandes, and it is an honour to speak to you today about a topic that is of great importance to me.
I am an Associate Professor of Finance at the University of Calgary’s Haskayne School of Business, and I have been studying the Canadian capital markets for nearly two decades.
I was among the first to document the decline of public operating companies and initial public offerings, or IPOs, in Canada and to examine its causes and consequences. I have published peer-reviewed research on this topic and have been tracking this data for many years.
It is also a topic that is important to me as a Canadian. As I have written before, Canada’s competitiveness problem is not a shortage of ideas or start-ups; it is that too few Canadian firms make the leap from promising start-up to global champion, importantly while staying Canadian. In this country, more than most, the route to scale has traditionally run through our public markets. When that route narrows, we don’t just lose listings; we lose the chance to build and to own world-class companies in this country.
I will first present some statistics and then turn to the implications.
On the surface, the Toronto Stock Exchange, or TSX, appears healthy. For most of the past couple of decades, the number of listed issuers on the main stock exchange stayed roughly around 1,500 and has increased in the last few years, reaching 2,089 listings in 2025.
But beneath these top-line numbers is a troubling trend. The apparent stability is largely a function of a steadily increasing number of financial products, especially exchange-traded funds and closed-end funds. If we look instead at operating companies — the companies that invest, innovate, produce goods or services, employ workers and drive economic growth — we see a very different picture.
The number of operating companies has been declining steadily from a high of 1,206 in 2008 to a low of 634 in 2025 — nearly 50% below the peak. Today, there are more than twice as many financial products listed on the TSX as there are operating companies.
Looking at the TSX Venture Exchange, an important incubator and feeder market to the TSX, we see a similar story: Operating companies fell from 2,329 in 2002 to 1,362 in 2025.
Companies always leave stock exchanges by being acquired, going private or failing. It does not appear, however, that the decline in operating companies is primarily a function of an unusual surge in exits. What is different now is that fewer companies are replacing those that leave by going public. Between 1986 and 2000, there were roughly 35 IPOs on the TSX each year. After 2000, the average fell to around 12 per year. And since 2021, there have been only three TSX IPOs with primary offerings.
The internal pipeline has weakened as well: The graduation ladder from the TSX Venture Exchange to the senior TSX market has slid from a high of 72 companies in 2007 to just 11 in 2025. In other words, far fewer companies are moving from the minor leagues to the big leagues.
It is important to note that the decline in the number of public operating companies and IPOs is not unique to Canada. The United States has also experienced a long-run shrinkage in listed operating companies and a structural IPO decline as well.
But as I have argued, the damage is more severe for Canada because our late-stage private capital pools are thinner and regionally uneven. What this means is that if our private companies do not go public, they tend to get sold since investors, managers and employees all eventually need to get their investment returns in some form of exit.
In many industries in Canada, particularly high-value industries, the most likely purchasers for nascent Canadian businesses are foreign, often American. In this light, it is not hard to understand why Canada has struggled to develop large technology, pharmaceuticals and other high-value sectors: Too many of our promising ventures are sold early, and their intellectual property is commercialized and scaled elsewhere.
The decline of public markets seems like a remote problem for most Canadians, but it may go to the heart of what is arguably the biggest economic policy issue in this country: our declining relative productivity growth. Canada is among the top countries in per capita spending on post-secondary education and consistently has one of the highest shares of its adult population with post-secondary degrees. We also score very highly on relative rates of entrepreneurship. Notwithstanding these advantages, Canada’s levels of innovation and productivity growth lag behind nearly all of its developed peers.
One major culprit has been the failure of the country to produce large-scale technology firms. Canadians come up with the ideas, and they start companies, but few large-scale innovative firms exist in this country.
How do public markets fit into this conversation? There is a growing body of peer-reviewed research showing the real‑economy payoff from a public listing. The empirical literature is compelling: Following an IPO, firms add jobs, increase sales and expand investments. IPOs act as commercialization engines by relaxing financing constraints, enabling scale-up, expanding the international footprint and raising profitability. These are lost opportunities and a drain on our productivity unless we can encourage our founders and managers to go public.
