Resource Guide · Introduction The concept for this resource guide originated from research initiatives associated with the ‘Strategies to Achieve a Successful Business Exit’

Mike Thompson FCMCAssociate Professor

Faculty of Management, Royal Roads University, Victoria, B.C.

SPRING 2018

Resource GuideSources of Growth Capital for SMEs – WESTERN CANADA

Resource Guide – Sources of Growth Capital for SMEs

3By Mike Thompson FCMC | Royal Roads University

Introduction

The concept for this resource guide originated from research initiatives associated with the ‘Strategies to Achieve a Successful Business Exit’ White Paper in late 2017.

In reviewing the White Paper findings, we realized that two broad categories of firms might need access to growth capital, specifically:

1. Early Stage companies – growth requirements funded by Angel Investors.

2. Mature companies – growth prior to an eventual sale and exit being funded by Venture Capital (VC) firms.

As we investigated the depth and breadth of these unique funding resources, it became appar-ent that some form of mapping exercise was required to detail available expertise to business owners in Western Canada.1

Accordingly, we have researched and now document the various players in these two segments, located both in Calgary, Alberta and Vancouver, B.C.

In each section, we provide brief details on the funding entities’ related areas of focus + a stra-tegic group map which provides a unique graphical representation of deal size and sector pref-erence.

1 We would like to acknowledge the invaluable assistance provided by Richard Jones MBA in completing extensive secondary research in the Alberta and B.C M&A sectors to support the findings detailed in this resource guide.


4 Resiyrce Guide – Sources of Growth Capital for SMEs

1) Early Stage companies

Angel Networks (Angel Investors) – WESTERN CANADA

Angels are sophisticated investors who provide growth capital to early stage companies in ex-change for convertible debt or ownership equity. Angel investors also provide hands on manage-ment, governance oversight (via board seats) and extensive contacts within the relevant industry sector. In order to share risk, they will often team up with other investors as part of a network or consortium to provide requisite funding.

Angel capital fills the gap between Friends & Family who typically provide seed capital and Venture Capital firms who provide growth funding to more mature companies. Angel Investors require 30% + ROI (return on investment) to compensate for the high risk associated with the investment of their own funds and are usually subject to shareholder dilution from future in-vestment rounds.

Resource list – CALGARY

1. VA Angels

Established in 2003, VA Angels is an investor only membership group committed to building Western Canadian industry through early stage angel investing. Entrepreneurs looking to raise financing for their start¬up company present to VA Angels group of investors at forums across North America every month, the investors establish the actions of the forum; the rules and the areas of interest.

» 130+ members

» $44.3M invested in 150 plus deals

» Member expertise in the following areas: Biotech, Health & Life Sciences, Real Estate, Hospitality & Transportation.

vaangels.com

2. Accelerate Fund

The Accelerate Fund is an early stage, Angel co-investment fund available to Alberta technology companies, the funds represents a partnership of organizations brought together to share their collective expertise and capital to help Alberta technology entrepreneurs increase their invest-ment dollars, and ultimately their companies to new heights. The Accelerate Fund provides additional financing options to early stage technology companies.



The Accelerate Fund’s first fund, Accelerate Fund I, is managed by AVAC Ltd. and was launched with a $10 million investment from Alberta Enterprise Corporation in 2012. All of the capital in Accelerate Fund I has been allocated.

» Accelerate Fund I (managed by AVAC Ltd.) was launched with a $10M investment from Alberta Enterprise Corporation in 2012. All of the capital in Accelerate Fund I has been allo-cated to 12 investments

» In November 2016, a new $10 million capital allocation from limited partner Alberta En-terprise Corporation, was launched to create Accelerate Fund II

» Pitches are now being accepted for Accelerate Fund II

Resource list – VANCOUVER

3. Vantec

Established in 1999, VANTEC have been hosting monthly angel investment meetings where 8-12 early stage companies present their business and investment opportunity to an audience of angel investors.

» More than 1,000 startups pitched their investment opportunity

» 50% of the companies that pitched at VANTEC raised Angel Funding

» 20% of the companies go on to secure additional venture capital

» The average amount of angel capital raised is $250,000

» Companies that presented at VANTEC have created more than 2,000 jobs

vantec.ca

4. Angel Forum

Founded in 1997, Angel Forum – Vancouver for Investors & Entrepreneurs is the only Angel Forum in Canada that introduces emerging companies to private equity Angel Investors. They are a non-profit organization & presenting companies have raised over $35M directly through the Forum. Angel Forum is supported by leading BC organizations and belongs to Canada’s Na-tional Angel Capital Org and US’s Angel Capital Assoc.

