Time to let the capital crocus bloom

Opinion

Hey there, time traveller!
This article was published 20/12/2021 (1102 days ago), so information in it may no longer be current.

In the rest of the world, the crocus symbolizes new beginnings. Not in Manitoba, where the “Crocus” remains a noxious word-weed in our investment-capital ecosystem, choking out new growth.

The damage related to the Crocus Investment Fund wasn’t related to its investment track record, but still that damage continues, through the atrophy of entrepreneurial spirit and investment skills Manitoba needs to realize its potential.

Fifteen years ago, in an article titled “Crocus was too healthy to kill,” Free Press columnist Dan Lett wrote that “Crocus was an unparallelled success story that created jobs and wealth … when it ran into trouble, there were more than enough people willing to turn their backs and let it slide into oblivion.”

Crocus investments include our downtown arena, National Leasing, Pollard Banknote and Wow Hospitality.

As someone who has spent 30 years building various Manitoba enterprises, it’s disappointing to see our investment-capital ecosystem fall into disrepair, through neglect and fear of the political consequences of taking risk.

But we can recreate that vibrant risk ecosystem. We’ve done it before. We can do it again.

Manitobans are self-reliant. The people who immigrated here understood risk; they knew they weren’t arriving in Shangri-la. They built co-operatives to export grain; a century ago, they engineered the aqueduct that brings water to Winnipeg. The Royal Winnipeg Ballet started in 1939; some of our finest golf courses were built early in the last century.

Manitobans generate ideas. Some are world-class; some will fail — that’s the nature of business. Manitobans may be jealous of Silicon Valley or the Kitchener-Waterloo tech hub, but the enviable positions they occupy were not ordained.

Successes happen alongside failures. But successes happen more often when there’s an entrepreneurial ecosystem connecting researchers, inventors and thought leaders to people who can build business and financial plans.

Fine words — but what does it mean to create a vibrant ecosystem?

First, an intangible: attitude. We need to celebrate and encourage taking risks, by creating partnerships, and with provincial leaders rolling up their proverbial sleeves, investing high-quality time interacting with early- and mid-stage small- and medium-sized businessed (SMEs).

A second element is capital. Earlier this month, Free Press business writer Martin Cash talked with Bio-Medical Association president Kim Kline about the challenges facing Manitoba’s growth companies.

Cash wrote, “The only metric that has taken a step back is one other sectors of the Manitoba economy also struggle with — raising capital,” underscoring Kline’s point that “It has been a consistent issue … it slows innovation and the economic development.”

Will the creation of a venture capital fund, as noted in the recent throne speech, solve the “raising capital” issue? It is a step forward, rather than backward, but it’s not the leap needed to create an entrepreneurial ecosystem.

“Venture capital” is “ownership” capital. A major challenge for many early-stage and high-growth companies — especially those developing intellectual property — is financing working capital. That’s the bank financing needed between the time you sell something and when you get paid. While you’re waiting, employees need to be paid, as do landlords and suppliers.

That money comes from working capital financing. Companies developing software, for instance, don’t have a big factory to use as collateral to get a loan. Working capital can be hard to come by, and its cost may be high.

Venture capital is also lumpy. Companies don’t go out every day to find investors. Venture capital comes in chunks, some of which are not needed for day-to-day purposes. Just like individuals maintaining household budgets, companies can plan expenditures better when they come in smaller pieces.

Manitoba has tended to skew support toward startup companies, spreading the peanut butter thinly to encourage new-business formation.

What happens when those businesses get traction and need growth capital or working capital to accelerate? Manitobans get on Zoom calls or board airplanes, looking elsewhere for financing that could be available right here. That often leads to Manitoba companies being sold or controlled out-of-province, perpetuating the atrophy of our risk-capital ecosystem.

It’s incument on government officials to make it a top priority for their senior staff to understand the challenges faced by early-stage and high-growth companies, especially those developing intellectual property. What’s needed are great ideas that have been vetted with the people immersed in emerging early-stage and high-growth firms.

I have spent too much time on airplanes, and now on Zoom calls, with money professionals located in distant places, while working with Manitoba teams that have world-class ideas. We need leadership right here, to build and develop world-class ideas — right here. We need to rebuild our risk capital ecosystem. It’s time to let the Prairie crocus bloom again.

Brian Hayward is the president of Aldare Resources, former CEO of Agricore United, and currently chairs the board of Cerebra Medical. He has also served on the board of the Business Development Bank of Canada. He is the author of The Great Chair: A Window on Effective Board Leadership.