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THE NEXT BIG THING IS ACTUALLY LOTS OF THINGS Plus • Mergers and acquisitions deal term trends • Is an IPO right for you? • Succession planning • FATCA information Published for CVCA – CANADA’S VENTURE CAPITAL & PRIVATE EQUITY ASSOCIATION


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Winnipeg (Inaugural)

November 7- 9, 2014

October 2, 2014


November 24- 26, 2014

October 2, 2014


November 28 -30, 2014

October 3, 2014

Halifax (Second Offering) March 27-29, 2015

December 3, 2014


April 17-19, 2015

December 3, 2014

Montreal (Bilingual)

April 10-12, 2015

February 5, 2015


Fall 2015

Summer 2015 Enrollment is limited and admission criteria apply.

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372 Bay St., Suite 1201 Toronto, ON  M5H 2W9 Phone: 416-487-0519 Fax: 416-487-5899 www.cvca.ca EDITORIAL BOARD Chair: Steve Hnatiuk, Lighthouse Equity Partners Chris Arsenault, iNovia Capital Jenifer Bartman, Bartman Business Advisory Grant Kook, Westcap Management Ashley Smith, CVCA Robert Montgomery, Achilles Media Rick Nathan, Kensington Capital Partners Gary Rubinoff, Summerhill Venture Partners Gregory Smith, InstarAGF Asset Management David Unsworth, RBC Venture Partners Peter van der Velden, Lumira Capital Mike Woollatt, CVCA





The Next Big Thing is Actually Lots of Things What is the Internet of Things? By Scott MacDonald



Looking back at CVCA’s 2014 Annual Conference

By Barry Gekiere


By Cameron Rusaw



CEO’s Message By Mike Woollatt

By Nicolas Renaud


CVCA Board of Directors and Management


Fund News

8 10

People on the move


President, Jeff Lester Vice-President & Publisher, Sean Davis EDITORIAL Editorial Director, Jill Harris Editorial Assistant, Andrew Harris ADVERTISING Sales Director, Danny Macaluso Stephanie Allen, Larry Kiska, Darryl Sawchuk, Robert Holt DESIGN & LAYOUT Art Director, Myles O’Reilly Crystal Carrette, Jessica Landry, John Lyttle, Gayl Punzalan

M&A Deal Point Studies How does Canada compare to the United States? Can You – and, More Importantly, Should You – Do an IPO? Learn when they do and don’t make business sense

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701 Henry Ave. Winnipeg, MB  R3E 1T9 Phone: 204-953-2189 Fax: 204-953-2184 www.lesterpublications.com

Tribute to Ted Anderson Remembering Ted’s wonderful career and personality

Private Capital Pioneer Insights An Interview with past CVCA president, Sandy Slator (1991-1994)


By Keno Chan and Connie Lee


By Steven Hnatiuk

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Private Capital Funds & Services CVCA Membership Benefits & Information Request Form

DISTRIBUTION Jennifer Holmes

The Succession Conundrum Business leaders, the weak link to successors and the companies who try to finance them By Jenifer Bartman


Quick Surveys Take a look at CVCA member opinions


Top Deals of the First Half of 2014 Top 25 Venture Capital and Private Equity deals


FATCA Considerations for Canadian Venture Capital and Private Equity Funds What do Canadian funds need to do to comply?

© Copyright 2014 CVCA. All rights reserved. The contents of this publication may not be reproduced by any means, in whole or in part, without the prior written consent of CVCA. Direct requests for reprint permission should be made to the president of Canada’s Venture Capital & Private Equity Association. Statements of fact and opinion are the responsibility of the authors alone and do not imply an opinion on the part of the officers or members of the Canada’s Venture Capital & Private Equity Association or Lester Communications Inc.

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Private Capital  §  Quarter 3 § 2014




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Be Certain.™


CEO’s Message

Mike Woollatt, CEO, CVCA

significant job of an association is to tell their industry’s story. This usually involves celebrating the successes, demystifying the industry for the public and informing the industry participants. But why? To what end? There are a number of reasons. It helps bolster advocacy efforts, attracts business to an industry and helps the industry participants make better decisions. After a few months on the job here at CVCA, I would argue that this is even more crucial in our industry, and therefore with our association, than in others. I would also argue that we still have a long way to go on this front. Part of the issue this industry has had in telling its story can be found in the name of this magazine – “private”. Private capital is just that – private. This alone means that telling our story is more difficult than in most other industries. But regardless of the reasons why, the bottom line is that the Canadian private capital industry needs to do

