The Toronto-based Canadian Business Growth Fund (CBGF), which started in June 2018 with a $545 million war chest, has invested in eight businesses so far. Half of them are in Western Canada, including three in British Columbia.
George Rossolatos, CEO of CBGF, said the fund was started to help fix Canada’s “growth capital gap” by providing high-growth, mid-market Canadian companies with the patient, long-term minority capital they need to expand.
The CBGF business model is to invest between $3 million and $20 million in mid-market companies with $5 million or more in annual revenue, a demonstrated growth trajectory and a clear vision for accelerated growth.
“We don’t invest in startups,” Rossolatos said. “That is for venture funds.”
CBGF is independent, but it’s backed by and was created by 13 major lenders in Canada. The fund represents all the Big Six banks, plus HSBC (TSX:HSB-C), Laurentian (TSX:LB), Canadian Western (TSX:CWB) and other lenders, including large insurance companies, Rossolatos said.
A common problem with Canadian businesses, he said, is that they expand but then sell the company before it reaches its full potential.
“We are patient. We want the company to keep growing, keep acquiring.”
Rossolatos added that CBGF is committed to long-term partnerships in the companies it invests in.
He said that, unlike most business growth funds that sunset after five or 10 years, “CBGF technically doesn’t have fixed end dates. We invest for the long haul.”
CBGF does not advance loans. Instead it takes a minority equity stake of up to 40% in a company.
“But we want the entrepreneur to remain in control and in charge of the company.” Rossolatos added that CBGF staff can provide business advice to the companies it’s invested in.
“We are an investment partner. Our capital is projected to grow to $1 billion, and we want to invest in Canadian companies.”
CBGF’s first investment – $15 million – was in Kelowna’s Lift Auto Group, an automotive collision repair company that has six locations in B.C. and Alberta.
Since then, CBGF has invested in two more B.C. companies:
•Victoria’s SendtoNews, which distributes video clips of professional sports highlights to media outlets; and
•Vancouver’s Appnovation, which advises companies on their digital strategies.
Appnovation works with some of the world’s largest companies and has approximately 200 staff and offices in four countries. CBGF invested in Appnovation along with a British-based business growth fund.
According to CBGF, B.C. entrepreneurs are starting small-to-medium-sized enterprises (SMEs) at more than twice the rate of their counterparts elsewhere in Canada.
“SMEs represent 99.7% of all businesses in Canada and employ 89.5% of our entire private-sector labour force,” Rossolatos told a Vancouver meeting September 5. “However, in B.C. that number is even higher with almost 94% of the private-sector labour force employed by SMEs.”
He added that in 2018, SMEs created 91% of the jobs in B.C., the highest ratio in Canada.
Rossolatos said that Canada continues to have a business funding gap. He noted that venture funds will back startups, but there is little long-term capital support to help SMEs scale up once they hit stride.
There has also been a sharp decline in venture capital funding.
According to a KPMG study, venture investing in B.C.’s tech sector dropped nearly 50% between 2015 and 2018.
CBGF has received about 300 applications from SMEs seeking a funding partner but has entered into agreements with only eight. They met CBGF’s basic requirements, which, aside from ethical considerations, include that the company be headquartered in Canada and have annual revenue of at least $5 million and an established strategy and potential for growth. •