As I have noted before, there is no single factor that explains the decline in IPOs. The most common explanations for the U.S. decline — Sarbanes-Oxley burdens and litigation risk — do not fit our facts neatly. Yet our pipeline thinned anyway.
The better diagnosis is an ecosystem problem: Compliance plumbing has become onerous and “check the box” rather than proportionate; smaller issuers lack coverage and liquidity; and intermediation is too concentrated at the top. In an op-ed last year, Senator Colin Deacon and I documented that after the 1987 Bank Act allowed banks to own dealers, all six major banks had investment banking platforms by mid-1988. Over the next three decades, the big six banks led, on average, about 60% of TSX public equity underwriting, peaking near 80%. Scale has benefits, but it also means fewer diverse risk appetites and less regional and sectoral specialization — precisely what smaller issuers need for coverage, liquidity and the confidence to list.
The good news is that Canada has a track record of practical innovation when we choose it. For example, the Capital Pool Company program and the bought deal underwriting arrangement were bold, made-in-Canada solutions that unlocked capital formation.
It is also encouraging that this committee is examining Canada’s IPO decline because the United States undertook similar Senate-level discussions in 2011 and 2012. The United States Senate Committee on Banking, Housing, and Urban Affairs heard testimony from academics and market participants detailing the prolonged drought in small-cap IPOs, debating causes and evaluating remedies. These deliberations directly shaped the bipartisan Jumpstart Our Business Startups Act, or JOBS Act, of 2012, parts of which were designed to ease smaller issuers into public company status.
Subsequent congressional reviews credited the JOBS Act with reviving capital formation for smaller issuers relative to the pre‑JOBS Act period.
Thus, when a country treats the IPO decline as a national competitiveness issue, practical reforms can follow.
I have a long list of fixes, but I’ll pause there.
The Chair: Thank you. Ms. Nitani, if you can wrap up in five minutes, please.
Miwako Nitani, Associate Professor, Co-Director of the Microprogram Capital Markets; Ian Telfer Teaching Fellowship, University of Ottawa, as an individual: Thank you, Mr. Chair, and thank you to the committee for the invitation to discuss access to financing for small- and medium-sized enterprises, or SMEs. In these brief opening remarks, I would like to share my views. I will first talk about the availability of bank loans, then of equity capital.
On bank loans, overall I think Canada has maintained a healthy and stable supply to SMEs. The loan application approval rates have been close to or even above 90% for term loans and 80% for lines of credit over the last decade. This level did not decline during the COVID period and also the last financial crisis. This was, of course, at least partially thanks to policy initiatives, the stability of the Canadian banking sector and the Canada Small Business Financing Program.
However, despite such a healthy environment, the proportion of rapidly growing firms in Canada appears to be slightly low in comparison to those in other OECD countries, particularly in the service sector.
According to 2018 OECD research, the percentage of high‑growth firms in Canada was 3.1% in terms of growth in number of employees, and it was 6% in terms of revenue growth. The OECD averages were 3.7% and 6.4%, respectively.
Growing companies are concentrated to those involved in international and innovative activities. For example, in 2023-24, while 8.4% of all SMEs exhibited higher than 20% of growth in sales, the proportion was 13% for exporters and 14% for innovators.
However, access to financing appears to be more difficult for those companies, especially for lines of credit. In 2024, where the overall line of credit approval rate was 80.3%, it was 77.3% for growing firms and 75% for innovative firms. These firms tend to cite obtaining financing as a major obstacle to growth more frequently.
In addition, Canadian SMEs might face relatively high borrowing costs compared to those in other major OECD countries. The average interest rate spread between large and small businesses was 1.05% for those countries, and in Canada it was 2.26%. To this point, the interest rates charged appear to be higher for innovative firms.
