Atlantic Canada is all too often overlooked as a source of investment, as its economy is dwarfed by the provincial economies of Ontario, Alberta and British Columbia.
And one of the many obstacles encountered by entrepreneurs in the region is that major investment firms are typically unaware of the opportunities that exist outside their sphere of operations.
This was the experience of Sampling Technologies Inc., a Nova Scotia technology firm that has provided software and products for the pharmaceutical industry since 2002. “In Atlantic Canada, it can be harder to attract attention from the bigger institutions,” says Mike Uberoi, executive vice president of STI.
But in 2006, STI received a $500,000 investment from Growth-Works Ltd. ’s GrowthWorks Atlantic Venture Fund. This allowed STI to hire an internal sales force and upgrade its information technology — moves that have resulted in significant growth for the company.
STI now employs 27 people, up from three in 2002, Uberoi says. The company’s success also benefits suppliers, many of whom are based in Nova Scotia.
“We have a tangible sampling product that is manufactured in Atlantic Canada,” Uberoi says, “and that is supported by our software technology.”
Job creation and other associated economic spinoffs are key objectives of GrowthWorks Atlantic, which was established in January 2005. The labour-sponsored investment fund is active in New Brunswick, Nova Scotia and Newfoundland and Labrador.
The fund has $33 million in assets under management and Tom Hayes, its president and CEO, hopes to expand the fund’s AUM to $80 million-$90 million over the next three to four years.
Hayes points out that approximately $1.5 billion in RRSP contributions are made each year by residents of the four Atlantic provinces, most of which is reinvested outside the region.
“We’d like to see more of this money stay in Atlantic Canada,” Hayes says, “to help businesses and create jobs.”
In the three years it’s been in operation, the fund has experienced a loss of 2%, which Hayes says is to be expected during its start-up phase. “The companies we’ve invested in are all in the early stages of growth and, in fact, our record is pretty good for a new venture capital fund.”
Of the 10 companies in the fund’s portfolio, six are based in New Brunswick and four in Nova Scotia. Additional firms will probably be added over the coming year, he says, including at least one from Newfoundland and Labrador.
“It’s a negotiating process, and you are always balancing risk and opportunity,” Hayes explains. “Typically, for venture capital investments, you will reach an agreement with about 3% or 4% of the companies that you initially evaluated.”
In addition to providing access to capital, the fund provides services that help companies avoid costly mistakes. “We help by providing expertise because many of these companies are young,” he says. “They have great ideas but need a few gray hairs around to carry them out.”
A key aspect to enhancing the fund’s attractiveness is support from the three provincial governments that offer tax credits to investors. Both New Brunswick and Newfoundland and Labrador provide a tax credit of 15% while Nova Scotia offers 20%. The combination of federal and provincial tax credits, in combination with RRSP benefits, provides investors with tax savings of approximately 70%.
In mid-February, the government of Nova Scotia increased the investment amount eligible for the provincial venture capital tax credit to $10,000 from the previous maximum of $5,000.
Such benefits are proving attractive to organized labour, which is a major proponent of the fund. Labour federations in all three provinces played a significant role in establishing the fund and labour liaison officers have been promoting it directly to workers since September 2007.
“I’ve been making contact with union executives and asking them to allow me to present information to workers at their regular meetings,” says Keith Anstey, the fund’s labour liaison representative in Newfoundland and Labrador.
“People are interested in the tax breaks, but Newfoundlanders are also big supporters of reinvesting in the local economy,” Anstey says. “They really like the idea that their money is helping to create jobs and businesses.”
GrowthWorks Atlantic is one of several regionally based venture capital funds operating under GrowthWorks. With combined AUM of more than $800 million, GrowthWorks-managed funds also include Working Opportunity Fund, GrowthWorks Canadian Fund and GrowthWorks Commercialization Fund. IE
Atlantic Canada LSIF aims to make a splash
GrowthWorks Atlantic Venture Fund is aiming to get a piece of Atlantic Canadians’ annual $1.5 billion in RRSP contributions
- By: Gavin Will
- March 3, 2008 March 3, 2008
- 15:49