The Future of Entrepreneurship
- SME’s represent 99% of all Canadian companies; 90% of all jobs in the private sector; and they account for 85% of all net new jobs created in Canada last year.
- Bright young companies often sell too early because they face challenges raising patient minority capital and accessing mentorship and support.
- Government should ensure that SMEs have a seat at the table when forming policies that directly affect the business ecosystem.
Entrepreneurship’s Importance to Canada’s Economy
Entrepreneurs are the lifeblood of the Canadian economy and often we refer to these types of companies as SME’s, which are companies under 500 employees. They represent 99% of all Canadian companies; they represent 90% of all jobs in the private sector; and SME’s accounted for 85% of all net new jobs created in Canada last year.
“It seems that a lot of our innovation now is coming from our SMEs.”
I think entrepreneurship is more important today than it was 10, 15, 20 years ago. I think the percentage of new employment created by SMEs is higher. In the past, large corporations seemed to be the ones that were delivering innovation, now it seems to be the smaller companies and with social media, and with technology, and with the cost of starting a new firm, the ease of starting a new firm changing quite a bit in the last decade it seems that a lot of our innovation now is coming from our SMEs.
It is really important for starting up firms to be relatively easy in an economy and not every firm is going to hit and become a success story—and as you know, the failure rate of entrepreneurs and new ventures is quite high. And in fact, the ease of starting a new firm in Canada is one of the highest in the world and our job at the Canadian Business Growth Fund is to back ones that have scaled—and the ones that can rise to the top of that startup group that now are ready to scale nationally and internationally. Those are the companies that we really need to scale in Canada for maximum impact.
Challenges and Support for Canada’s Entrepreneurs
There is absolutely a gap for our entrepreneurs in scaling their companies, and at the Canadian Business Growth Fund we see the gap—we call it the growth capital gap—but it has several components. It’s not just capital, although capital is an obvious gap that they have got. Patient minority capital that can fund them over the longer term that does not need an exit early is really important because too often our bright young companies are selling too early. But with that capital they also need guidance, and support and mentorship, because a good small company CEO doesn’t instantly become a good big company CEO—they need help and mentorship along the way.
I think that Canadian companies do need to think bigger. I think here are many that have an opportunity to expand nationally and internationally and do not take that opportunity to do so because of constraints that they perceive—and one of the constraints is capital. They don’t believe that they can raise patient minority capital because they do not want to give up control of their company to do it. So often they are bootstrapping their business and not taking outside money because they do not want to give up control, but there are solutions—like what the Canadian Business Growth Fund can provide—that can provide them the capital they need while they still maintain control of their company.
They often need guidance and support. They are sometimes worried and trepidatious about venturing out to start an international segment to their business without the support, and we try to do that at the Canadian Business Growth Fund and bring them mentorship and guidance and the right advisors at the right time.
And I think lastly, they do appreciate a “Made in Canada” solution while they are thinking of expanding—whether its nationally or internationally—they would like a Canadian partner who understands the challenges they are facing here.
The CBGF’s Mission
The origin of the Canadian Business Growth Fund is quite interesting. The government actually helped form this private sector fund. Back in 2016, the government formed an economic advisory council made up of very high-profile Canadians that had an interest in helping Canada become more competitive; helping Canadian businesses thrive. And they were challenged with the task of coming up with a series of recommendations of what we can do in Canada to accomplish those goals. One of those recommendations alluded to a growth capital gap—that we were quite good at starting firms, we were quite good at selling firms, but we are not so good at growing them from small to big.
“The number of Canadian global leaders is down 40% in the last quarter century and we want to solve that as the Canadian Business Growth Fund.”
One fact that that report alluded to was the number of Canadian global leaders is down 40% in the last quarter century and we want to solve that as the Canadian Business Growth Fund. That economic council recommended a growth capital solution and they asked the Canadian banks come together in an evergreen fund that does not have an end, that can back companies for 10, 15 years or longer.
The CBGF is investing across the country. We’re based in Toronto. We have invested across the country in Kelowna, in Victoria, in Saskatoon, in Burlington. We are working on transactions in Halifax, Edmonton, Calgary. Eventually we would like to have an investment in every province, and we think that we wanted to distribute entrepreneurship across the country and back great entrepreneurs that we are meeting across every province.
