The TSX Venture Exchange is a Canadian-based stock exchange owned by the TMX Group. The TMX Group consists of two exchanges: the Toronto Stock Exchange (TSX) and the TSX Venture Exchange. The key difference comes in the word "venture." The venture exchange is like a public market for private equity. It provides common investors the chance to engage with new companies looking for start-up capital.

Creation of the TSX Venture Exchange

The TSX Venture Exchange was originally created as the Canadian Venture Exchange in 1999. The creation of this new market was the solution to a dispute between multiple exchanges within Canada concerned over specialization. Typically, each exchange specializes in a particular form of security. The multiple Canadian exchanges were in a dispute over listing venture capital opportunities, so the Canadian Venture Exchange was created. When the TMX Group took ownership of the exchange, it was renamed the TSX Venture Exchange, headquartered in Calgary, Alberta.

Explanation of Venture Capital

Venture capital is a term used to describe the initial funding provided to a new business venture. Prior to this business's receiving any loans from a bank, it must meet a minimum amount of individual capitalization. At times, this capitalization is provided by the business owner personally or by the owner's immediate circle of connections. In many cases, though, new companies seek capitalization from third parties willing to provide assistance in exchange for equity in the company. This capital is often provided by private equity groups with high capitalization since the funding needed can be substantial. There is little room for a common investor with low capitalization to grab a piece of the venture capital market. 

Role of the TSX Venture Exchange

The TSX Venture Exchange gives the common investor a chance to pool together with other common investors to provide venture capital to a given organization. The companies listed on the exchange are not mature corporations with established securities. Instead, they are simply offering the chance to get in with their organization at the ground level. If an investor likes what the company is doing and sees promise in the business plan, the investor can purchase shares. Often, investors will purchase shares of companies in a specific industry of interest, such as the green technology industry, to encourage development of new ideas in that area. Investors on the TSX exchange are looking to take some risks, get in early, and hopefully turn large profits when these companies succeed.

Comparable U.S. Markets

In the United States, most venture capital is handled by private equity groups and hedge funds. Both of these financial management groups pool investors together, creating a larger ability to invest in an individual company. However, these funds are not pooling together common investors. Typically, there is a very high minimum buy in to a private equity group or hedge fund. This can be as high as several million dollars. Some will manage capital only for investors with over 20 million to invest. This assures they are working with sophisticated investors willing to take larger risks in return for potentially greater rewards. 

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