new métis investment opportunities -...

Environmental Scan: New Métis Investment

Opportunities

An overview of capital investment activities and best practices in Canada and the United States

Table of Contents

Policy Context (Slides 2-5)

Current Situational Analysis for Aboriginal Investment (Slides 6-24)

Demand for Capital Analysis (Slides 25-32)

Context for the Need to Expand Aboriginal Capital (Slides 33-41) What we can learn from the US experience

Emerging Domestic Markets

Key Best Practices for Successful Programs (Slides 42-61)

Supply of Capital Analysis (Slides 62-73)

Promising Practices (Slides 74-81)

Environmental Scan: Business Case for Métis Investment Fund

1

Policy Context


2

The Opportunity “The road forward out of dependency is already

being paved. We believe in developing innovative solutions, instead of pouring money

into futile programs that don't produce results.”. Chuck Strahl, Minister of Indian Affairs and Northern Development and Federal

Interlocutor for Métis and Nonstatus Indians, June 2009

“The Government of Canada will work with Aboriginal Canadians and other partners…to:

improve access to capital, encourage increased Aboriginal participation in procurement activity

and support greater access to business expertise and services.” Federal Framework for Economic Development

3

Minority Investment Overview Environmental Scan: Business Case for Métis Investment Fund

3

Métis Response “When Métis people have access to economic

development, it doesn't just benefit the Métis Nation, it benefits the entire Canadian

economy.” Clément Chartier, President, Métis National Council, November 2008

Métis Nation Economic Stimulus Proposal is seeking:   Expansion of loan capital of existing capital corporations

  Establishment/capitalization of new MCCs in B.C., Ontario

  Larger cap on loans to serve mid-range loan market

  Devolution of Métis small business programs from ABC

  Equipment capital fund and help with bonding, so Métis companies can participate in larger projects, particularly construction/retrofitting Métis housing


4

The Project   Meeting with Client and Stakeholders to Launch

the Consulting Program

  Program Description

  Review of Best Practices

  Key Informant Interviews

  Program Elements (Structure and Operations) Defined

 Validation Seminar

 Consultant Final Recommendations and Report to Client

5


5

Current Situational Analysis for Aboriginal

Investment


6

Rapid Growth of Aboriginal Entrepreneurship   In North America, minority organizations,

businesses and government agencies have been active in supporting investment in minority businesses for at least 30 years.

  There has been a rapid increase in business formation in this sector during this period.

  Emerging demographic realities and markets in Western Canada underlie the opportunity for expanding access to capital for Aboriginal entrepreneurs.


7

Rapid Growth of Aboriginal Entrepreneurship   There are over 27,000 Aboriginal entrepreneurs in

Canada, according to Census Canada. This is 30% more than the 1996–2001 period.

  Statistics Canada estimates that between the census years of 1991 and 1996, Aboriginal entrepreneurship grew 150% faster than the Canadian average. In the period 1996 to 2001, Aboriginal entrepreneurship grew 800% faster than the Canadian average.


8

Characteristics of Aboriginal Entrepreneurs   Proportion of Indian and Métis entrepreneurs was

almost identical, at 46 and 47%

  Median age group for self-employed Aboriginal people was 35 to 44, while it was 45 to 54 for Canadians overall

  Aboriginal entrepreneurs 63% male, 37% female

  Two thirds of Aboriginal businesses surveyed by Stats Can (2002) had been operating for more than five years, and four out of 10 had been operating for 10 years or more


9

Characteristics of Aboriginal Businesses   In 2002, the establishment of new Aboriginal businesses largely

exceeded the number of acquisitions

  67% of businesses surveyed operated as sole proprietorship, 18% as partnership, 15% incorporated

  Aboriginal businesses operating in professional, scientific and technical, education, health and social services – more than doubled since 1996

  Manufacturing, transportation and warehousing businesses – almost five times higher in 2001 than in 1996

  69% of entrepreneurs see personal or family employment as a very important business objective

  35% of Aboriginal businesses had one or more full-time employees. 29% had one or more part-time employees


10

Canadian lending experience (Stats Can Survey on Financing of Small- and Medium-sized Enterprises)


  Small- and medium-sized enterprises applied for $59 billion in loans in 2007, and were approved for about 86%, or $51 billion. This was higher than the approval rate of 80% in both 2000 and 2004.