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We are helping them grow with the capital, with the right advice at the right time, the “Made in Canada” solution and we are bringing partners to the table as they need it. We have placed a chair for one of our companies, we have introduced another one of our companies to a CIO of a major multinational corporation. We can add value, we can help, and I think that if we keep doing this in the form of eight to 10 investments in great entrepreneurs every single year—year in and year out in an evergreen format—we are going to make an impact and we are going to see a number of companies that become national and international successes that would not have otherwise been had we not been the investor, and that is our ultimate goal.
The Canadian Business Growth Fund is a sector agnostic fund. We look at any sector that is growing—whether that growth is 15% or 50% it is still a growth part of our economy and can be fostered and will create jobs and will create opportunity for people. So I think that we are careful not to only focus on the high flying companies in Canada, there are companies and industries that are growing at 15% to 20% every year that are constantly adding and constantly creating, constantly innovating that I think are underserved and our goal is to equally serve both ends of that spectrum.
“The majority of job creation in our country comes from growth of SMEs that are not on the front page of the Globe and Mail.”
When you open the front page of the paper and you see AI, you see certain technologies, you see cryptocurrency, you see cannabis—those are the companies that are attracting capital, that are the ones that many firms are up here from abroad and domestic that they are chasing—but the majority of job creation in our country comes from growth of SMEs that are not on the front page of the Globe and Mail. We are investing in all of those business from retail to distribution, to manufacturing, to media, to auto collision repair—those are companies that are growing, that are the lifeblood of our economy. And those SMEs are creating 85% of our jobs and the vast majority of them are not the ones that you read about every day.
Advantages for Canada’s Entrepreneurs and Economy
A lot of investors in the venture capital world have three- to five-year horizons sometimes. To take their company from a certain level to the next level and then they sell to a strategic, and often 80% of the time venture capital firms are selling to foreign buyers. With the CBGF, we are an evergreen fund, we do not have that cadence, we never have to force a company to sell in a non-optimal manner. We would like to see them grow for 10 years or 15 years and create the next great Canadian company that stay here, that are headquartered here, that build from here.
“80% of the time venture capital firms are selling to foreign buyers.”
I think it is important we have Canadian business headquarter here. We do not want to be a branch plant economy where decisions are made elsewhere, and we have workers reporting to those in other countries. And I think having more Canadian companies that grow in scale, where the mind and management is here, where we can attract not entry level talent but senior level talent—attract and develop heads of sales and the heads of marketing and CEOs and COOs. It is easy for someone to say there is a talent gap in Canada, but it is a lot harder to create the right pipeline of people with the capabilities to fill those positions right here in Canada. And the way we do that is to keep more companies here longer and have them grow over the longer term.
How Our Leaders Must Support Entrepreneurs
There are many stakeholders that are crucial in helping our small companies get bigger. The obvious ones are the entrepreneurs themselves, investors, advisers, government and the policy that is implemented by government. Obviously, there is a government role to be had there but it is not always the obvious answer. Some companies we meet have a talent shortage—they need to figure out how to attract talent.
Obviously, some will talk about taxes and some will talk about the ease of starting a new company; some will talk about red tape; some will talk about interprovincial trade; some will talk about the ease of exporting, ease of importing products and supplies. So, I think the important part is to have these SMEs at the table, and often we bring together roundtables, we bring together large corporations, we bring together economists and elected officials but often we are not bringing the SMEs to the table. And because their needs are so diverse and because it is not a catchall group of needs that they have. I think we need to bring them to the table and listen to what their needs are across the country.
How Canadians Must Support Entrepreneurs
As a society, we do need to help foster entrepreneurship and often, those of us that are not entrepreneurs are not as supportive of entrepreneurs as we should be.
Being an entrepreneur is very difficult, there are many sleepless nights, the hours are long, there are a lot of uncertainty. Family members can suffer because as a result there is huge commitment—there is travel, there is fundraising, there is making payroll—and sometimes you do not appreciate what a challenge that is.
“In Canada we need to raise our awareness of the importance of entrepreneurship.”
And I think it is on all of us to foster that and to encourage the entrepreneurs that we know in our lives to push forward and to work through their challenges and listen to them when they are having issues and encourage them. Not everyone can be an entrepreneur, but everyone can be an intrapreneur, thinking about entrepreneurship and the organizations and fostering that spirit of furthering innovation and making ourselves better and making our companies better.
So I do think in Canada we need to raise our awareness of the importance of entrepreneurship and raise the level in which we encourage them to pursue their path.