Jeffrey Cyr
Managing Partner - Raven Indigenous Capital Partners
Part of the Spotlight on Indigenous Reconciliation and Social Finance

Towards a Reconciliation Economy: Investing in Indigenous Business

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Takeaways

  1. Indigenous entrepreneurs face many barriers in accessing capital, including the perception of risk from investors, the inability to take out a line of credit, leverage collateral and a lack of intergenerational wealth.
  2. The broader trend towards social finance and impact investing is aligned with an Indigenous perspective on business. Indigenous entrepreneurs’ values are aligned with those of Millennials, the growing movement towards investing with impact and wanting to do good for one’s communities and the world.
  3. Traditional investors should consider investing in Indigenous entrepreneurs for beneficial social, environmental, and economic outcomes.

Action

The wealth holders in the Canadian economy – including high net worth individuals, funds, financial institutions and trusts – must look beyond their traditional investment pools and invest their money and resources into Indigenous-led businesses. Access to capital for Indigenous entrepreneurs must be increased so that Canada can move towards a reconciliation economy.


How has the Indigenous economy evolved and what are its current strengths?

Over the past 40 to 50 years, there has been a maturation in Indigenous business. A critical mass of early stage entrepreneurs are emerging, often in connection to the resource sector in their early stages, and then branching out into other sectors. We have seen a parallel growth in capacity at the Indigenous nation level, which is matched by the rise of a much broader and deeper class of educated and experienced Indigenous individuals. This class is using business as a vehicle to solve issues in our communities. The socioeconomic issues facing our communities are extreme and Indigenous entrepreneurs are not seeing change or results stemming from traditional government supported mechanisms. So they are looking for ways to solve these problems through their own innovative solutions.Adversity is the mother of necessity, and that breeds innovation.

“The socioeconomic issues facing our communities are extreme and Indigenous entrepreneurs are not seeing change or results stemming from traditional government supported mechanisms. So they are looking for ways to solve these problems through their own innovative solutions.”

Through platforms like social media, Indigenous entrepreneurs are staying connected and informed on the broader trends in the Canadian and global economy. We have also seen the growth of socially responsible businesses, and it has not yet reached anywhere near its peak. Millennials want to work in a business space to do good for their communities, which matches a broader trend in the Canadian business ecosystem. 


What is the biggest challenge being faced by Indigenous entrepreneurs and how can it be resolved?

The most critical gap for Indigenous entrepreneurs is access to capital, and the knowledge and networks to put that capital to good use.The reason that becomes important is that other entrepreneurs operating in the mainstream economy take advantage of a few forms of early financing bursts to get their businesses going. The first round of financing usually consists of friends and family. The second is collateralized debt, which usually means owning your own home and using that as collateral for a line of credit to get your business going.

“The most critical gap for Indigenous entrepreneurs is access to capital, and the knowledge and networks to put that capital to good use.”

Now, if you look at this from a historical perspective, Indigenous populations have had over 200 years of colonialism in Canada. What that has resulted in on a broad scale is that there is not as much creation and transfer of intergenerational wealth in Indigenous communities, which means funding from friends and family is very limited for the vast majority of Indigenous entrepreneurs. The second component is that Indigenous entrepreneurs who live on-reserve or in social housing do not own their own home and are therefore unable to collateralize debt. Another element that is structurally different for these entrepreneurs has to do with Indigenous entrepreneurs’ interconnectivity to the broader ecosystem. For example, many other mainstream entrepreneurs will often have friends or family who are connected into business, finance, marketing or other valuable networks. A lot of the time, it is through these networks that these entrepreneurs get a first leg up. So there are structural impediments right out of the gate for a large number of Indigenous entrepreneurs.

The problem is further complicated by the perceived risk associated with investing in Indigenous enterprises. Indigenous entrepreneurs, and even Indigenous capital providers looking to raise first tranche capital into funds, face an unconscious bias or unconscious racism within financing systems. As is the case with bias and racism in general, this is not borne in the facts or numbers; for example the default rate for Indigenous entrepreneurs is actually incredibly low and Indigenous people tend to repay their loans and lines of credit at a higher rate than the broader society.

To solve the challenge of Indigenous entrepreneurs’ access to capital, we must focus on two types of capital their businesses need: debt financing and equity financing.

Debt usually serves the purpose of providing for a business’ operating costs. This has been broadly available through the Aboriginal Financial Institutions (AFIs) in Canada. They have done a pretty exceptional job within the limitations they face, which are the limited resources they have to lend and the constraints of the specific loan sizes they work within, which may not be as appropriate for businesses trying to grow at scale.

“To solve the challenge of Indigenous entrepreneurs’ access to capital, we must focus on two types of capital their businesses need: debt financing and equity financing.”