  The larger a firm's workforce, the more likely it had requested external financing.

  About 14% of those with zero employees requested financing, while almost one-half of the largest businesses, those with 100 to 499 employees, did so. The vast majority (97%) of requests by businesses with 100 to 499 employees were approved. The approval rate for businesses with zero employees was 85%.

11



  The loan request rate was higher in capital intensive sectors, such as agriculture, primary industries and manufacturing.

  It was lower in human capital intensive sectors (knowledge-based industries).

  Almost all requests in the primary sector were approved.

  The lowest approval rate was in accommodation and food services (80%).

  One in five businesses cited difficulty in obtaining financing as an obstacle to the growth of the business.

12



  Half of all businesses reported they depended on financial institutions to fund the start-up of their businesses, with two out of three saying they depended on loans for their ongoing operations.

  Overall, one-quarter of all business owners reported that they intended to retire from their businesses over the next five years.

  Of these, one in five intended to keep the business in the family, two in five planned to sell the business to outsiders, and most of the remainder intended to close it.

13



14

Employment/entrepreneurship directly related

  60% of employed Canadians work for a small or medium-sized business, accounting for 45% of Canada’s economic output.

  75% of all businesses employ fewer than 5 employees

  Self-employment in Saskatchewan accounts for 18.5% of the province’s employed labour force.

(CFIB)


15

Financing Aboriginal Businesses   Aboriginal entrepreneurs

surveyed by Stats Can:

  80% required <$50,000 to start their

business

  11% needed >$100,000


16

Objectives and Strategies of Aboriginal Entrepreneurs   Stability, profitability and personal/family employment are the

business objectives most frequently pursued by Aboriginal entrepreneurs

  Nearly 66% entrepreneurs surveyed expected their business to grow in the next two years. Strategies to achieve their business:

  management skills (75%)

  ability to use technology(63%)

  production enhancement (63%)

  new financing (59%)


17

Growth Strategies of Aboriginal Entrepreneurs   The most frequently mentioned growth strategies:

  finding new customers in existing markets (74%)   increasing sales to existing clients (50%)   improving advertising or marketing (49%)

  Of those who did not expect their business to grow   56% said that barriers prohibited growth   39% were not interested in growing their business   12% were not willing to take the risks associated with growing their

business


18

Barriers to Growth for Aboriginal Entrepreneurs   Economic conditions, taxes, access to financing are barriers

most often identified for absence of growth expectation

  84% of entrepreneurs surveyed will seek financial and business development assistance from governments and Aboriginal organizations in the future

  Entrepreneurs expressed interest in business networking assistance (54%), market information (52%), training/skills development (51%)


19

Aboriginal Financial Institutions (AFIs)   Since their inception in the late 1980s, Aboriginal

Financial Institutions (AFIs) in Canada have provided over $1.3 billion in financing to Aboriginal small business, representing over 30,000 loans.

 AFIs serve rural or high-risk clients with loans, business support, and advisory services. Their clients have a 58% success rate.

  In the past two decades, more than 50 AFIs have supported the creation of 13,000 new businesses and 32,000 jobs.


20

Annual AFI Investments over a 10-year Period (Canada)


21

ACCs and ACFDCs

 AFIs include Aboriginal Capital Corporations (ACCs) and Aboriginal Community Futures Development Corporations (ACFDCs).

  The original design for ACCs saw them maintaining their capital base while drawing operating funds from the net proceeds after loan losses. However, the ACC model was developed at a time of higher interest rates instead of the low now charged.

 ACFDCs operate with smaller capital bases with no expectation that the returns from their portfolio will pay for operations.


22

Experience of Métis Capital Corporations

  Since the mid 1980s, Métis Capital Corporations (MCCs) in the Prairie Provinces have loaned over $75 million, supporting over 2000 businesses and creating thousands of jobs

 Average loan size $50,000.