» Oldest angel network in Canada

» 50+ investors from Vancouver, Calgary, Edmonton, Kelowna, Victoria, Bellingham & Se-attle

» Funded 25 companies since Oct. 2014

angelforum.org



Other Angel Network (Angel Investors) resources

Angel One Network Inc.

Established in 2011, Angel One Network is a member-based, not-for-profit organization of accredited investors who live, work or have strong interests in Mississauga, Oakville, Burling-ton, Hamilton and other communities in Southern Ontario. Their sole purpose is to find qual-ity companies for their members to consider and invest in. They do so individually. Angel One provides members with opportunities to increase their exposure to quality pre-screened com-panies seeking capital and gives the Angel investors the opportunity to expand their network of like-minded investors.

» Angel One members have closed 90 deals, investing over $24M since 2011

» This has been matched by government & other investor dollars for over $44M to compan-ies

angelonenetwork.ca

The South-eastern Ontario Angel Network (SOAN)

Was created to facilitate the mobilization of investments from accredited investors into com-panies being developed in south-eastern Ontario. This Network is closely associated with their regional innovation centre, local economic development agencies, research institutions, the Ontario Network of Entrepreneurs and other recognized angel networks in Ontario, Canada and the US.

soangels.ca

The Network of Angel Organizations – Ontario

Established in 2007, NAO-Ontario exists to administer the Angel Network Program (ANP), its goal being to create new Angel investor groups in Ontario where none existed, and foster their success with information and educational tools to transfer best practices from successful An-gels. NAO-Ontario’s mission is to bring Angel investors together with entrepreneurs and com-panies seeking investment for mutual benefit. Formal Angel groups help make this process efficient.

» $249M invested by network members into 400 firms

» 8,200 jobs created & retained

www.nao-ontario.ca



Capital Angel Network (CAN)

CAN is an Ottawa based not-for-profit organization of accredited Angel investors. They have over 50 members and have invested in over 40 companies. Their mission is to make Ottawa the best place for entrepreneurs to build a business and for angels to invest their money, creating wealth, jobs and a vibrant business community. CAN provides members with opportunities to increase their exposure to quality pre-screened companies seeking capital and gives the Angel investors the opportunity to expand their network of like-minded investors. In 2016 CAN:

» Funded 17 companies (10 new investments, 7 follow-on investments)

» Invested $1.5M & facilitated over $10M through other Angel groups, government co-fund-ing, etc.

www.capitalangels.ca

2) Mature Stage companies

Venture Capital (VC) firms – WESTERN CANADA

Venture capital (VC) is a form of private equity invested in companies that have sound growth prospects as opposed to early stage or turnaround opportunities.

Like Angel investors, they seek large returns on their investment (30% +) and expect repatria-tion of their capital from an IPO or sale of the business to a strategic or financial buyer, usually within five years.

While VC firms expect their investments to sometimes fail, they also anticipate wins to outweigh failures.

With regard to their target investment, management must show that it has proven strategic and operational capabilities to take their product to market in a scalable fashion.

The company’s product must be unique, meet client unmet needs and have strong IP protection. Market segments have to be diversified with minimal dependence on one set of clients.

Resource list – CALGARY

1. Annapolis Capital

Founded in 2006, Annapolis Capital is a long-term investor of growth capital in the Can-adian upstream oil and gas industry. Prior to joining Annapolis, the management team had years of hands on operational, technical, financial and leadership experience in operating oil and gas companies, which guides its investment process and informs its strategic input



with investee company management teams.

» $600M raised since inception

» Currently investing Fund VII - $300M fund

» Focused on startup & early stage oil & gas E&P private companies

» Seeking opportunities from $15M to $60M

» Target multiple returns over a 3 to 7 year time horizon

» Preference to invest in companies with board representation

annapoliscapital.ca

2. BDC Venture Capital

BDC Venture Capital investment professionals know what it takes to help Canadian entre-preneurs realize the full potential of their ideas—for themselves and for their backers. BDC Venture Capital is the largest and most active early-stage technology venture invest-or in Canada, working with promising entrepreneurs and private sector investors to build outstanding Canadian companies.