Firms need working capital when sales grow rapidly. Issues that challenge today’s SMEs, such as tariffs, inflation, supply chain disruptions, shortage of highly skilled labour and Sustainable Development Goals-related regulatory compliance requirements, all increase working capital requirements. Accordingly, the relatively lower line of credit approval rates among growth-oriented firms could be a concern.
Now I will move to issues pertaining to equity capital. First, there’s equity financing. For angel capital, the size of the market in Canada is less than 1% compared to that of the U.S. In 2024, the overall angel investment amount was C$146.2 million in Canada compared to $18.6 billion in the U.S.
The median seed round for a Canadian start-up is 37% to 40% smaller than for a comparable U.S. peer, and 15% fewer Canadian start-ups receive seed financing compared to the U.S.
As for venture capital, or VC, we have witnessed growth. Compared to the pre-pandemic period, the total annual VC investments increased from the average of $3.8 billion to $8 billion.
The annual average number of VC investments also increased from 454 to 616. There appears to be an abundance of capital for large venture capital deals, typically for deals greater than $6 million to $20 million.
However, a gap appears to exist for firms that seek $2 million to $5 million in venture capital. These investments are characterized by small capital requirements, high risks and high fixed costs relative to deal size. Deal sizes are typically beyond the range of interest to business angels, too risky for banks and too small and too risky for VC funds. Although BDC and Export Development Canada are active in this tier, private funds tend to shy away.
In addition, industry participants are concerned about the Canadian VC industry’s reliance on foreign funds, especially for large deals. The voices include: Canada risks losing its future high-potential, job-creating and export-oriented champions. There is a growing concern that very few Canadian VC-backed companies scale up in Canada —
The Chair: Thank you. Sorry, I had to interrupt you.
Colleagues, we have 35 minutes left. I suggest we limit questions to four minutes each.
Senator Varone: Thank you, witnesses, for being here today. My question is for you, Mr. Pandes. Unfortunately, I had four questions prepared, and in your very fulsome remarks, you’ve answered three of them, so I’m left with the last one.
Canadian tax policy does play a pivotal role in shaping the environment in which SMEs flourish. I’ll allow you to answer what you were about to present because you would have wiped out this question as well.
If you were the finance minister for the day, what would you do by way of tax policy to improve access to capital for SMEs?
Mr. Pandes: The capital gains tax, which I think was presented in the previous session, is the low-hanging fruit, in my mind. If we want to target it for IPOs specifically, you can have IPO-specific rollovers.
A few months back, I had an op-ed in The Globe and Mail proposing allowing capital gains rollovers when proceeds from Canadian-controlled IPOs are reinvested into subsequent IPOs. That’s not a tax giveaway; it’s just a timing shift. Ultimately, the government will get the taxes, just in a delayed fashion. That would be one way that is more targeted toward kick-starting the IPO market.
Senator Varone: Ms. Nitani, same question for you.
Ms. Nitani: The OECD reports that the small business tax rates in Canada are favourable to SMEs from an international perspective: They were the fourth-lowest among the OECD countries.
There is an argument that tax rates applied to firms with a certain level of earnings before tax, or EBT, creates an incentive for SME owners to maintain earnings just below the threshold. However, there is no cluster of SMEs with EBT ranging from $425,000 to $500,000, arguing that it is high enough not to create a large group of SMEs with EBT just below the threshold.
And I think we don’t have to concern ourselves with that.
Mr. Pandes: If I can jump in, the one other thing I would add is levelling the tax playing field. Often, we see private companies get a tax advantage, but equivalent-sized public companies don’t get the same tax benefit. The SR&ED tax incentive is a great example of that.
I know that’s coming online where they would give that kind of access to similar-sized public companies as well. I would encourage tax policy to treat company size as the determining factor, not listing status.
Senator Fridhandler: Professor Pandes, before we go down this rabbit hole, I would like to know your thoughts on us examining or reviewing what is done with the JOBS Act in the U.S. and how that might transition back into Canada policy‑wise?