  Success range for businesses is 70-80%


23

AFIs – Erosion of Capital   In one assessment of AFIs, 70% of key AFI

informants felt AFIs could not operate without ongoing government financial support. Operating costs and write-offs exceeded the interest rates AFIs were able to charge.

  This shortfall was met by eroding the capital base, requiring periodic government top-ups of the capital base to remain viable, or receiving an operating subsidy (the ACFDC model).

  Higher interest rates and syndication of lending for higher risk loans and investments have been proposed as solutions to the erosion of capital.


24

Demand for Capital Analysis


25

Aboriginal participation in self-employment growing   Stats Can reported 27,000 self-employed Aboriginal

entrepreneurs in 2003. Sask accounts for 9% or 2530:

  60% Métis, 30% First Nations, remainder multiple identities. Almost one-third were women

 Approximately 85% lived off-reserve.

  The rate at which Saskatchewan Aboriginal people participate in self-employment lags far behind non-Aboriginals. Less than 8% of First Nations and Métis workers in Saskatchewan are self-employed compared to 18.5% of Saskatchewan workers.


26

Western Canada is Facing an entrepreneurial bubble  A large segment of the entrepreneurial class is set

to retire. This could have a major impact, particularly outside the major cities.

  Large corporations are concerned that if small businesses are not transitioned to new owners, there will be a shortage of services such as plumbing mechanical/electrical, property management, etc.


27

Intention to retire, business succession plans  A recent study (2006) by

the CFIB noted that a substantial number of small business owners are planning to exit their business, primarily for retirement reasons. Only 10% have a formal succession plan.


28


Business Succession Plans (Stats Can Survey on Financing of Small- and Medium-sized Enterprises)

29

SME business succession trend: opportunity for Aboriginal entrepreneurs

 Aboriginal business-focussed financial institutions prefer to finance Aboriginal business development involving the acquisition of existing businesses, which have   balance sheet and financial statements and

  the possibility of succession planning through mentorships with the existing business owner.

 No vehicle to enable successful transitioning of business ownership, including succession planning, facilitating mentorship from existing to new ownership and links to financing for business acquisition/expansion.


30

Key problems of MCCs

  Insufficient capital to invest

 Capital supply not replenished in a timely way by government

 Operate as lenders of last resort

  Excluded from mid-range loan market ($250,000 loan cap)

 Cannot take equity position in businesses

 No MCCs in Ontario and B.C.


31

Positive innovations in MCCs

  Syndication of loans allowed some MCCs (e.g. SNEDCO) to access mid-range loan market

 Ontario announcement of August 2009

 CCDF   Access to $2 million a year in Sask gaming revenues

  Can make equity investments in large scale or joint venture projects


32

Context for the Need to Expand

Aboriginal Capital

What can we learn from the U.S. experience?


33

Minority Investment in the US  Minority-owned firms in the US have been

growing at a rate at least three times that of all firms. The higher growth rate is expected to continue.

 Minority firms appear to have less access to financial (including venture) capital than comparable non-minority firms. The unequal access creates opportunities for venture capital firms that specialize in this niche. Venture capital firms that restrict their investments to minority firms forfeit opportunities in the non-minority business sector.


34

Minority Investment in the US   The Emerging Domestic Market (EDM) is one of

the fastest-growing sectors of the US private equity investment market. “EDM” is a term used to describe the geography and demography of markets traditionally underserved by the financial services industry. These include markets serving individuals of Asian American, African American, Latino, Native American and other ethnic backgrounds as well the businesses they own and the enterprises that primarily serve their communities.


35

Minority Investment in the US  Minority enterprise venture capital investing is

very profitable. The average investment per firm was $562,400; the average gross yield per firm was$1,623,900, generating an average net return of $1,061,500.