» More than $1B under management, 30 years of experience

» Focused on promising, high-growth potential technology ventures

» Initial direct venture investments range from $250K to $3M

» Total financing round may range from $1M to $10M

» Never own more than 49% of a company’s shares

bdc.ca/venturecapital

3. Mosaic Capital Corporation

Founded in 2011, Mosaic Capital Corporation is a venture capital firm specializing in ac-quisitions, growth capital, early ventures, turnaround, mature, mid venture, late ventures, buyouts, and middle market investments. The firm seeks to invest in all sectors in Canada.

» Seeking opportunities with companies having an annual cash flow of between $3M & $10M, revenues between $5M & $50M, and EBIDTA between $2M & $10M

» Investment exits between five & fifteen years

» Value add: increasing shareholder value by growing free cash flow per share

mosaiccapitalcorp.com



Resource list – VANCOUVER

4. Vanedge Capital

Founded in 2008, Vanedge Capital Inc. is a venture capital firm specializing in early, mid and late stage investments. The firm does not make seed or angel level investments. It seeks to invest in technology, interactive entertainment, online mobile applications, and digital media businesses with a focus on enterprise software, infrastructure, cyber sec-urity, cloud computing, infrastructure software, security, and small enterprise SaaS solu-tions. The firm invests in both Asian businesses interested in exploiting export markets, and Western businesses seeking outsourcing and distribution opportunities within Asia.

» Over $296M in assets under management

» Seeking opportunities from $1M to $13M with companies generating annualized revenue between $500K & $1M

» Seek out founders who are driven by a vision to solve technical and business problems on a global scale

vanedgecapital.com

5. GrowthWorks Capital

Founded in 1999, GrowthWorks Capital is a venture capital management firm that oversees 32 portfolio companies and has been recognized by the CVCA with three Deal of the Year awards (Layer 7 Technologies, Galleon Energy and HotHaus Technologies).

» $170M in assets under management

» $800M invested since inception in technology companies

growthworks.ca

6. Yaletown Venture Partners Inc.

Founded in 2002, Yaletown Venture Partners Inc. is a venture capital firm specializing in early stage, growth stage and emerging growth investments in private companies. The firm does not invest in consumer, social and digital media business models. It seeks to invest in emerging water purification, clean technology and information technology sectors in Canada.

» Seeking opportunities from $2M to $4M initially, with capital reserved for follow-on finan-cings for a total of $6 to $12M

» Often partner with other funds in later financing and prefer to lead or co-lead their initial investments



» Value add - help with all aspects of a company’s life-cycle including financings, strategic relationships, mergers and acquisitions, and planning and preparation for public offerings. Also offer a deep network of industry & financial contacts

yaletown.com

7. Lighthouse Equity Partners LLC

Founded in 2012, Lighthouse Equity Partners is a Canadian private investment group focused on expansion and buyout investments in lower middle-market companies. The Firm focuses its efforts on businesses located in Western Canada and the Western US. Lighthouse typically partners with management teams when pursuing opportunities and sectors of interest include: Business Services, Communications, Distribution, Education, Healthcare Services, Manufacturing and Marketing.

» Seeking opportunities with companies having revenues between $5M & $35M USD, and EBIDTA between $1M & $6M USD

» Investment team has 40 years experience, $500M plus invested across 50+ companies in eight funds backed by leading institutional investors, financial institutions, and high net worth industry insiders.

» Value add: Extended reach and insights from a Board of Advisors and network of Invest-ment Limited Partners that includes some of the most experienced, respected and success-ful business leaders in Canada.

lhequitypartners.com

Other Venture Capital (VC) firm resources

The Canadian Venture Capital & Private Equity Association (CVCA) is a reliable source for venture capital firms similar to those noted above, in regions across Canada. The CVCA Member Directory provides further details with regards to private and public sector firms managing the vast majority of venture capital in Canada.



3) Industry Associations & Accreditation Bodies – CANADA & U.S.

Venture Capital firm related associations/bodies

Venture Capital Association of Alberta (VCAA)

The VCAA is the hub of VC activity in Alberta. Their mission is to propel the growth of Al-berta’s VC and technology industries by serving the needs of players in venture capital, pri-vate equity, angel and related communities. They work to i.) Increase the flow of risk cap-ital into Alberta, ii.) Increase the number of profitable investment opportunities available to their members, iii.) Provide top tier professional development opportunities to those in the VC sector and iv.) Ensure that their membership is broad and includes those from the VC and technology sectors, those industries that directly service the VC sector, and affili-ates.

