Canadian banks to announce business growth fund

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Canada’s biggest financial firms are set to unveil as soon as Thursday a new fund worth at least C$500 million ($372 million) to help small and midsize companies expand, according to people familiar with the plans.

The fund will be backed by the country’s six largest banks along with insurance companies and regional lenders, said the people, who asked not to be identified because the details have not yet been made public.

Canadian Imperial Bank of Commerce and other financial firms have been in talks for months to establish a fund that would help smaller companies get funding when other options are limited. Canadian Imperial CEO Victor Dodig has been advocating for such a fund for more than a year, with the idea gaining traction among business leaders and public servants in recent months.

Canada's finance minister, Bill Morneau, has also pushed for the creation of such a fund as policymakers look to stoke economic growth. Morneau met personally with bank chief executives on the matter over several months. The government is looking to scale up firms by clearing the way for a private-sector-led fund.

“We need more growth capital in the system,” says Dominic Barton, head of the Canadian prime minister’s Advisory Council on Economic Growth.

Prime Minister Justin Trudeau’s external Advisory Council on Economic Growth, headed by Dominic Barton of the consulting firm McKinsey & Co., recommended in February the government help private investors create a C$1 billion fund to take minority stakes in “established” and fast-growing companies.

Barton recommended a Canada Business Growth Fund that would focus on firms seeking between C$7.5 million and C$25 million in capital, in particular firms “looking for funding opportunities without having to subject themselves to public-reporting requirements before they are ready.” It recommended only a “fraction” of the capital be allocated at first, with other payouts afterward.

“We need more growth capital in the system,” Barton said. His council has also recommended the creation of a “matching fund” for smaller capital deals between C$5 million and C$15 million.

Dodig said on Feb. 16 in Toronto that the fund would be a private-sector solution with the federal government expediting discussions.

Canada’s tech startups have been lobbying for more support for “scale ups” — companies with a proven business model looking to expand quickly. Some tech CEOs and investors have voiced concern that any new program would come at the expense of the Venture Capital Action Plan, an existing government program that finances venture capital firms.

Barton suggested the government is open to running both programs at the same time. “VCAP has done some very good things,” he said on a Feb. 6 call with journalists. “We saw a need for a type of addition into the capital side that we wanted to put in. So, it’s an add-on.”

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