Mr. Pandes: We did adopt pieces of the JOBS Act. Pre‑marketing and testing the waters is one element, but our rules are a little bit more restrictive, I would say. If you’re a public company, some of the pre-marketing is not available to you.
I would recommend looking at the U.S. side, which is a little bit more liberal in encouraging companies to go public, as well as public companies looking to raise capital on an ongoing basis and adopting some of their policies.
When the JOBS Act came out, we did adopt pieces of it, but I would say there is more room to liberalize it even further, which would encourage not only IPOs, but once you’re public, it also encourages companies to raise more capital as well.
Confidentiality when filing with a securities regulator ahead of announcing it to the public and pre-marketing more broadly not just with a dealer but with the company itself can also be pre‑marketing. Those are things in the U.S. that are a little broader than what we have here in Canada.
Senator Fridhandler: Can either of you comment on the restrictions to participation in offerings, whether it’s private or public, in terms of our creditor-investor rules and the ability to democratize participation in the marketplace, whether it’s the trading market or pre-public offerings for private companies?
Mr. Pandes: One of the concerns I have of late is that instead of fixing the public markets, we’re trying to get retail investors into the private markets. There are a lot of risks associated with that. There is less transparency and huge illiquidity issues, so if you are a retail investor that needs day-to-day funds, you are going to run into a lot of problems being in the private markets. Ed Waitzer, former chair of the Ontario Securities Commission, had a great op-ed in The Globe and Mail either yesterday or the day before, making similar arguments that we are focusing on the wrong thing, which is that we’re trying to liberalize private markets. But private markets are opaque, they operate under the fog of secrecy and there is less transparency and liquidity, so we could be exposing our retail investors to considerable risk. I would rather see more focus on the public markets and ensuring companies go public and having retail investors participate there where there is more liquidity and transparency.
Ms. Nitani: I would like to add a bit more. I am doing research on the U.S. equity crowdfunding market, and the biggest concern is the equity crowdfunding market allows, as you said, retail investors to invest in start-up companies, but start-up companies are very risky. You know only the accredited investors, venture capital and business angels were allowed to invest in those companies.
Now retail investors can invest in those companies without being equipped with the necessary expertise and data to choose investment opportunities. I know that the U.S. equity crowdfunding markets are growing so rapidly, and those companies receive a huge amount of capital. They easily get $2 million or $5 million, but when I tracked the performance of those companies after receiving the funds from equity crowdfunding platforms, many do not exist anymore. I would say that based on my preliminary research, less than 10% survived after receiving those equity crowdfunds.
I know that the Canadian equity crowdfunding market is not as active as in the U.S., but it might be good news because there might be a crash in the U.S. equity crowdfunding market in the future, given the performance and given such a low survival rate.
[Translation]
Senator Henkel: Professor Pandes, you work on the public market side. Professor Nitani, you work on the side of bank loans and SMEs. In your respective research, do you see a realistic mechanism for the savings of ordinary Canadians to directly finance SMEs in their region? If so, what are the hardest obstacles to overcome in this type of funding?
[English]
Mr. Pandes: One of the things we have seen is the “know your product” and “know your client” rules have become more onerous, so the client-focused reforms from a few years back have basically caused the big banks to push their own products, which I think is problematic. Because of that, the big banks also offer bundled and tied-in services for loans as well as equity support and advisory and all these things, so it’s pushed out the smaller brokers.
I think what we need to do is revisit those because compliance is so heavy that if you recommend an early-stage company, for example — perhaps a riskier company — you’d have to go through so many compliance hoops as an adviser in order to justify that.
In the old days, you had independent brokers and other advisers who would recommend TSX Venture-listed companies or capital pool companies. They are riskier, but potential rewards are higher. As long as the purchaser knows the risk-reward trade‑offs, there is nothing inherently wrong with that.
The big concern is that with the increase in compliance requirements, it’s just not incentivized for advisers to promote smaller, junior or small-cap companies. I think that is also part of the reason why you’re seeing the gutting of financing opportunities for early-stage growth companies in this country.
