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Growth fund to offer small companies help in exchange for minority stake

CIBC’s CEO Victor Dodig talks with The Globe and Mail about the state of the banking world, including CIBC’s $4.9-billion cash and stock acquisition of Chicago based Privatebancorp.

Glenn Lowson/The Globe and Mail

A leading proponent of a proposed growth fund for Canadian companies offered new details Thursday about how the initiative could work.

Victor Dodig, chief executive officer at Canadian Imperial Bank of Commerce, said that the so-called Canadian Business Growth Fund would connect small and medium-sized companies to the cash they need in exchange for a minority equity stake. The companies would also be provided with access to expert advisers. This network would include active and retired executives, academics and specialists in certain areas, such as how to sell goods and services abroad.

The proposed growth fund strives to bridge a gap in funding that exists today between smaller suppliers of cash, such as angel investors and venture capitalists, and the public markets. Filling the void right now are larger, mostly U.S. private equity firms that often want to take control of these businesses. As a result, in many cases, Canadian companies have little choice but to sell to foreign buyers before reaching their full potential. That trend is stunting the growth of the Canadian economy, Mr. Dodig said.

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"The entrepreneurs who run these companies, they hit a wall at some point," he said in a speech at the Canadian Club of Toronto. "They need long-term, patient capital that has a minority ownership stake."

Talks are under way among Canadian banks and other financial institutions, such as insurers and pension funds, concerning the launch of what would initially be a $500-million fund that could grow to $1-billion in five years. Mr. Dodig says the federal government has played a key role by assembling leaders of companies that manage large pools of capital around the same table.

The bank-backed fund, which has been gaining momentum since last fall, would be modelled after a similar one that exists in Britain.

Established in 2011, Britain's Business Growth Fund (BGF) has raised about £2.5-billion ($4-billion Canadian) in capital from five of the U.K.'s largest banks, including Barclays, HSBC, Lloyds, RBS and Standard Chartered.

The fund initially invests between £2-million ($3.2-million) and £10-million ($16-million) of growth capital in exchange for a minority stake in a company and a seat on its board, according to its website. The BGF offers funding to these companies for up to 10 years. Britain's fund boasts a network of more than 3,000 board-level contacts across sectors who offer their support and help the fund assess potential investment opportunities.

Partners in Canada's growth fund would contribute "a meaningful sum" to be managed by an independently run entity, Mr. Dodig said. The partners would select a leadership team, set certain investment parameters and take seats on its board.

"I'm confident that we're well on the path to creating that growth engine for the Canadian economy and filling that capital gap that exists," he said.

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About the Author
Capital Markets Reporter

Christina Pellegrini is a reporter at The Globe and Mail and a regular contributor to Streetwise, covering capital markets, the exchange business and market structure.She writes about the capital markets divisions of BMO, CIBC and National Bank; independent brokerages such as Canaccord Genuity; and the Canadian operations of foreign dealers including JP Morgan, Goldman Sachs, Credit Suisse and Citigroup. More

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