 Minority-oriented funds’ outperformed their respective vintage private equity funds in terms of yield. The minority-oriented funds’ IRRs were also higher than those reported in previous studies of mainstream VC funds


36

Minority Investment in the US   The median minority-focused fund was small

relative to the VC industry mainstream, beginning operations with under $30 million in capitalization. In order to gain diversification, a common strategy has been to participate in syndicated MBE investments.


37

Minority Investment in the US   Widespread syndication is symptomatic of the

extensive networking that typifies the minority-oriented venture-capital funds.

  Social networks in the venture-capital community -- built up through the industry's extensive use of syndicated investing -- facilitate the diffusion of information across geographic and industry boundaries, therefore expanding the spatial radius of exchange.

  Among the 24 surveyed VC funds, 23 respondents—96%—had participated in syndicated business investments. This compares to 63% reported for the mainstream VC industry as a whole.


38

Emerging Domestic Markets (EDMs) – advantages:   Equity investments in Emerging Domestic Markets

(EDMs) are made mostly in small and middle-market businesses, thereby offering the benefits of risk diversification for investors mostly exposed to large buy-out funds.

  By putting money into smaller EDM-oriented funds, investors can develop diverse relationships with young and rising managers who will develop into the fund management stars of the future.


39

Emerging Domestic Markets (EDMs) – challenges:

  EDM businesses face significant challenges to grow/diversify into high growth industries. They:   continue to experience limited access to capital, especially

equity capital;

  struggle to increase the breadth and depth of their management teams;

  often lack the ability to build the internal capabilities needed to compete effectively;

  typically have only limited networks of relationships with potential business partners and customers.


40

Emerging Domestic Markets (EDMs) – challenges:

  The typical minority business is much smaller and large EDM businesses are rare.

 Minority-owned businesses with receipts greater than $1 million account for more than 64% of total revenues and create 58% of the new jobs generated by the minority-owned business segment. However, they represent just 2% of minority businesses, compared to 5% of non-minority businesses.

  Businesses targeting minority customers are poorly represented in many industries.


41

Key Best Practices for

Successful Programs


42

Key issues identified for successful programs   Community/local economic development

  Legislative/Policy mandates

  Effective institutional arrangements

  Enabling/competitive environments for SME expansion and new start-ups

  Effective performance management and monitoring


43

Community/Local Economic Development: Range of Benefits – 2 main types

1.  Greater socio-economic opportunities for marginalized communities through social policy tools/objectives that enhance many aspects of community development, (primary international thrust)

2.  Tools for Aboriginal small business start-up, support/growth & job creation, skills development, (primary Canadian thrust)


44

Opportunities for Aboriginal Investment  Niche may exist for entrepreneurs +35.

(Currently very limited opportunities +35)

 Opportunity to finance more business acquisitions (as opposed to start-ups). Need to be based on certified business valuation.

  Eligibility/financial policies, rules, regulations should mirror ABC/ACCs/AIFs

  Fund should be set up so that:   60% is for forgivable equity/loans <$100,00   40% is for loans >$100,000


45

Elements of Aboriginal Investment   Fund should “trigger” eligibility for ABC stacking

(may require 5% non-repayable or “forgivable” grant earned over 3 years)

  Client contribution 5% minimum

  Fund should partner/contract with Credit Unions/Banks/ACCs/AIFs/CFCDs to:   manage individual client credit risk (collateral asset

pledges, bad debt realization/collections issues)   interest rate buy-down as tool   loan insurance instead of actual investment


46

Canadian Experience

  Influence of ABC is pivotal to understanding operations practices and investment patterns for existing ACCs and AIFs

  Developmental capital (higher risk) – but in practice, risk aversion has resulted in low investment percentage of some funds (e.g. CCDF)

  Funds may need to “shadow” ABC objectives in order to achieve “stacking”:   Innovation   Trade/market expansion including Aboriginal

tourism   Youth entrepreneurship   Strengthening Aboriginal financial and business

development organization


47

Canadian Experience   Little “formative” or “longitudinal” evaluation of

Aboriginal Ec Dev funds – none based on “value-for-money”

  Aboriginal Entrepreneur/Business Development is the key “best practice” focus. The market is very well developed in Canada

