Canadians Need Better Investment Opportunities
In Canada today, if you have an extra $10,000, you are likely going to do one of three things with it. You can put it in a deposit and earn less than 1%. You can invest it in a mutual fund or a stock and hopefully earn 6–7%. Or you can hide it under your pillow for a rainy day. These rules obviously don’t apply to everyone. Accredited investors — people with over $1 million in assets or over $200,000 in annual salary – have a plethora of options. These private investors can put their money into hedge funds, venture capital funds, and other opportunities; which pay much more handsomely than retail investments.
Marc Andreesen wrote a beautiful exert called “Unshackling the Middle Class”. He gave a great example about the upside potential of investing in Microsoft v.s Facebook, post IPO. In 1986, MSFT had a $500 million market cap, which today has surpassed $200 billion. As a private or accredited investor, this means you only had a “$500 million head start”. FB on the other hand, had an IPO with a market cap of $100 billion. How much upside do you think really exists in this social network company?
An important question to ask is why are the financial regulations structured this way? Why do the rich have better opportunities to get richer, while the middle class can only benefit marginally? The way politicians answer that question is very interesting. They suggest the rich have much more to lose, and can handle the costs. The middle class, probably because they are not as financially savvy, and have low amounts of capital, have more to lose. But is that necessarily true? More importantly, is that fair?
Thankfully I am not the only one asking these questions. Almost every Western country has asked this question and has created some unique answers. Examples include equity crowdfunding, peer to peer lending and investing, microfinance opportunities, and many more. These examples are evident in the UK, the US, Germany, France and many other regions. Canadian entrepreneurs, much like entrepreneurs elsewhere (except nicer), asked similar questions as well. The reason other countries have great solutions, and Canada does not? Regulation.
Regulation is the only real enemy of innovation. Financial regulation is not only terribly fragmented across the great white north, but it is also slow to change. I have no idea why it is so fragmented, but I can take an educated guess as to why it is slow to change. I think every major industry in this country is controlled by oligopolies. It is easy to guess why the finance industry would not want more relaxed regulations. Those oligopolies have a strong voice and they usually get what they want, or get to delay what they don’t want.
In the US, Lending Club, a peer to peer lender is about to IPO. In Canada, we don’t even have a national peer to peer lending solution, let alone a large public corporation. It is not because of a shortage of talent, or entrepreneurship, it is simply regulation. In fact, Canadians have tried to solve this problem, but have been shut down each and every time. Either it is completely illegal (shutdown via court order), or very costly to operate (shutdown via bankruptcy).
Not all hope is lost
Recently there have been discussions about an equity crowdfunding bill that might be passed. This would be for private investors first, but ideally it would be open to anyone with money in the future. There are also peer to peer lending companies trying to gain exposure and legal restrictions. Maybe some will succeed initially by targeting private investors and hoping for it to trickle down.
This is another area where cryptocurrency has seen success. Multiple startups have tried to target this space to allow anyone to invest. Success has varied but outcomes seem mostly positive. If the initial group of cryptocurrency adopters were technology enthusiasts, the next wave will be financial entrepreneurs. The ability to invest in anyone, anywhere, without any restriction is very appealing. Granted you have done your homework and the company your are investing with is secure.
Close
I think this is a good issue for us to consider. There are obviously some restrictions that have to be kept in mind. This cannot apply to just anyone with money, and these investments must not be sold to investors. Canada is behind in terms of regulation. Initially we need to allow peer to peer and crowdfunding firms to gain exposure. Then we need to drop the requirements on who can invest. Eventually, any Canadian should have the opportunity to attain wealth if they invest intelligently. These investments should be fair and open to all, restricted only by how much to invest in.
