Backed funding to address gap in capital supply
A group of top Canadian banks and insurance firms are backing a fund that will help Canadian companies grow locally by filling an identified void in the capital market.
The Canadian Business Growth Fund (CBGF) is injecting up to $1 billion from 13 financial institutions who would take on a minority share in companies of entrepreneurial Canadians. It is targeting companies with $5 million or more in annual revenues, and including those in the technology, manufacturing and services sectors.
The initial participants in the fund are: BMO Financial Group, CIBC, Royal Bank of Canada, Scotiabank, TD Bank Group, ATB Financial, Great-West Life, HSBC Bank Canada, Manulife, National Bank of Canada, Sun Life Financial, Canadian Western Bank and Laurentian Bank of Canada.
“We’re definitely looking for companies that are established, innovative, can grow, that we can help and some of those can be technology-based, but we are not venture capital,” says CBGF CEO George Rossolatos. “We’re not trying to compete with the VC community for start-ups and early-age companies.”
Though banks and insurance firms have traditionally been risk averse when it comes to investing, Rossolatos says the banks saw a void and an opportunity in the capital market. By pooling together their resources and sharing their networks, the endeavor can be a success.
“We’re trying to fill this growth-capital divide where we think there’s severe lack of growth equity for companies that are in $5 million in revenues or higher up to the hundreds of millions of dollar revenues,” he explains, adding that, unlike most funds, CBGF is willing to invest patient capital in the medium to long term.
He adds that CBGF is not considering companies that are in emerging technologies, such as artificial intelligence and blockchain, even though some fund members have already invested individually in similar technology companies and R&D. For example, RBC has invested in the Borealis AI research initiative, which now has a network that spans from east to west coast. TD Bank has invested in Toronto AI firm Layer 6.
Rossolatos says the fund is for innovative companies to help them grow locally before they are acquired prematurely.
“We’re focused on growing Canadian companies that will ultimately, have a path to success (and) need a technology strategy,” he adds. “We want to encourage Canadian companies to think how they can become bigger and create the next great Canadian company to grow to $10 million (… and more). A lot of times, they don’t have the patient capital to do that and they don’t want to give up control (of their company). To find a partner that can take a 10-year horizon and take a minority stake and be their partner to scale their company is good to have, and we hope to help those types of entrepreneurs to stay in the game longer and build the next great Canadian companies.”
The fund was first announced last year and Rossalatos, who has more than 20 years’ experience as an investor, entrepreneur and executive, was named CEO in October 2017. Since January 2018, he has been working to build the CBGF team, which is now actively searching for investment opportunities.
The fund is seeking to invest from $3 million to $20 million in mid-market Canadian companies out of $545 million initially available from the financial institutions. The fund can grow up to $1 billion in the future, the financial firms said.