The other type of capital Indigenous entrepreneurs require is equity financing, and this is whole reason that Raven Indigenous Capital Partners exists. Equity financing is an investment that must be patient and designed to be flexible to what the business needs, so that repayments do not draw from the company’s operating resources but happen four to five to six years down the road. So the focus is on working with entrepreneurs to create value and growth. We must create funds with these characteristics to address growth within the Indigenous economy. This is a missing and crucial component in the ecosystem.


Why is an Indigenous perspective important to the future and sustainability of the Indigenous economy?

Socially-minded businesses are natural to the vast majority of Indigenous entrepreneurs. Our perspective is aligned with protecting Mother Earth, building community resiliency, and building economic growth in the Indigenous population. So instead of being focused on finding the next unicorns and extracting value from those businesses, the focus is on building a resilient economy over time with businesses that can uplift the community. This goes beyond the provision of jobs, and includes scholarships, training and giving back to the community on multiple fronts.

The intrinsic values and aspirations of Indigenous communities and entrepreneurs are aligned with the direction the world is going in. Globally, we have seen large investments in socially responsible corporations and businesses. This is driven by the climate crisis, social and financial exclusion of large populations, and movements like Occupy Wall Street. The financial industry is finding these new brands and approaches refreshing, and it presents a lot of opportunities within Canada. 

“Socially-minded businesses are natural to the vast majority of Indigenous entrepreneurs. Our perspective is aligned with protecting Mother Earth, building community resiliency, and building economic growth in the Indigenous population.”

I see at least two sets of opportunities stemming from this. The first is within Canada itself and is centered on growing these socially-minded businesses and their ecosystem, and enabling people to invest in them. The second is capitalizing on the growing global interest in what Canada’s Indigenous businesses are doing. We have seen American and European funds becoming interested in Indigenous businesses. They are very excited about the approaches that we take and what we call the decolonizing of the investment process, which for us, in part, means investing in social responsibility. Because of this, we now have American funds investing in our fund.


Are there unique Indigenous ways of measuring business impact?

Measuring impact is a great task for the investment world. Through an Indigenous perspective, we use a framework where we look at a business’ internal and external impact on both communities and enterprises. We take a traditional Indigenous approach by using story-telling in how we harvest data. We also take into account the enterprise’s impact on the Calls to Action from the Truth and Reconciliation Commissions (TRC) and the UN’s Sustainable Development Goals (SDGs) alongside using some common impact investment metrics like IRIS+. 

“Investors in Indigenous businesses find this to be the most exciting part of the investment process because, ultimately, we want a human-centred economy that is concerned with the lives of human beings.”

Indigenous funds like ours discuss the impact narrative of a business during the early stages of the funding process. We help businesses realize how they touch people’s lives and how they can give back to the community. A good example is a business we work with that used its staff to support campaigns like Missing and Murdered Indigenous Women and Girls. We also ensure that investors understand our impact on the economy while capturing value along the way. Investors in Indigenous businesses find this to be the most exciting part of the investment process because, ultimately, we want a human-centred economy that is concerned with the lives of human beings.


How do you define economic reconciliation and where do you see the Indigenous economy in 5 or 10 years?

Building economic reconciliation is a process, as opposed to an endpoint with a goal. We need resilient economies that are built for Indigenous people in the often remote communities they live in and apt for where they are at in their goals as an enterprise. Instead of a focus on growing a company tenfold, we should focus on building enterprises that are stable and resilient.Often when you ask Indigenous entrepreneurs why they are in business, the vast majority say it is to help their family and community because they are generally less concerned with profit. 

“Instead of a focus on growing a company tenfold, we should focus on building enterprises that are stable and resilient.”

No one knows what a reconciliation economy looks like, but we are starting to see what it could look like. At Raven Indigenous Capital Partners, we focus on keeping and maintaining Indigenous ownership and control of the company. What many entrepreneurs want to do—should they be bought out or brought to public market—is reinvest in their communities. So the intentionality and desired future state for Indigenous entrepreneurs is somewhat different from the mainstream business ecosystem. 

There is also an internal debate on the term “Indigenous economy” because it implies that the Indigenous economy is secondary to the larger economy. Eventually, we would like to see a move away from this terminology. But right now, an equity fund focused on the Indigenous business ecosystem is necessary because we cannot otherwise access capital. However, we are getting to a place where investing in Indigenous enterprises is becoming normalized.

“If we decolonize the investment process, it will lead to some niche market growth. For example, the world has a lot to learn about Indigenous businesses and their desire for a circular economy.”

Further, if we decolonize the investment process, it will lead to some niche market growth. For example, the world has a lot to learn about Indigenous businesses and their desire for a circular economy. The broader society and economy need to think differently, or else we will run out of the planet, space and time.Once the traditional investment pool opens up capital for Indigenous-led businesses, collectively we will start creating the reconciliation economy.