A View From Another Angle
It has always struck me how similar, notwithstanding how different they may appear at first blush to be, the junior resource sector is to the start up technology sector. These similarities include, but are not limited of course to the following:
- Both are based fundamentally on the ability to own and exploit property - mining being real property and technology being intellectual property;
- Both have an insatiable appetite for capital, whether it be exploration dollars or R&D dollars;
- Both are generally run by entrepreneurial people who believe passionately in what they are doing and what they are developing;
- Both are inherently risky ventures where the likelihood of success is at the end of the day, rather small;
- If successful, a significant number of founders see their companies sold to larger concerns, many times before the commercialization of their assets; and
- The good founders and developers are what I refer to as “serial capitalists” in that they will do it over and over and over again.
Where the analogy breaks down in my view comes back to the underlying basis of property rights. For a junior mining company, once you have secure property rights, management wants to tell the whole world what it is that they have. Yes there are some very famous exceptions, but tile is generally very secure. In the technology sector, where property rights are not referenced by boundary lines on a map, but rather contained in the brains of those who leave the workplace every day, I find management a little more guarded and at times somewhat less collegial with one another. I am an optimist though. I hope that over time that will change as well. People in industries need to stick together. They are small and everyone knows one another. What goes around comes around.
There are also some similarities that I believe those in both industries should work hard to change, most specifically truly engaging in diversity. These two sectors continue to be very much male dominated bastions. Don’t get me wrong, in that there is good work on this being done, but there needs to be more. Another area which both could improve is public perception and government lobbying efforts – but most industries would fall into this bucket as well.
And so I sit and ask myself what is going on now and what can be learned from the past. Post Bre-X in 1997, overnight I saw junior resource companies become tech companies, and some of their founders trading in suits and/or overalls for the ubiquitous black turtle neck and goatee. A very years later, they went back into their closets, retrieved their old clothes and personas and went back to mining. And, in the category of “everything old is new again” we are seeing the same thing replay itself now.
This time around though, it feels a bit different to me. Something is going on in Canada and I can feel the vibe. I feel it in the Kitchener Waterloo area, I see it through the lens of colleagues in the Ottawa area and I feel it sitting in the cafes in Vancouver when I am there. Perhaps it is a new breed of tech entrepreneurs who have great ideas, are prepared to take risk and are able to find financial backing. And it is perhaps not a coincidence that the recently sworn in Federal government of Prime Minister Justin Trudeau has formed or reformed a number of different ministries that now contains the word “innovation” or “science” or “technology”. It is all around it and we cannot escape it. And when not practicing law but being involved in the management of a significant Canadian law firm, we cannot escape it either. It is and will continue to effect what we do and how we serve our clients
And maybe, there are a few lessons from the mining sector to be learned from the technology sector. Here are a few thoughts, all of which in one way or another all come back to engagement.
- In March every year, Toronto plays host to the PDAC, the Prospectors and Developers Association of Canada Annual Convention. In the good years, over 20,000 people involved one way or another in the mining sector from around the world attend. It is part trade show, part social event, and part industry gathering where technical matters are discussed. But at its root is the “Investor Exchange”, a convention sized space lined by booths where mining companies engage with their investors and potential investors. Retail investors to the most astute fund managers and mining legends walk the floor to engage in discussions with the company representatives staffing the booth. Often, these are the most senior executives in the Company. It is that important. How about the tech sector doing something similar and invite the similar rainbow of investors to come and engage with management and demystify what it is that they are doing. No, it will not attract 20,000 people in its first year or years, but you have to start somewhere; locally and then nationally, and then internationally.
- As noted above, technology, science and innovation seem to be priorities of our new Federal government. It is time to strike while the iron is hot and engage with the ministries and have a dialogue with what is on the mind of our technology entrepreneurs. No doubt one thing is capital raising. Some of the provincial securities regulators (including Ontario) have recently announced that a crowd funding regime will be adopted. Good start. But what about taking a page out of the mining book and engage the federal government on the idea of investor incentives such as a “technology flow through share”, where certain R&D expenses could be directly flowed through to investors.
- The technology space is filled with small “angel investor” clubs and groups. It is a great start. How about broadening that by actively seeking out and engaging traditional and yet disillusioned resource based investors to participate in these angel clubs. It will be part educational for the investors and real untapped pools of capital.
None of this will happen overnight. It is all measured and incremental, but vital. And I suspect that there would be some appetite with other market participants such as the Canadian investment banks and perhaps the Toronto Stock Exchange to participate in the growth and development of this important Canadian industry.
Again, it all stems with engagement, and I firmly hope that these musings of capital markets lawyer who has proudly participated in both the mining and technology sectors can be a start.
Jay Kellerman is a Partner of Stikeman Elliott LLP, and is based in their Toronto office.
Jay C. Kellerman
STIKEMAN ELLIOTT LLP Barristers & Solicitors
5300 Commerce Court West, 199 Bay Street, Toronto, ON, Canada M5L 1B9
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