  Aboriginal employment is a secondary outcome of the Canadian experience in Aboriginal Entrepreneur/Business Development programs


48

Possible Elements of Aboriginal Investment Fund  Most Aboriginal funds provide very low rate of

return for reinvestment. ACCs/AIFs need ability to invest directly in key industrial sectors in order to:

  grow existing funds reinvestment capital thro’ higher return rate to fund (fund stability)

  take advantage of higher value more/sophisticated opportunities

  balance risk tolerance of existing funds   partner with private sector funds   venture capital opportunities


49

Possible Elements of Aboriginal Investment Fund   Fund strategic “value proposition” can be enhanced

through “horizontal partnerships”

  Need comprehensive “horizontal” approach discussions with Aboriginal stakeholders


50

Possible Elements of Aboriginal Investment Fund   Funding is required for training for Aboriginal

managers including:  management skills (HR, finance, marketing, etc)

 market assessment/business expansion techniques/networking

  ability to use technology

  “aftercare”


51

Legislative/Policy Mandates

  Consolidation of political will

  Establish, implement, sustain benefits-driven strategy


52

Effective Institutional Arrangements   Match to community capacity and needs to

increase efficiency and effectiveness

  Program processes close to/inclusive of individuals and communities involved

  Integrated and decentralized delivery modalities

  Flexible approach to adapt to new/unexpected outcomes

  “Horizontal” approaches between all spheres of government and programs with developmental focus


53

Enabling/Competitive Environments for SME Expansion, New Start-ups   Stakeholders determine the sectors and activities

for investment

  Building sustainable strategies and fostering local economies

  Targeting and clustering a range of projects

  Integrate barriers reduction techniques


54

Effective Performance Management and Monitoring   Organizational effectiveness and efficiency

  Community empowerment/ democratic practices/political autonomy

  Various alternatives for evaluation range from financial success indicators (short term) to longitudinal indicators of community development


55

Recommendations for Strengthening EDMs

From Equity Capital in Emerging Domestic Markets and Its Critical Role in Driving Growth in the Broader U.S. Economy, National Association of Investment Companies, July 2009

Investors should increase awareness of the attractiveness of EDM and allocate more capital to it   Raise awareness of EDM potential for financial returns

  Increase capital allocations to EDM

  Direct financial consultants to increase awareness of EDM and efficiently allocate capital through such vehicles as funds-of-funds

  Sponsor and support “emerging manager” programs

  Serve as champions for EDM based on their own investing experiences

  Work with industry organizations to learn more about EDM and EDM fund managers


56



EDM-focused funds should build/publicize their track record of competitive returns to dispel the notion of a social discount in EDM investing   Continue to build a track record of competitive financial

returns

  Diversify management talent/expertise to build on unique capabilities of minority fund managers

  Partner with other minority funds and larger traditional PE funds

  Expand their investor base and increase the strength of their relationships with senior decision makers at LPs and consultants


57



Investors should increase awareness of the attractiveness of EDM and allocate more capital to it   Raise awareness of EDM potential for financial returns

  Increase capital allocations to EDM

  Direct financial consultants to increase awareness of EDM and efficiently allocate capital through such vehicles as funds-of-funds

  Sponsor and support “emerging manager” programs

  Serve as champions for EDM based on their own investing experiences

  Work with industry organizations to learn more about EDM and EDM fund managers


58



PE funds should continue efforts to get more involved in EDM, including partnerships/co-investments to increase understanding of the space   Support minority fund managers through internal diversity

initiatives

  Develop increased awareness of EDM as an alternative asset class

  Partner with EDM-focused funds to co-invest in EDM and acquire expertise in the space


59



Continue to increase awareness of EDM by sponsoring research/ facilitating interactions among stakeholders   Increase networking opportunities for plan sponsors, fund

managers and entrepreneurs

  Increase awareness of EDM among LPs, large GPs and investment consultants

  Highlight successful fund managers and their flagship deals

  Sponsor/publish research on EDM, including best practices for minority businesses seeking capital