500-400 Crowfoot Cr. NW Calgary, AB T3G 5H6

1-403-690-8204

vcaa.ca

Canadian Venture Capital & Private Equity Association (CVCA)

The CVCA is the voice of Canada’s venture capital and private equity industry. They are focused on broadening industry awareness through market research and networking opportunities so that their members can make the best decisions for their investments. They also advocate on behalf of the industry to ensure sound public policy that encourages a favourable environment for investment. The CVCA works alongside its members (private and public sector firms managing the vast majority of venture capital and private equity in Canada) to improve the industry and drive innovation and growth.

1201-372 Bay Street, Toronto, ONT M5H 2W9

416-487-0519

cvca.ca



4) Strategic Group Map – Sources of Growth Funding

References: https://www.divestopedia.com/definition/5018/angel-investor

https://www.divestopedia.com/definition/980/venture-capital-vc

i. Globe &Mail Report on Business November 7th 2015

ii. Globe &Mail Report on Business November 11th 2015

iii. Lisa Collins QC and Aileen Collings CA ‘The Ticking Time Bomb’ CA Magazine June 2012.

iv. Business Diagnostics – Evaluate and Grow Your Business. Richard Mimick and Michael Thompson.

v. Beyond Change Management – Dean Anderson and Linda Ackerman 2010.

vi. ‘Diagnosing and Changing Organ-izational Culture: Based on a Competing Values Framework’ K. Cameron and R. Quinn 2006

vii. Industry Canada - SME Direct – Suc-cession Planning web site.

viii. Robbins, Stever. “Exit Strategies for Your Business.” Entrepreneur 2010.

ix. Robbins, Stever. “Exit Strategies for Your Business.” Entrepreneur 2010.

x. Bo Burlingham – Finish Big – Port-folio Penguin – 2014

xi. Veracap Corporate Finance Limited, Exit Strategies for Business Owners 2007.

xii. Globe & Mail Report on Business – ‘Staying Private’ January 2013.

xiii. Picard, Derek. “Business Transi-tion: A Literature Review.” CFIB Research. (2004). PWC – Family Business Survey 2014

xiv. Lisa Collins – Seven Reasons for an Advisory Board, November 2015

xv. PWC Private Company Services- Global Family Business Survey 2011.

xvi. Globe & Mail Report on Business – ‘Staying Private’ January 2013.

xvii. Mike Stubbing CA, Partner Grant Thornton – Interview December 2012.

xviii. Globe & Mail – ‘A lack of faith in the

next generation’ Grant Robinson July 2011.

xix. Mike Stubbing CA, Partner Grant Thornton – Interview December 2012.

xx. Douglas Magazine – ‘The Current of Change’ by Keith Norbury, December 2012.

xxi. Douglas Magazine – ‘The Current of Change’ by Keith Norbury, December 2012.

xxii. Rob Bateman, CEO Western Oil Ser-vices Ltd - Interview October 2013.

xxiii. PWC Private Company Services – Achieving Deal Success in a Seller’s Mar-ket

xxiv. BDO – Christopher Porter, Be Pre-pared 10 things to do to facilitate a transi-tion

xxv. Bo Burlingham – Finish Big – Port-folio Penguin – 2014

xxvi. BDO Advisory Services – Leveraged Recapitalizations

xxvii. Veracap Corporate Finance Limited, First. Exit Strategies for Business Owners 2007.

xxviii. Perry and Herd (2004) ‘Reducing M&A risk through improved due diligence’

xxix. Harold Schroeder FCMC ‘The Art and Science of Mergers’ May 2012.

xxx. Deloitte Private Company Services –‘Canadian private companies navigating their way to success’.

xxxi. PWC – Getting what you want for your business

xxxii. The writer interviewed a number of partners as part of this research project and has also provided management con-sulting services to the firm.

xxxiii. The writer visited this firm in the UK (Fall 2013) with a client who was consid-ering using their services.

Documents

Resource Guide · Introduction The concept for this resource guide originated from research initiatives associated with the ‘Strategies to Achieve a Successful Business Exit’