a better job telling its story. Decisionmakers do not fully understand our industry, let alone our significant positive impacts on the Canadian economy. Internationally, we lag behind our competitors in terms of available information and data, which can deter private capital investment flows into Canada. The available data and information within our industry is also relatively poor, which can hamper decision-making amongst our participants. This is why CVCA has embarked on a number of initiatives to improve our story telling. The evolution of our brand and look and feel will make our content more accessible to everyone. The development of a constantly refreshed news site highlighting deals in Canada along with other industry news and statistics will provide a “go-to” place for news and information on the private capital industry in Canada. The searchable database on deals in Canada will significantly improve information and decisionmaking. All of these initiatives will help bolster our advocacy efforts,

help attract private capital investment flows into Canada and improve the information available to our industry participants. These initiatives will of course be an ongoing process, but the creation of each of these products will take a while to get right and ensure that they serve our Members and our industry well. We encourage and welcome your feedback on any of them. In addition, we need your support, particularly on the data side, as we work to build out a robust information platform for all to use. We still have a long way to go, and this process will require a lot of hard work, as well as your support. With these initiatives we will be able to significantly improve the awareness of our industry and the information within it, ultimately positioning our industry for a better future. Sincerely,

Mike Woollatt, CEO, CVCA 

Private Capital  §  Quarter 3 § 2014


Telling Our Story A


CVCA 2013 – 2014 Board and Management Officers President: ..................................................... Peter van der Velden, Lumira Capital Chair: ............................................................ Gregory Smith, InstarAGF Asset Management Inc. 1st Vice President: ...................................... Dave Mullen, Graycliff Partners Treasurer: .................................................... Pierre Schuurmans, Birch Hill Equity Partners Secretary: ..................................................... Gary Solway, Bennett Jones LLP

Vice Presidents Jocelyn Blanchet.......................................... KPMG LLP Gilles Duruflé............................................... Independent Consultant Sarah Goel ................................................... EdgeStone Capital Partners Tom Hayes ................................................... GrowthWorks Atlantic Edmund Kim................................................ ONCAP Grant Kook ................................................... Westcap Mgt. Ltd. Jeff Linner .................................................... PFM Capital Karamdeep Nijjar........................................ iNovia Capital Michael Raymont......................................... AVAC Ltd. Paul Sparkes................................................. Difference Capital

Directors John Berton................................................... Georgian Partners Richard Bradlow.......................................... Penfund Ross Bricker.................................................. RB Limited Joe Catalfamo............................................... Summerhill Venture Partners Paul Day........................................................ Export Development Canada Alain Denis................................................... Fonds de solidarité (FTQ) Howard Donaldson..................................... Vanedge Capital Joe Freedman............................................... Brookfield Asset Management Aki Georgacacos.......................................... Avrio Capital Michael Hollend........................................... TorQuest Partners Wally Hunter................................................ EnerTech Capital Lorne Jacobson............................................ TriWest Capital Partners Tom Kennedy............................................... Kensington Capital Partners Elmer Kim..................................................... Roynat Equity Partners Genevieve Morin.......................................... Fondaction Don Morrison............................................... Novacap Dave Mullen................................................. Graycliff Partners Jerome Nycz................................................. BDC Whitney Rockley.......................................... McRock Capital Jane Rowe..................................................... Teachers’ Private Capital John Ruffolo.................................................. OMERS Ventures Rakesh Saraf................................................ Alberta Teachers’ Retirement Fund Pierre Shuurmans ...................................... Birch Hill Equity Partners Lloyd Segal................................................... Persistence Capital Partners Gregory Smith.............................................. InstarAGF Asset Management Inc. Edward Truant............................................. Imperial Capital Mark Usher .................................................. Wellington Financial LP Peter van der Velden................................... Lumira Capital Mike Walkinshaw........................................ Stanley Hill Michael Woolhouse..................................... CPPIB

Management CEO:............................................................... Mike Woollatt Communications Associate:...................... Ashley Smith Research Director:....................................... Ted Liu International Trade Liaison Officer:........... Andrew Keenan Research Associate...................................... Marie Labitté

Administrator.............................................Elaine Bedell


Private Capital  §  Quarter 3 § 2014

› fund news PFM Capital unveils retail fund following $55M initial close of second partnership PFM Capital has unveiled a new retail fund focused on diversified private equity investments based in Saskatchewan’s middle market. Apex II Private Equity Fund LP will provide retail investors access to the firm’s second partnership, Apex II Investment Fund LP, which raised $54.9 million from high net worth and institutional investors in its initial close in December 2013. Fund II’s managers have set a target of $100 million, and a hard cap of $150 million, for the partnership. Its final close is expected to take place in June. With more than $550 million in assets under management, PFM Capital is based in Regina, Saskatchewan.

