Global fintech and funding innovation ecosystem

Report: Access to Capital for Canadian Growth-Orientated Medium-Size Firms

RCG Group | Richard Remillard and Michael  Scholz | Oct 15, 2020

Canadian 100 dollar bills - Report:  Access to Capital for Canadian Growth-Orientated Medium-Size FirmsBackground:  Access to Capital for Scale-ups

Canada has an SME and start-up ecosystem that is healthy in many respects, ranking second globally in ease of starting a business, but seemingly falls in short scaling growing businesses into globally competitive anchor firms, as fewer than 2% of Canadian mid-sized firms grow into large firms in any given year.1 As a result, SM Es account for about 90% of business sector employment in Canada2 versus 47% in the United States3, a fact that accounts for about 20% of the labour productivity gap between Canada's business sector and that of the United States.

Ambitious, medium-sized firms require access to affordable sources of growth capital to be able to invest in activities (e.g. hiring talent, building infrastructure, and developing new technology) necessary to grow into globally competitive leaders. Evidence of stronger demand for such growth equity has been noted by the BOC, which expects its Growth & Transition Capital offerings to increase by 8% annually through fiscal 2024.

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Despite this, the financing challenges and opportunities surrounding medium-sized, higher-growth companies generally remain poorly understood relative to financing of small, early-stage growth companies. As such, this paper specifically focuses on the availability of flexible financing required by medium-sized firms looking to scale up and grow, such as minority equity, debt, or hybrid financing.

Informed by extensive interviews conducted by the Remillard Consulting Group with capital providers and corporate executives (Annex 1), the following captures stakeholder insights into the state of Canada's growth and transition capital markets, including: challenges inhibiting the availability of growth capital for medium-sized firms; common misperceptions concerning Canada's growth capital and alternative risk financing markets; and the continued role of the BOC in this rapidly evolving market.


Though Canadian policymakers have developed a robust understanding of the financing challenges faced by growth firms at earlier stages of development, less is understood about how growth capital markets work to finance medium-sized, growth-oriented firms. Following a decade of considerable growth in the sector, corporate executives and capital suppliers noted certain emerging trends important for policymakers to understand, including:

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  • The emergence of a relatively porous three-tier capital market structure in Canada to meet the unique needs of Canada's growth-oriented, medium-sized firms composed of both foreign and domestic sources of capital supply with Tier 1 capital dominated by foreign suppliers, who are less present at Tier 2 and are markedly absent from Tier 3.
  • Public capital markets partially compensate for the absence of foreign capital providers at Tiers 2 and 3; in the same vein, retail investors can and do participate in financing Tier2 and 3 companies also via private placements or as incented via Labour-SponsoredVenture Capital Corporation Tax Credits (mostly in Quebec).
  • Rural companies confront several obstacles ranging from distance, to the absence of specialized finance personnel, to the reliance on natural resources industries.
  • Country or province-wide 'branch' networks as exemplified by the big banks, BOC, CBGF, the Fonds Regionaux de Solidarite and Caisses Desjardins appear to be important to Tier2 and Tier 3 company fundraising efforts, especially for non-technology companies.
  • Certain industries are fashionable capital magnets while others, distinctly unfashionable, repel capital. Technology, broadly understood, is a capital magnet as has been cannabis. Oil and gas, forestry and hard rock mining have been the reverse.
  • A very limited number of smaller private sector funds have expressed concerns about BDC's activities in this portion of the mid-market - with BDC increasing activity to address funding requirements in this area, they risk getting squeezed out.
  • A lack of consensus about the impact of US capital in the market divides capital providers and company executives alike. Some refer to the current pattern of US fund investment into more-established and resilient companies as insulating these firms from a sudden withdrawal of that funding. Others note that in today's technology-driven world, Canada risks losing its future high potential job-creating and export-oriented champions.
  • Certain investors remarked that any future economic downturn may result in US funds prioritizing their own domestic investments over foreign ones as has occurred in the past. This, in turn, may result in a funding squeeze as Canadian domestic funds generally do not have the financial flexibility to meet these gaps as many companies in the technology space experience high burn rates of capital.
  • It is impossible to determine one way or another whether the presence of large American investors is a net-benefit to the Canadian economy. Resolution of this controversy would likely require an examination of the post-investment record in terms of direct and indirect job creation, intellectual property development and export performance of companies that have received foreign or domestic capital injections.

Download the Report (24pg PDF) --> here

Or Interact with the report on the Government of Canada's website --> here


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