Toronto-based Canada Business Growth Fund (CBGF), which started in June of 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.
“We are hoping to soon back our first in Alberta,” said George Rossolatos, CEO of CBGF, who explained 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 scale up.
CBGF seeks 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. That is for venture funds,” Rossolatos said.
CBGF is independent but is backed and was created by 13 major lenders in Canada. The fund represents all the Big Six banks, plus HSBC, Laurentian, Canadian Western and others including large insurance companies, Rossolatos said.
A common problem with Canadian companies is that they scale up but then sell the company before it reaches its full potential, he explained. “We are patient. We want the company to keep growing, keep acquiring.”
CBGF says it is committed to long-term partnerships in the companies it invests in.
“As an evergreen fund, CBGF technically doesn’t have fixed end dates,” Rossolatos said, unlike most business growth funds that sunset after five or 10 years. “We invest for the long haul.”
CBGF does not advance loans. Instead it takes a minority equity stake in a company of up to 40 per cent. “But we want the entrepreneur to remain in control and in charge of the company.
“We have a say, in effect a board seat, and work with the owner in making bigger decisions, but it is their play. We are here to support them.”
CBGF has experts on staff, often related to specific businesses, who can provide timely advice, he said.
“We are an investment partner. Our capital is projected to grow to $1 billion and we want to invest in Canadian companies to help them grow,” he said.
CBGF’s first investment, of $15 million, was in Lift Auto Group of Kelowna, 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 and one in Saskatchewan.
The other two B.C. firms are SendtoNews of Victoria, which distributes video clips of professional sports highlights to media outlets, and Appnovation of Vancouver, which advises companies on their digital strategies. Not a startup, 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 others in Canada.
“SMEs represent 99.7 per cent of all businesses in Canada and employ 89.5 per cent 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 per cent of the private sector labour force employed by SMEs.”
In 2018, he added, 91 per cent of the jobs created in B.C. were by small-to- mid-size firms, the highest ratio in Canada.
CBGF has also invested in Saskatoon-based Vendasta, a cloud commerce platform for companies that provides digital solutions to SMEs. Launched in 2008, Vendasta has about 300 staff and has grown to reach over two million clients around the world. It was recently named one of the top 500 fastest-growing companies in North America by Deloitte.
Rossolatos explained that Canada has a gap in business funding. He noted that venture funds will back startups but there is a lack of 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 had dropped nearly 50 per cent from 2015 to 2018.
Early indications are that the companies CBGF has invested in are using the capital to expand, to hire more people and to grow. “It is early days yet,” Rossolatos said, “but they all appear to be doing well.”
CBGF has received about 300 applications from SMEs seeking a funding partner and has entered into agreements with only eight, to give an idea of the high standards required. The basic parameters, along with ethical considerations, are that the company be headquartered in Canada, be posting at least $5 million in annual revenue and have an established strategy and potential for growth.