Ms. Nitani: You might remember the presence of retail funds in the Canadian venture capital industry: the labour-sponsored venture capital corporations, or LSVCCs. For retail investors, the idea was to move our savings to venture capital funds to accelerate the growth of the Canadian venture capital industry.
However, it didn’t work, so right now, most jurisdictions have phased out this mechanism. The reason is that the people who invested in LSVCCs received quite a large tax incentive. Most people investing in LSVCC retail funds for the purpose of a tax incentive are not supporting young Canadian businesses.
They were satisfied with a lower tax rate, and they did not monitor the growth of the SMEs they invested in, so the governance mechanism didn’t work.
Let’s say, for example, in the usual VC sector, the fund provider closely monitors the venture capital fund’s performance so that if the fund fails to achieve a certain level of return, like 10% or 20%, then it’s going to be very difficult for that fund to exist.
However, LSVCCs are evergreen, as investment fund providers to those LSVCCs are retail people who did not complain, even if the returns on those LSVCCs were super low.
The Chair: Thank you. I have to interrupt you. Sorry about that.
Senator C. Deacon: Thank you and welcome, Professor Pandes and Professor Nitani. I’m going to focus my question toward you, if I could, Professor Pandes. What we have been hearing is that there’s a lack of vibrancy and diversity in the Canadian capital markets, and that’s a big change from our historical place. I can see a culture change needed — not just a regulatory change — in Canadians.
We are a monopolized economy and highly consolidated. You can look at telecom. There are a lot of flanker brands underneath the three major brands.
Our banks aren’t just banks, but they are payment companies, banking organizations, insurance and investment. We have seen that massive consolidation. Is there value in our proposing or considering an option with the federal government to recommend that they actively implement a deconsolidation incentive and regulatory changes to push deconsolidation in our economy to bring vibrancy and diversity into the investment market? I think it would give Canadians more opportunity, and it would drive innovation and competition into our markets. Do you have any thoughts on that?
Mr. Pandes: I 100% agree with that. There is stability that comes with having the big banks; we saw that during the financial crisis. However, they are in too many different areas, and they have a lot of power in different areas. In the earlier question, I was referring to the bundled services and the tie-ins they offer. They lure you with a commercial loan and say, “Why don’t you come to us now for your next equity underwriting?” or “Why don’t you come to us for insurance?”
Even though we should be having Chinese walls between these different segments of it, I don’t think it operates in that way in reality.
There was another piece in The Globe and Mail yesterday where there were worries about competition and advisers basically pushing their own bank products. Part of their excuse is “know your product” and “know your client” and “those are the products we know,” so the safe thing is to offer the products they have at their disposal.
We need to scale back on some of those, which have become very onerous from a compliance perspective where they are basically encouraging ETF investment.
I do agree that we need to deconsolidate or unpack some of the bundled services that these banks are offering to allow more independent brokers to promote early-stage, younger growth stories in this country.
Senator C. Deacon: We saw with the introduction of the “know your product” rule, banks immediately, all in tandem, said, “Okay, well, we are just going to sell our own products.” It is a reflex.
We do need to look at that. Thank you very much.
Senator Wallin: Thank you very much, Dr. Pandes.
Can you give us a brief assessment of how government funding works and doesn’t work? We’ve heard lots of testimony over the years and complaints that they fund the front end but then disappear after they hit $1 million and everybody has to sell and move on. What is your assessment of the structural approach of governments to funding? In addition to how they do it, are they choosing the right sectors?
Then I would like a brief comment from Dr. Nitani: Are there other OECD countries that do it better?
Mr. Pandes: I would argue that where the government plays a role is in providing the seeds. In the U.S., if you look at the big companies, a lot of their early financing was government grants and support. If you look at the Apples of the world, they had early government support. There have been books written on that as well.
That is where I think the government plays a role. It is not in the scaling-up side of things.
If there’s a big bet type of technology or innovation, the government should support that type of risk taking and planting those seeds, but once the companies gain some traction, we have to find the private markets there to support the scale-up side of things.