  Communicate the importance of EDM and the critical role of its member firms to policy makers


60



EDM businesses should focus on building larger businesses by effectively utilizing the capital markets and supplier diversity programs   Understand the full range of products in the capital markets and

the criteria they use when financing businesses

  Make businesses attractive for external financing by standardizing financials/operations, broadening customer base

  Make use of minority business enterprise (MBE) status and deploy a variety of partnering strategies, including supplier development programs, to expand business

  Continue to serve the growing minority market while taking advantage of opportunities to compete in mainstream markets

  Focus on growth sectors and attractive industries of the future


61



Corporations should support the development of EDM businesses through employee and supplier diversity programs and partnerships   Develop a diverse employee base including a committed

supplier diversity team

  Create a strategic and competitive supplier diversity program to capture share in EDM

  Support growth of minority suppliers by facilitating access to capital and entering into partnerships with EDMs


62



Government should focus policies and resources on developing larger minority businesses and increasing private sector involvement in EDM   Encourage more private sector participation in EDM

  Increase the knowledge base and data available on EDM business loans and company performance

  Develop the infrastructure needed to promote the EDM sector

  Ensure that EDM businesses are adequately represented in new government stimulus packages

  Consider the impact on EDM of tax and regulatory environment

  Support funds to invest exclusively in EDM. Government participation will increase awareness of EDM of other investors.


63

Supply of Capital Analysis


64

Federal Framework for Aboriginal Economic Development


65

Strengthening Aboriginal Entrepreneurship

The Government of Canada will:

  Remove legislative and regulatory barriers that deter business development

  Increase access to debt and equity capital

  Improve procurement opportunities

  Strengthen capacity of entrepreneurs to succeed in business

 Accommodate the real needs, conditions and opportunities facing different communities in all regions of the country


66

Enhancing the Value of Aboriginal Assets The Government of Canada will:

 Modernize lands management regimes to enhance the value of assets

  Take a more systematic approach to identifying economic opportunities

  Strengthen capacity for community economic development planning

  Ensure that economic development programs are opportunity-driven and market-oriented


67

Forging New and Effective partnerships The Government of Canada will:

  Bring together the experience/resources of willing partners – including Aboriginal Canadians, provinces, private sector – to take advantage of economic opportunities

  Promote partnerships with the provinces to advance Aboriginal economic development

  Support improved institutions and capacity in Aboriginal communities to contribute to sustainability of Aboriginal econ. development

  Facilitate linkages with the Aboriginal and non-Aboriginal private sector


68

Focusing the Role of The Federal Government

The Government of Canada will:

  Link federal program spending to real business opportunities

  Ensure clearer direction, greater coordination, better collaboration and increased linkages among federal initiatives across government departments/agencies

  Take a whole-of-government approach to Aboriginal economic development, recognizing that all federal initiatives need to be complementary

  Strengthen the National Aboriginal EcDev Board

 Create a stronger interdepartmental governance structure


69

Expected Outcome Viable Aboriginal businesses that can compete in

today’s marketplace

  The Government of Canada will work with Aboriginal Canadians and other partners, where appropriate, to:   improve access to capital,

  encourage increased Aboriginal participation in procurement activity and

  support greater access to business expertise and services.


70

The Private Equity Model   Private equity is a specialized form of ownership that

often enables many companies to grow and prosper.

  In private equity, general partners raise investment funds from limited partner investors. These limited partners (LPs) are often public pension funds, large institutions, and wealthy families and individuals.

  The general partners identify companies they believe have significant potential for growth and then use the funds they have raised, along with their own capital, to acquire the companies.


71

The Private Equity Model   The PE business model is particularly well-suited to

making a significant impact on the success of businesses in the EDM space.

  PE firms not only provide capital to finance business expansion but also help shape strategy, recruit talent, make operational improvements and enhance relationships.

  Portfolio companies whose lack of capital constrained their expansion could now pursue a wider variety of growth opportunities, and they achieved returns above the average of typical businesses.