Real Ventures completes first $50M close of third venture fund Real Ventures announced that it has completed the first closing of its third venture capital fund at $50 million, with an ultimate target of $100 million. The fund will focus on web, mobile and internet-focused investments in Canada, specifically in Québec. The lead investors in the new fund are Québec-based Teralys Capital, FIER Partners and the Business Development Bank of Canada.

Ironbridge Fund II oversubscribed in final close, raises $154M Ironbridge Equity Partners has completed the final close of its second fund, Ironbridge Equity Partners II LP, raising $154 million in total. The partnership was oversubscribed after less than 10 months of marketing, with the result that Ironbridge Fund II raised 23 per cent more than its original target of $125 million. The firm’s managing partner Alan Sellery said that more than 60 per cent of the fund’s institutional backers were international. Based in Toronto, Ironbridge invests in lower middle-market businesses operating in a range of industries including manufacturing, distribution and consumer and business products and services.

Swander Pace Capital raises $350M for Fund V Swander Pace Capital, which has a Canadian office in Toronto, has

closed its fifth fund, SPC Partners V LP, with US$350 million in commitments from institutional investors, endowments and family offices. The new fund will continue to invest in growth-oriented, mid-market consumer products companies in North America and the United Kingdom.

MaRS welcomes Ontario’s commitment to new $30M life sciences VC fund MaRS Innovation has welcomed the Ontario government’s commitment to a new $30 million life sciences seed venture capital fund, which was recently announced in the 2014 Ontario budget. The fund is a partnership between the provincial government, the private sector and hospital foundations that will focus on investing in Ontario-based, early-stage life sciences companies. Located within the Toronto-based MaRS Discovery District, MaRS Innovation commercializes opportunities emerging from 16 leading academic institutions.

Onex Partners announces fund IV’s $5.15B close Onex Corp. recently announced the final close of Onex Partners IV LP, the fourth partnership of the Canadian private equity firm. Fund IV has been wrapped up with US$5.15 billion in total capital committed. According to Onex, it is the largest fundraise in its history. Capital committed is also 14 per cent more than Fund IV’s target of US$4.5 billion.

Novacap TMT IV LP beats target in final close, raises $375M Novacap has closed its fourth technology, media and telecommunications fund, Novacap TMT IV LP, raising $375 million. The fund surpassed its target of $350 million, and is more than twice the size of the $180 million Fund III, closed in 2007. Fund IV was backed by a range of institutional investors, including Teralys Capital, Caisse de dépôt et placement du Québec, Investissement Québec, Export Development Canada, Business Development Bank of Canada and several Canadian and Québec pension funds.

Northleaf raises $255M in final close of global PE secondaries fund Northleaf Capital Partners has closed its dedicated private equity secondaries fund, Northleaf Secondary Partners, at Private Capital  §  Quarter 3 § 2014


Northleaf exceeds target for pooled infrastructure fund, raising $520M Northleaf Capital Partners has closed its pooled infrastructure fund, Northleaf Infrastructure Co-Investment Partners. The fund raised a total of $520 million in commitments from new and existing investors, exceeding by 73 per cent of its $300 million target. With the final closing, Northleaf’s infrastructure platform, which invests directly in mature infrastructure assets in OECD countries, now has more than $900 million in capital committed.

Northleaf Venture Catalyst Fund holds second closing Northleaf Capital Partners has recently held a second close for Northleaf Venture Catalyst Fund (NVCF), the first to be established under the Government of Canada’s Venture Capital Action Plan (VCAP), bringing total commitments to date to $233.5 million. Northleaf Venture Catalyst Fund has an overall target size of $300 million. The Governments of Canada and Ontario have agreed to make a combined capital commitment of one dollar for every two dollars committed by private sector investors to NVCF, up to a maximum of $50 million each. Northleaf Venture Catalyst Fund began its investment program in January 2014 and has made six investments to date: commitments to three VC funds: XPV Capital, Georgian Partners and Versant Ventures, and three direct co-investments, Wattpad, Vision Critical and Silanis.