We are great at entrepreneurship and early-stage ideas. The problem is in that scaling up: We get picked off too soon.
Senator Wallin: We have also heard from people that there is that transition, and there is not the right kind of advice, guidance or support to get from that start-up phase to go to the markets. The government just kind of cuts it off and says, “Good luck. See you tomorrow.”
Mr. Pandes: Yes, I agree with that.
Historically, the public markets played a really important role in that scaling-up side of things. If you think of the predecessor stock exchanges, like the Alberta, Vancouver and Winnipeg stock exchanges, they were there because first of all, there was a lack of institutional capital in Western Canada, and there was huge retail participation that was helping to support the scale-up of businesses.
We have gotten away from allowing more of that, which would help that next stage beyond government support.
Senator Wallin: Anybody doing it right, Dr. Nitani?
Ms. Nitani: On the Canada Small Business Financing Program, I think it is working well. First, it is self-sustaining and the additionality rate of firms that would not have received loans without this program is very high. I think the performance is very good. Also, this program recently amended its policy so that working capital, like line of credit loans, could now also be guaranteed by the Canada Small Business Financing Program. I think this is a good move.
As I said, because growth-oriented small firms tend to have more difficulty accessing bank loans, maybe if necessary, a further amendment to the program could be focusing on more growth-oriented firms. Also, for example, there are the federal government’s Venture Capital Action Plan, or VCAP, and Venture Capital Catalyst Initiative, or VCCI. What I like about those programs is they also amended their investment approach by not directly investing in start-up companies, but more so, they are now collaborating with the private venture capital funding sector to invest together in small firms. I think this is very good.
Senator Loffreda: Thank you both, Mr. Pandes and Ms. Nitani, for being here with us. I would like you both to weigh in on this.
Mr. Pandes, you said during your opening remarks that we do lag in innovation and productivity, and I strongly agree with you on the productivity side. However, because of our R&D tax credits, many would disagree on the innovation side. We’re great on the “R” side in Canada but not too successful on the “D” side. But where I strongly agree with you is that we have a problem. You said it’s because we don’t attract large-scale tech firms into Canada, and significant growth in the U.S. market and around the world comes from the largest tech firms, liquidity, et cetera.
How do we do that? How can we do that? What about policy tools? We talked substantially about the capital gains tax rollovers, but not on the retail side where the incentive is to invest. Maybe in the past, that wasn’t such a success because of the risks involved and the fact that many investors were having substantial losses, but how can we attract the large-scale tech firms into Canada? Any policy tools there, if you can elaborate on that?
Mr. Pandes: My thoughts on that are that we should actually be building the large technology firms in this country. When I say “technology,” that includes pharmaceuticals, life sciences and all these sectors where we lack.
We are great, like I said in my opening remarks, at the start-up phase of these seeds and companies, but the problem is that they get picked off too early. Part of the challenge is that we don’t have deep pools of capital here. Historically, where companies would go public, the broad masses would be able to invest in and allow these companies to scale up. Nowadays, with companies choosing not to go public, at the end of the day, these start-ups need to get an exit if they want to scale up. Often, that exit is either a private equity or venture capital player south of the border or a large U.S. or other foreign technology company buying these companies.
One of the things I’ve encouraged as an idea is supporting a national survey — an academic could do that — where you actually canvass private market participants, founders and managers in the private space and ask them directly, “Why is it you don’t want to go public in this country?” Also, in the survey, you can include public market CEOs and managers and ask them what works in the public market and what doesn’t.
I have not seen a large-scale survey doing something like that where we would get direct evidence from the folks on the ground to understand what is working, what’s not and what their thinking is around scaling up in this country or going public, which I think is the important piece for us.
In the U.S., if a company does not go public, it is not the end of the world in the sense that they just have deep pools of private capital that will end up allowing these companies to scale up. The challenge for us and why it is more damaging, as I mentioned in my opening remarks, is we don’t have the deep pools of capital, so it ends up being a choice of having to get an exit somehow from the managers, employees and founders, and the choice is either going to be a private equity firm or a venture capital firm that is abroad or a large technology firm.
