Capital-challenged growth companies struggle to scale up

Capital-challenged growth companies struggle to scale up

Capital-challenged growth companies struggle to scale up While domestic entrepreneurs excel at launching leading-edge companies, they struggle to follow through to the scale-up stage due in part to a lack of capital, according to a study backed by TMX Group Ltd.

A group of Canadian venture capitalists, bankers, and major pension fund executives have found that over the past decade, the capital that Canadian growth companies can access has declined, according to the Globe and Mail. They are now able to access just around a third of the money that their US counterparts can, and the gap increases as businesses grow.

The roundtable estimates that an additional $1 billion is needed by early-stage Canadian companies to match the financing that US and British businesses can access. A further $3 billion is necessary to boost more mature innovation companies, which are not growing as quickly as they should.

The money could be raised through a private-sector “innovation growth fund” backed by pension plans and large financial institutions. A renewal of the Venture Capital Action Plan (VCAP) would also help fund growth companies.

“This is a call to action for institutional investors, for financial institutions, for government and for exchanges,” said Salil Munjal, chairman of the Advancing Innovation Roundtable and managing partner at venture capital (VC) firm Yaletown partners. He added that a decision to fund an innovation company should be a “returns-driven discussion.”

The roundtable recommended that Canadian pension funds devote 0.1% of their assets under management, up to $100 million, to innovative Canadian companies. It suggested the same funding cap for banks, credit unions, and insurers, based on the size of their business. Combined, pension plans and banks could pool up to $2 billion in new funding for innovation companies, which could be found across all sectors and currently employ 850,000 Canadians.

The federal government has advanced the notion of an innovation growth fund backed by banks and insurers, and are working on creating the Canada Infrastructure Bank to aid in funding billions of dollars in projects. The roundtable has recommended that the infrastructure bank include digital communications technology in its mandate.

It also said that Canadian educational institutions should put increased focus on grooming managers for innovation companies through measures such as developing sales skills. Munjal noted that 90 business schools in the US and 15 universities in Europe have programs dedicated to marketing and sales, compared to only two Canadian schools that offer similar courses.

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