Cisco commits $150M to Canadian innovation, VC funds, incubators The Canadian subsidiary of Cisco Systems Inc (Nasdaq: CSCO) has committed $150 million to its Cisco Canada Innovation Program, a strategy to support and accelerate innovation in Canada. Cisco Investments will partner with Canadian venture capital funds and incubators and make direct technology investments as part of the strategy, along with providing Cisco technology and go-to-market expertise to Canadian businesses. Activity, which will emphasize a mix of digital technologies sectors, businesses and investment stages, will occur over the next 10 years. 6

Private Capital  §  Quarter 3 § 2014

Teralys, Fonds de solidarité FTQ, BDC invest in Versant Ventures Teralys Capital has partnered with the Fonds de solidarité des travailleurs du Québec FTQ and BDC Venture Capital in backing U.S. life sciences venture capital firm Versant Ventures. Teralys committed $25 million to Versant, making its fifth investment in life sciences, an integral part of Teralys’ and its partners’ strategy to bolster the market ecosystem in Québec and across Canada. The three investor groups also plan to work with the firm on its recently launched drug discovery incubator Inception Sciences, located in Montréal. Northleaf Venture Catalyst Fund also announced a $10 million commitment to Versant.

KERN Partners launches $750M Fund IV KERN Partners has launched its fourth energy-focused partnership, KERN Energy Partners IV Fund. The firm previously has raised more than $1.1 billion in capital commitments, primarily from Canadian pension funds and U.S. endowments, as well as other institutional investors, including family offices, foundations and insurance companies.

Canadian Government commits $15M to Sarona fund The Federal Government has made a $15 million investment in a fund managed by Sarona Asset Management. Sarona Asset Management is a private equity firm, investing growth capital in companies and private equity funds in high-growth markets. The Canadian Government’s investment aims to promote private sector-led growth by stimulating investment in small to mid-market companies in frontier and emerging markets. The investment will act as a first-loss guarantee on Sarona’s investments and the profits thereof will be shared with other investors.

Tricor Pacific Capital Partners Fund V closes at $345M Tricor Pacific Capital has held a final close for its fifth fund, Tricor Pacific Capital Partners (Fund V), with $345 million in total committed capital. Shannon Advisors, LLC acted as placement agent. Vancouver and Illinois-based Tricor is a leading private equity firm that invests in profitable, well-managed, lower middle-market companies in the U.S. and Canada. Since inception in 1996, Tricor has managed over $1 billion of capital invested in companies in the specialty manufacturing, business services and value-added distribution industries.

Quebec tables $375M FOF, $150M Anges Quebec Capital fund recap In the 2014-2015 budget tabled on June 4, 2014, the Québec government allocated $560 million for financing


US$255 million. With the closing of Northleaf Secondary Partners, the firm now has approximately $600 million of capital available for investments in the global secondaries market. Based in Toronto, Northleaf manages over $5 billion in assets on behalf of pension funds, endowments, foundations, family offices and other institutional investors.

Fund News

businesses and funding venture capital funds: $375 million to fund a venture capital fund-of-funds; $150 million for the recapitalization of the Anges Québec Capital fund; $25 million for the renewal of local investment funds; and $10 million additional capital for the Chantier de l’économie sociale Trust.

Emerald Cleantech Fund III holds final close to reach €100M target Emerald Technology Ventures has held a final close with additional commitments from Suncor Energy, SK Group and Ecolab for Emerald Cleantech Fund III. Suncor Energy, SK Group and Ecolab join existing limited partner (LP) investors including ABB, Clariant, Evonik, JSR, MAHLE, Sibelco, Sulzer and family offices. With final close, Emerald Cleantech Fund III has reportedly reached its fundraising target of €100 million. Emerald Cleantech Fund III invests in early and expansion stage companies in the energy, water and materials sectors.

Cisco invests in Georgian Partners Growth Fund II Georgian Partners Growth Fund II, LP has secured undisclosed amount capital commitment from Cisco. Georgian Partners is a growth equity firm investing in expansion stage enterprise software, internet and information companies that are exploiting applied analytics: the convergence of cloud-based business solutions, Big Data, and broad information rights. Georgian Partners was founded by Managing Directors, John Berton, Justin LaFayette, and Chong in 2008.

Clairvest Fund V closes at $600M Clairvest Group Inc. (TSX: CVG) has held a final close for Clairvest Equity Partners (CEP) V Limited Partnership and its parallel partnerships, securing $600 million (hard cap) in total commitments including $180 million co-investment commitment from Clairvest and $420 million from third party investors. Clairvest held an initial close in May 2014 with $518 million committed capital. Atlantic Pacific Capital acted as Clairvest’s exclusive placement agent to market the fund outside of Canada. 