Instead of attracting tech companies here, I would like to see us build homegrown technology and innovation companies in this country.
Ms. Nitani: I agree with Dr. Pandes. We used to have a technology cluster in Ottawa, but now it has disappeared. Also, for growing companies and entrepreneurial companies, especially high-tech companies, the close network is very important. For example, one of the fastest-growing Canadian companies right now in Ottawa is BluWave-ai. The CEO and CFO are almost every month flying to California to get VC funds. So the geographic cluster could be a very strong advantage. VCs are here, fast-growing entrepreneurial firms are here and large high-tech firms are here, and they are creating a close, tight community.
Is it possible for Canada to create that kind of cluster? Maybe, but I’m not sure. I agree with Dr. Pandes. Instead of bringing high-tech companies into Canada, we have lots of attractive high-tech growth potential companies in Canada and in Ottawa.
U.S. VCs have abandoned money and money-chasing deals. It’s about making Canada an inevitable source of good deals for U.S. venture capital funds so that we have a stable and consistent supply of VC funds for Canadian companies to grow, while creating a very close relationship with the U.S. VC funds so that they do not drive down the price of Canadian firms. I think that might be one way to do that.
Senator Yussuff: Thank you both for being here. Ms. Nitani, we want to come back to something you said earlier. Maybe your research is not yet fully to fruition, but you said that crowdsource funding in the U.S. — when you gave the data — is quite troubling. If the failure rate is what you have highlighted, we want to make sure we don’t go down the same path and repeat some of the same mistakes.
When you finish your examination of the evidence, could you forward that to us? Because it would be good for the committee to have that as evidence in regard to what our recommendation might be in that regard. Thank you for sharing that because I think you put a whole different perspective on crowdsource funding, which some people are saying is a good model that we should look at, but I think we should also know the consequences of it. I think that would be really helpful.
Ms. Nitani: Thank you. Yes, I will.
Senator Yussuff: Mr. Pandes, I want to come back and drill a little bit deeper here. If scaling is the issue and we keep talking about it, what could be more concrete that we could do as a country, recognizing that there’s been a continuous failure of us? Because every time we come to scaling, an entrepreneur just sells off the company and gets out of the market and they figure, “I don’t need this headache. Someone else can deal with that problem.”
Isn’t there something better we can do as a nation, given we have large pension funds in this country? We’ve got bank capital at the same time. Isn’t there something more concrete we could recommend that will provide a more stable source of funding in this country to allow companies to scale but also with some incentive to support that? There could be a payback to the nation and also success in terms of job creation and monetizing those creations so that the country continues to benefit into the future.
Mr. Pandes: Yes, there has been a lot of talk about pension funds, and that is an interesting question. Part of the challenge with pension funds is they are so large that small investments aren’t as attractive to them.
Second, they can invest in Canadian companies and the question is: Why aren’t they? They are looking for the best risk‑adjusted returns globally, and certainly the Canadian market is open to them for them to invest in. To me, that speaks to maybe there being some underlying issues with our companies and the risk-return rewards that are available there if they are going abroad. I’m a finance professor, and Finance 101 tells us diversification is key.
Having these pension funds doubling down on the Canadian market, if I think about my retirement funds from the Canada Pension Plan, for example, I would be a little concerned if they are all in on the Canadian market. I own real estate in this country and I work in this country, so I’d like some diversified exposure, particularly on the pension side of things. I would argue that most beneficiaries would also need the same thing. I’m not opposed to them being diversified and investing abroad.
Of course, you would want the right mix of illiquid and liquid investments in their portfolio, but I don’t see the pension funds as the generator of that. Historically, what we had was a lot more retail participation in the early-stage market. If you look at the TSX Venture Exchange, it is predominantly retail driven and early-stage companies, and in senior markets, there is also big retail participation. But that has been shrinking considerably, and part of it is the reason I mentioned earlier. You don’t have banks wanting to promote investment in these areas because the safest thing is for them to recommend passive investments due to the client-focused reforms and the “know your product” and “know your client” rules that we were talking about earlier as well as the fact that they want to promote their own products. A lot of their own products these days are more ETFs and passive funds.
