In a recent paper titled, “Public or Private Venture Capital?” author Darren M. Ibrahim compares the relative benefits associated with reliance on private capital to fund start-ups and emerging companies with “public” venture capital in the form of securities exchanges like the London Alternative Investment Market, or AIM. The author looks at three such venture exchanges, the AIM, the German Neuer Markt, or NM, and Hong King’s Growth Enterprise Market, or GEM. The author did not use the Toronto Venture Stock Exchange because most of the listed companies are not technology-based companies. None of the three exchanges examined has proven as successful an approach to funding emerging companies as has the US venture capital model. The paper notes that in connection with investing in earlier stage companies, there are information asymmetry issues as well as agency costs. The author notes that, in part, the failures of each such exchange may be attributed to the manner in which these exchanges addressed information asymmetries and agency issues. In the case of the exchanges, corporate and securities law requirements were relied upon. In the US venture model, VCs rely on private contractual arrangements and staged financings to reduce asymmetries. Over time, the US venture model has proven to be more effective in funding successful growth companies. Proponents of capital markets reforms regularly recommend that US policymakers consider venture exchanges despite the lack of success of venture exchanges outside the United States. See full report here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3266756

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