HIT US WITH YOUR OPINION Talk back to us about industry issues, how we’re doing at Private Capital and the CVCA. Send in your letters to the editor to privatecapitaleditor@cvca.ca Note: Not all letters will be published, and those published may be edited for style and consistency. Submissions are anonymous unless otherwise requested.

Private Capital  §  Quarter 3 § 2014


› people on the move

Andreessen Horowitz recruits Boris Wertz

Cycle Capital adds Ben Forcier as partner

Boris Wertz, the managing partner at Version One Ventures, has been recruited by Andreessen Horowitz as a board partner.

Benoit Forcier has joined Cycle Capital Management as partner. Previously, Forcier was a partner at Espresso Capital. Forcier is the second partner to join Cycle Capital this year. In March, Cycle Capital hired Shirley Speakman, formerly investment director at MaRS Investment Accelerator Fund, as partner.

ARC Financial welcomes Jackie Forrest as new VP ARC Financial Corp has appointed Jackie Forrest as vice president. She will work with the firm’s research team. Forrest is a 15-year veteran of the energy industry, and was most recently the leader of North American crude oil research for IHS CERA. Based in Calgary, ARC Financial manages $3.7 billion of capital across its seven ARC Energy Funds.

bcIMC hires PSP Investments’ CEO Gordon J. Fyfe as its new CEO/CIO The board of directors of the British Columbia Investment Management Corporation (bcIMC) has hired Gordon J. Fyfe as chief executive officer/chief investment officer (CEO/ CIO). Fyfe has been serving as president and CEO of PSP Investments since October 2003. Prior to PSP Investments, Fyfe held the position of president, CDP Capital – World Markets.

Blackstone hires Andrew Lapham Blackstone Group LP has hired Andrew Lapham as an executive advisor. Based in Toronto, Lapham, managing director of Northern Private Capital, will be responsible for sourcing and evaluating investment opportunities in Canada. Lapham served as a principal at Onex Corporation from 2006 to 2013.


Private Capital  §  Quarter 3 § 2014

Gaétan Morin appointed as CEO of Fonds de solidarité The Board of Directors of Fonds de solidarité FTQ has appointed Gaétan Morin as its new president and CEO. Morin has held the position of EVP of Corporate Development and Investment at Fonds since 2012. Prior to his appointment of EVP position, Morin held various positions with Fonds.

Imperial Capital adds Glen Silvestri as partner Imperial Capital Group Ltd. has added Glen Silvestri to its investment team as a partner. Silvestri joins Imperial Capital after nearly 13 years with the private equity group of Ontario Teachers’ Pension Plan. His most recent role at Teachers was Head of Telecom, Media, Technology and Energy & Power investing.

Lumira Capital forms new CEO advisory board Lumira Capital has formed a new CEO advisory board consisting of five executives from the life sciences industry. The board members are: Maurice Ferré, M.D., former president and CEO of MAKO Surgical Corp; Barry Fishman, former president and CEO of Teva Canada; Paul

Lucas, former president and CEO of GSK Canada; Thomas Wellner, former president and CEO of CML HealthCare Inc; and Theodore Witek, DrPH, former president and CEO, Boehringer Ingelheim (Canada) Ltd. The board will provide strategic input into Lumira’s investment strategy and offer guidance and mentorship to its portfolio companies.

mid-market private equity firm, where he co-led the London office since 2009.

Pentti Karkkainen takes advisor role at KERN Partners

Nigel S. Wright is returning to Onex Corporation to join the London team as a managing director. Wright served as the thirteenth Chief of Staff of the Office of the Prime Minister of Canada from September 2010 to May 2013. Prior to his appointment of Chief of Staff, Wright was previously a managing director with Onex for 13 years.

Pentti Karkkainen, co-founder and general partner at KERN Partners, will transition from his management role and position on KERN’s internal boards to become cofounder and senior strategy adviser. The new role will give him a spot on KERN’s independent advisory board and allow him to continue representing the firm on the boards of directors of several portfolio companies. Founded in 2000, Calgary-based KERN has $1.1 billion under direct management and an additional $1.5 billion in its coinvestment program.

Normand Chouinard named EVP of Investments at Fonds de solidarité

Ron Dizy named managing director of MaRS Advanced Energy Centre

Normand Chouinard, Head of Investments at Fonds de solidarité FTQ, has been named Executive Vice-President (EVP) of Investments. Chouinard joined Fonds régional de solidarité FTQ Montérégie in 1998 as director general.

