Small and medium-sized enterprises (SMEs) are the backbone of the Canadian economy. These companies often face a common challenge: finding the right kind of funding to grow without losing control of their business. This is where investors like the Canadian Business Growth Fund (CBGF) come in.
The CBGF offers a solution for SMEs looking to expand. It provides substantial funding while allowing business owners to maintain majority ownership. Supported by Canada’s leading banks and insurance companies, CBGF has a national mandate to provide long-term, patient, minority capital to entrepreneurs pursuing growth, expansion or transition strategies.
In this article, we’ll take a closer look at the CBGF, explain how it works, and discuss how it can help leaders of Canadian SMEs aiming to scale up their operations.
What is the Canadian Business Growth Fund (CBGF)?
The Canadian Business Growth Fund was established to provide long-term, patient capital to growing SMEs across Canada. Launched by major financial institutions within the country, the CBGF aims to address the gap in the market where businesses need substantial funding but want to avoid diluting ownership excessively or taking on restrictive debt.
A Brief History of the CBGF
The origins of the CBGF started in 2017, when the Advisory Council on Economic Growth released three recommendations to make growth more inclusive for all Canadians. To scale Canada’s high-potential businesses through growth capital, the Council said:
The government should encourage the private sector to establish one or more Business Growth Funds to provide patient capital for high-growth businesses in the form of minority equity or loans for SMEs. The fund or funds (hereafter the “fund”) should consist of pre-committed capital from Canada’s leading banks and financial institutions, which would benefit from appropriate capital treatment under the current Office of the Superintendent of Financial Institutions (OSFI) regulations.
A month later, Canada’s leading banks and insurance companies announced they would create a fund aimed at helping SMEs access cash to help them grow.
The fund officially launched in June 2018 and made its first investment (Lift Auto Group) in October 2018.
Over the next five years, CBGF expanded its portfolio, investing in 30 additional companies throughout Canada and making substantial follow-on investments.
These strategic investments across Canada highlight the CBGF’s commitment to fostering substantial growth and innovation in Canadian businesses.
What are CBGF’s investment criteria?
The Canadian Business Growth Fund (CBGF) focuses on SMEs across Canada that are gearing up for growth. Here’s a look at what CBGF looks for in potential investments:
- Revenue: Companies should be making between $5 million and $100 million in annual sales.
- Profitability: Businesses should either be making a profit now or be on track to start making a profit within the next one to two years.
- Investment Details: CBGF invests amounts from $5 million to $20 million and takes a smaller share of the business, usually between 10% and 40%.
CBGF has invested in sectors across Consumer Discretionary, Information Technology, Industrials, Health Care, Financial Services, Education, Consumer Staples, and Business and Communication Services. CBGF is restricted from investing in start-ups, real estate development, resource extraction, cannabis, weapons, and businesses operating in the insurance industry (although companies that provide services to these sectors are eligible).
CBGF uses these guidelines to pick businesses that are ready for the next level of growth while ensuring these companies can still run on their own terms.
Sidecar and CBGF: Complementary Solutions or Independent Paths for Growth?
Choosing the right partners for business growth is pivotal. Understanding how Sidecar Capital Partners and the CBGF compare can clarify whether they offer complementary or distinct pathways for your expansion.
A company might partner with Sidecar and CBGF at the same time, giving its leaders access to more resources and support for their growth plans. When it comes to investing, both Sidecar and CBGF are happy to work with other investors and either take the lead or participate alongside others.
The approaches at Sidecar and CBGF are both designed to provide growth funding and fill the gap for Canadian SMEs, while allowing business leaders to retain control of their companies.
Sidecar and CBGF share several characteristics that help them do this:
- Patient and Flexible Time Horizon: Flexible and long-term partnerships allow businesses to develop at their own pace.
- Non-Controlling Stakes: Non-controlling equity investments allow leaders to stay at the helm of their companies while accessing crucial funding.
- Value-Added Investing: Capital is combined with advice and support. As businesses encounter common barriers to growth, leaders don’t need to navigate them alone.
While both Sidecar and CBGF are well-positioned to support Canadian SMEs, their investment sizes, industry focus and structure differ. These differences make them suitable for various types of businesses and, in some instances, complementary partners for the same company’s growth journey.
- Investment Sizes: Sidecar typically invests $1 million to $5 million in partner companies, while CBGF invests $5 million to $20 million.
- Industry Focus: Sidecar is more specialized, focusing on B2B services in Ontario rather than across industries and provinces.
- Engagement Structure: Companies that partner with Sidecar Capital Partners work directly with a principal. This model may differ from the engagement structure of larger funds like CBGF.
Understanding these differences can help business leaders make informed decisions about how to structure a potential partnership. Both Sidecar and CBGF offer unique advantages, and in some cases, they may complement each other in supporting a company’s growth strategy.
FAQs about the Canadian Business Growth Fund
If you’re curious about the Canadian Business Growth Fund (CBGF), their website has a helpful FAQ section.
It answers common questions about how CBGF invests, who they invest in, and what else they offer besides capital. If you’re thinking about working with CBGF to grow your business, you can check out the FAQ page here. It’s definitely worth a read if you’re considering applying.
Conclusion: Understanding Your Growth Options
Navigating funding options like the CBGF and understanding the unique offerings of Sidecar Capital Partners are key steps for any Canadian SME looking to grow. Both options have their strengths, and deciding which—or perhaps a combination of both—suits your business can seem daunting.
At Sidecar Capital Partners, we understand that every business’s path to growth is different. We’re here not just as funders, but partners who respect your leadership and vision. Whether it’s working alongside other investors like CBGF or independently, our goal is to support your expansion in a way that feels right for your business.
If your business matches our investment criteria and you’re considering your next steps, we’re here to help make those choices clearer. Reach out to discuss how our approach can complement your growth plans and help take your business to the next level.
Connect with us today to learn more about your options and how we can work together.