72

The Private Equity Model   Private equity funds have the right set of tools to

change the trajectory of EDM businesses, helping them overcome many of their challenges. They can:   provide equity capital needed to help businesses

grow,

  help hire talented managers,

  provide strategic and operational guidance, and

  help build relationship networks.


73

The Private Equity Model   Private equity-owned firms are significantly better managed

across a wide range of management practices than government-, family- and privately-owned firms. This is true even after controlling for a range of firm characteristics such as country, industry, size and employee skills.

 Often private equity owned firms are particularly strong at operational management practices, such as the adoption of modern ‘lean manufacturing’ practices, using continuous improvements and a comprehensive performance documentation process.

WEF, Global Economic Impact of Private Equity Report 2009


74

The Private Equity Model   Private equity-owned firms are associated with high scores

on a wide range of management practices, especially operational management practices.

  In the first two years after private equity transactions, productivity grows on average by about two percentage points more at target firms than at controls and productivity gains at both targets and controls are shared with workers in the form of higher wages.

 A French study found private equity funds act as an engine of jobs, productivity and asset growth for SMEs.

  WEF, Global Economic Impact of Private Equity Report 2009


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Promising Practices


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Promising Models - FNMF   The First Nations and Métis Fund is administered

and operated by First Nations and Métis Fund Inc., a corporation wholly owned by CIC. Westcap provides professional fund management services.

 Makes investments of between $1 million and $3 million in the form of:   Debt;

  Sub-debt;

  Equity; and/or

  Combination of various financial instruments.


77

Promising Models - FNMF   The First Nations and Métis Fund will consider making

investments for the following purposes:   Start-ups – new businesses which have developed or acquired products

or services and are ready to proceed to commercialization;

  Early-stage investments – businesses which have been in operation for some time, but have not yet fully developed their product or service;

  Expansions – businesses which require financing to expand sales, or to launch a new product or service;

  Management buyouts – adding new management and capital to acquire control of a business and realize its potential for expansion; and

  Restructuring or turnarounds – adding investment and making changes in management, staffing, operations or marketing strategies to help the business succeed.


78

Promising Models CAPE Fund CAPE Fund is a $50 million private-sector investment fund

initiated by 21 of Canada’s leading companies, individuals and US based Foundations.   CAPE Fund will be focused on mid-market opportunities with a

strong degree of Aboriginal involvement and connection to Aboriginal communities throughout Canada.

  Fund investments will generally be between $1 million and $7.5 million in the aggregate, per investee. These may occur in one or more rounds of investment. Aboriginal businesses anywhere in Canada are eligible.

  The Fund will invest in virtually all business segments albeit with some sector restrictions. The Fund will proactively seek out both financial and industry partners to facilitate and accelerate the growth of its investee companies.


79

Promising Models CAPE Fund   The Fund focuses on projects which are linked, either through ownership,

employment or geographic proximity, to an Aboriginal group or community. CAPE Fund will only invest in Portfolio Companies that the Investment Committee determines possess the following strengths or features:

  Long term economic sustainability (or the reasonable promise thereof) must be present

  Clear and defined market opportunity

  An articulate, realistic and complete business plan (see guide under "Useful Links")

  Ability to provide CAPE Fund with an appropriate return on its investment

  Potential to sell ownership and transfer management to Aboriginal entrepreneurs or communities within a reasonable period of time

  and could provide a platform for Aboriginal management training


80

Promising Models CAPE Fund   CAPE Fund will invest as a partner in its investee businesses through a

selection of equity and quasi equity instruments. These may take the form of:

  Common shares

  Retractable preferred shares, dividend and non dividend bearing, with current or cumulative dividend

  Debentures, interest bearing (either current or cumulative) which may be convertible into equity (at the option of CAPE) or which may have warrants to purchase equity attached to them.

  It is anticipated that the average hold period of the Fund's investments will be 5 to 7 years. Investments will be structured to provide the Fund with an exit opportunity from the investment within this time period or slightly beyond. It is fundamental to the Mission, that CAPE Fund provides an opportunity for the Aboriginal communities involved to repurchase its interest in each investee company.


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