Canada's Alpha sees its future as Nasdaq of north
* Upstart exchange seeks tech identity under TMX-Maple wing
* Tech sector now plays small part in resources-rich market
* Alpha aims to encourage early-stage funding to feed IPOs
By Jennifer Kwan and Alastair Sharp
TORONTO, June 14 (Reuters) - Canada's second-biggest stock trading system, Alpha Group, wants to reinvent itself as the Nasdaq of the north, offering small technology companies access to a deeper pool of public funding as the tech sector seeks to emerge from a decade of drift.
The strategy aims to carve out a clear identity for Alpha even as it awaits approval of a grand plan that would fold it under the same corporate umbrella as TMX Group - the operator of the Toronto Stock Exchange, the small-cap TSX Venture Exchange and other Canadian trading venues.
Maple Group, the consortium of Canadian financial companies behind the pending deal, has been vague about the role it sees for Alpha under its broad proposal, first outlined a year ago.
At an industry event on Thursday just outside Waterloo, Ontario, Alpha outlined a vision that builds on its recent designation as a full-fledged exchange with the right to list new issues.
Alpha started out three years ago as an alternative trading venue and now has some 20 percent of Canadian equities trades. Its strategy will now be to focus on listing tech companies and offering investment instruments such as exchange-traded funds and exchange-traded notes.
Alpha Chief Executive Jos Schmitt said the changes would offer maturing tech companies an alternative to the TMX exchanges, a preferred global destination for mining and energy issuers. Alpha would feature listing fees as much as 50 percent lower than those on TMX exchanges.
The strategic focus on technology fits in neatly with the conclusions of a broad report on the tattered state of Canada's tech sector that was presented at Thursday's event.
Tech accounts for just 1 percent of the benchmark Toronto Stock Exchange S&P/TSX composite index, compared with around a fifth of the Standard & Poor's 500 Index, the broadest U.S. benchmark.
Meanwhile, Canada's most-valuable tech name, Research In Motion , is struggling to retain its crown. Its market capitalization has fallen below $6 billion as the BlackBerry maker struggles to reverse a steep sales slump.
"The amount of capital invested in start-ups and the number of IPOs afterwards has been falling off the cliff in the last several years," Schmitt said, referring to some of the report's findings.
The report, conducted by Deloitte and commissioned by Alpha, gave the Canadian tech sector a "C" grade, with particularly poor marks for funding and startup management talent.
"At the same time, we don't lack entrepreneurs. We don't lack ideas, and we don't lack good products and services for the future. We see it as a big opportunity," Schmitt said.
Alpha's model is Nasdaq, home to 73 percent of U.S.-listed technology companies, including Apple Inc, Microsoft Corp, Google Inc, and Facebook Inc, which raised $16 billion in a controversial IPO last month.
Alpha, which is owned by some of Canada's biggest banks, sees its listings business as the later stage of a process for boosting a Canadian tech industry filled with chronically undervalued companies starved for funding.
But before the listing process can start, Alpha aims to help foster a strong funding environment for young companies, an approach that may feed into a pipeline for IPOs.
It promises to strengthen links between founders and funders, and is urging a national tax credit for angel investors - who fund tech projects at very early stages - similar to a program already in place in British Columbia.
Total venture capital invested in Canada dropped to just C$1.1 billion ($1.07 billion) in 2010 from a high of C$5.9 billion at the height of dot-com euphoria in 2000.
In its latest budget, the federal government sought to ease the funding crunch with a C$400 million injection to kick-start investment in riskier but potentially more rewarding sectors.
Alpha's plan may make it easier to take more small tech companies public. But few expect a sudden renaissance of publicly traded Canadian technology.
"Canada for the most part is a mid- to small-cap country. Let's not pretend. We're not going to have Microsoft list on our exchanges," said Perry Dellelce of boutique finance firm Wildeboer Dellelce. "Recognize that's our sweet spot and that's where our people play."
Alpha will be challenged by the TMX's dominance in the listings business, said Doug Clark, managing director of research at agency brokerage Investment Technology Group.
"It's going to be a tough road for them to sled," he said of Alpha's focus on technology listings. "Can you go out and get, the way we get Peruvian copper miners to list in Canada, can you go and get a Palo Alto, California, company to list in Canada?"
One rare recent tech success story is Avigilon Corp , a Vancouver-based surveillance video company, which raised C$25 million with a TSX listing late last year, at a time when few were entering the market.
The stock was launched in November at C$4.50 and has since climbed above C$5.
"There is always an appetite for fast-growing, profitable, well-managed companies," said Avigilon CEO Alexander Fernandes.
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