Go west, young company: Despite reports of shams, swindles and manipulations, and an image as the Wild West of the world's stock markets, Vancouver is attracting foreign firms. Paul Durman reports

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The Independent Online
VANCOUVER is 4,707 miles from London. It seems a long way to go to raise money, but the distance has not discouraged a handful of British companies from taking a listing on the Vancouver Stock Exchange.

However, the main reservation that entrepreneurs and investors have about the Vancouver Stock Exchange is not its remote location but its reputation as the Wild West of the world's stock markets, 'the capital of scam'.

On a recent visit to Britain to woo new companies and investors, Derick Walker, the VSE's market development manager, suggested that the casino image belongs to the past rather than the present. Unfortunately, the Canadian authorities do not entirely agree with him.

In a hard-hitting report published in January, James Matkin of the Vancouver Stock Exchange & Securities Regulation Commission declared that the market's successes were 'overshadowed by the continuing occurrence of shams, swindles and market manipulations'. Public confidence had been brought low by the poor quality of listed companies, insider trading, fraudulent promotions, inadequate due diligence and ineffective prosecution of securities offences.

Despite this alarming litany of problems, some young British companies have found Vancouver an attractive way of raising money. The world's only venture market helped to raise Cdollars 1.1bn ( pounds 545m) last year.

Fountain House, a Peterborough company, last year raised just over Cdollars 1m through an initial public offering to support the development and marketing of its carbonated drinks maker.

Ian Aldred, Fountain House's chief executive, said: 'The UK venture capital market was virtually dead. So we went to Vancouver.'

Mr Aldred first came across the VSE when he was looking for someone who could supply a range of water filters. The American firm he identified was taken over by a Vancouver-listed company. Mr Aldred was impressed by the terms and conditions on which the company had raised its money.

Tradepoint Financial Networks, which is developing a share-trading system that could take some business away from the stock exchange, raised Cdollars 8m last March. Michael Waller-Bridge, Tradepoint's finance director, said most of the shares were placed with British institutions.

Mr Waller-Bridge said: 'We looked at various ways of raising money - venture capitalists and various other alternatives. At the end of the day, we raised our money at keener terms in Vancouver.' Tradepoint's costs were a little over 10 per cent of the amount raised.

Fountain House and Tradepoint both say a lot of due diligence work was necessary before Vancouver granted them a listing. Mr Waller- Bridge said Tradepoint's application was vetted by regulators and by independent accountants from KPMG. Its business plan came under careful scrutiny and an opinion was sought from the Securities and Investments Board, which is Tradepoint's regulator.

'I have to say the lawyers, accountants and officials of the VSE, the regulators of the British Columbia Securities Commission, and our broker were very high quality,' Mr Waller-Bridge said.

The Matkin report found that although much higher standards of due diligence are now required by some member firms, the VSE has too often allowed trading 'in worthless promotions of no real value'.

Some of Vancouver's problems stem from its distinctive role as a venture capital market. It offers a home to small companies seeking to raise some early-stage capital, usually Cdollars 1m-Cdollars 5m. Traditionally, a lot of its companies were mining firms, raising money for one year's exploration. This history can still be seen today - about two-thirds of the companies listed in Vancouver are resources stocks.

These days, Vancouver likes to present itself as a venture market for high-technology companies. It is keen to attract biotechnology and computer firms. In these high-risk fields, many businesses inevitably fail. And the VSE's more successful companies tend to graduate to the Nasdaq market in the US or to the Toronto exchange. While other markets have suffered much bigger scandals - such as those involving Robert Maxwell, Michael Milken and Ivan Boesky - London and New York can at least point to many large, reputable and successful businesses. All Vancouver can show is some promising companies amid a lot of strugglers.

Mr Aldred has experienced the drawbacks of the Vancouver stigma. He said some British investors had taken an interest in buying Fountain House shares, only to be discouraged by their stockbrokers, wary of the market's reputation.

Vancouver's 'can-do' approach is apparent from speaking to its officials. Mr Waller-Bridge said Tradepoint had found the VSE to be 'wholly professional and very understanding of the particular concerns and attributes of young companies'.

Listing requirements are liberal. Companies are required to show that they have raised Cdollars 400,000 of seed capital (Cdollars 175,000 for resource companies), that the share offering will give them total funds of at least Cdollars 850,000 (Cdollars 450,000 for resource companies) and that they have enough working capital for a year. Mr Walker said: 'You don't want to make reporting too onerous for small companies because you're going to kill them.'

Mr Walker said the VSE has been cutting out the dead wood in recent years by delisting many shell companies. About 1,700 stocks remain, down from 2,200. The market's capitalisation is about Cdollars 7bn. Most of the stock is held by private investors. Trading volumes are high.

'The typical investor is somebody who is reasonably sophisticated and wants to put a small portion of his money into the small cap market,' Mr Walker said.

The VSE looks set to lose most of its regulatory responsibilities. The Ministry of Finance in British Columbia is considering a package of reforms including the establishment of a Securities and Exchange Board, an independent body based on Britain's Securities and Investments Board.

A VSE spokesman said the exchange supported most of Mr Matkin's recommendations and the introduction of a higher-profile, interventionist regulator. 'We have difficulty with some of his rhetoric,' he said. 'We don't have difficulty with most of his recommendations.'

A cleaned-up Vancouver may encourage more companies to consider a listing. Mr Waller-Bridge said: 'Our investors appear very pleased with the listing. The company's very pleased. It's enabled us to get up and running. A venture exchange is a very laudable aim and there ought to be one.

He added: 'It won't suit all cases, of course. It takes a great level of commitment going through all the legal work and due diligence. But I certainly recommend it as an option to be considered by anybody.'

(Photograph omitted)

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