The path to scaling and commercializing, realistically, is the public markets and promoting more growth in that space instead of what we are seeing in recent policy where it is trying to get retail participation expanded in the private market, which is much more opaque and risky and can blow up on investors down the road. If you are a pension fund, you have a very long-term horizon view. The illiquidity is not that big of a deal, but if you are a retail investor, liquidity is a very crucial aspect because you are trying to meet day-to-day needs. I’m not a huge fan of funnelling capital into private markets —
The Chair: Thank you. Sorry to interrupt.
Senator Fridhandler: I wanted to go back to the exits and people not listening about selling off to entities or investors outside the country. A lot of these start-ups are funded through various government-subsidized programs, whether it’s tax relief or grants per se. What are your thoughts about recapture if you’re changing control to a non-Canadian shareholder?
Mr. Pandes: Is the question around if we are getting government support and then all of a sudden that government support is subsidizing foreign — yes, that would be a bold move, I would say. You’re right: In effect, what we are doing is if you’re getting government grants, that is a subsidy for foreign jurisdictions if a lot of the money and jobs are going south of the border often. That is a bold move and certainly something to consider and think about.
[Translation]
Senator Henkel: Thank you. Mr. Pandes and Ms. Nitani, I would like to congratulate you on your exceptional work.
Back home, we talk a lot about innovation. We say that Canada is a country with enormous potential that is also full of technological and other innovations, but that it is often in its infancy and evolving in our universities, for example.
Public funds are heavily invested in partnerships with Canadian companies, but these funds fuel creativity. We pay for these innovations.
What happens is that as soon as innovations are created, they don’t become commercialized and, most of the time, large groups, large companies, mostly foreign, come and take these extraordinary innovations.
Could you help us find out if there are any solutions to that? What would be the best solutions to keep our intellectual property here, especially since it was paid for with public funds?
[English]
Mr. Pandes: That’s great insight and a great question, and I think you hit the nail on the head. We also lack relationships between our universities where a lot of intellectual property and innovation are developed and transferring that and commercializing that as well.
Over the last 10 to 15 years, we’ve actually done some pretty good things. I suspect many of you have heard of the Creative Destruction Lab that started out at the Rotman School of Management and then spread across the country and the globe.
We have a very vibrant Creative Destruction Lab program called CDL-Rockies, and that’s a great way of taking ideas that are generated within the university ecosystem, as well as others, and getting investors and mentors to support that to help scale up and commercialize.
Many universities now also have programs and funds that they are developing. At the University of Calgary, we have the UCeed fund, which is targeted toward taking ideas that have been generated from the University of Calgary and funding those start-ups, kind of like it’s a venture capitalist. Interestingly, we even have a student fund that invests, which we have developed to invest in those things.
There are little bits and pieces of things happening where we recognize that there should be better partnerships between the private sector and universities. That is one of the key things the U.S. has done very well. You can look at Stanford University and Silicon Valley as well as other great examples of that.
Senator Henkel: Could the government do something to protect and keep that intellectual property here?
Mr. Pandes: Any way the government can encourage ideas to stay in this country would be great. It ties into the recapture comment earlier as well.
Off the top of my head — I’d have to give it a little bit more thought — that’s a great initiative, ensuring that we have a lot of that intellectual property and technology staying within the country, particularly if the taxpayer is paying for university research and education. We want it to stay here. I totally agree.
The Chair: On behalf of my colleagues, thank you both for your time and contributions to our study. Your testimony will be taken into consideration by this committee.
[Translation]
Thank you, honourable senators. Our next meeting will be on Wednesday, March 25, at 4:15 p.m.
I would like to thank the Senate pages, the interpreters and all the employees who support us in our work.
(The committee adjourned.)