Ron Dizy, most recently CEO of ENBALA Power Networks Inc. and formerly partner with Celtic House Venture Partners, has been appointed managing director of the Advanced Energy Centre of MaRS Discovery District. The Advanced Energy Centre is a public-private partnership focused on driving the adoption of innovative energy technologies in Ontario and Canada. It works closely with a number of affiliated organizations, including MaRS Cleantech Venture Services and private Canadian venture capital firm ArcTern Ventures, which has invested in several clean technology start-ups in the MaRS community. 

Nigel Wright re-joins Onex

OMERS Private Equity appoints Jonathan Mussellwhite as managing director OMERS Private Equity has appointed Jonathan Mussellwhite as a managing director in its London office. Mussellwhite brings more than 18 years of private equity experience to the position. Previously, he was one of the founding partners of Cognetas LLP, a pan-European

Private Capital  §  Quarter 3 § 2014


Private Capital Pioneer Insights An interview with Sandy Slator, CVCA past-president 1991-1994 By Steve Hnatiuk, Lighthouse Equity Partners


andy Slator became the ninth president of CVCA in the early 1990s, at a time of rapid change in Canada’s private capital industry. Private equity and venture capital investment in Canada was on the cusp of the first big wave of unprecedented growth and just beginning to specialize and mature into distinct asset classes. At the time, Sandy was CEO of Alberta-based VenCap Equities – one of the largest venture capital firms in Canada. Numerous investors who went on to build Canada’s venture capital industry honed their skills under Sandy’s leadership at VenCap. With energy exceeding that of many people half his age, Sandy’s “retirement” resume remains full of active corporate, industry and philanthropic pursuits. He is a tireless Alberta entrepreneur. I have had the great pleasure of getting to know Sandy over the past decade in his role as board member at AVAC, an active LP and direct investor in Western Canada. I caught up with Sandy this summer to talk about his time as CVCA president – now two decades ago – and discuss the present and future of private capital in Canada. I hope that you enjoy the perspectives and


Private Capital  §  Quarter 3 § 2014

insights from a true pioneer of the private capital business in Canada as much as I did.

What is the most significant way that the PE and/ or VC industry has changed since you were CVCA president? Sandy Slator: The change in approach to venture investing has changed quite a bit over the past number of years. In the past, the focus of the practicing venture capitalist was business building. While a number of current venture capitalists do follow that pattern, there currently appears to be more effort placed on financial engineering. In the past, as well, there seemed to be a greater incidence of direct, unsecured common equity investing whereas today, it appears that there is a greater focus on obtaining a running yield, through convertible preferred shares or convertible debt. I’m not suggesting that there is anything wrong with that approach; it is just a change from the past.

Pioneer Insights

Sandy Slator, 1989

“The Federal Government and a number of Provincial Governments responded to the concerns of the VC industry by establishing the Labor Sponsored Venture Capital Funds program; while I won’t pass judgment on this program, it did raise a lot of concern among our membership.” – Sandy Slator

Sandy Slator, 2014

What advice would you give to GPs who are building their firms today? SS: The “care and feeding” of your Limited Partners is of critical importance. Communicate well and often with them. If you do, and if you are reasonably successful, they will be around the next time you raise funds. Invest well, choose your management teams wisely and work hard to add value to the companies in which you invest. The hard work comes after you have made the investment.

What were the biggest challenges our industry faced during your time as CVCA president? SS: We faced a number of challenges. Times were not really good then, particularly for the VC industry. We had to convince financial institutions that venture capital was one of the best asset classes to invest in. Unfortunately, more recent years were not as robust from a rate of return point of view, so the challenge of convincing was a daunting one. We also had challenges with CRA, convincing them to look favorably on the industry. There were discussions of eliminating capital gains tax for the industry

and treating all gains as regular income; we had many discussions with Ottawa relating to the Canada/U.S. tax treaty on how to treat venture income for U.S. investors in Canadian VC companies. The Federal Government and a number of provincial governments responded to the concerns of the VC industry by establishing the Labor Sponsored Venture Capital Funds program; while I won’t pass judgment on this program, it did raise a lot of concern among our membership.

If you had to do it all over again, how might you have approached the industry differently knowing what you know now? SS: I’m not sure I could have or would have changed my approach to the industry. From an operating perspective I would have changed some things, such as replacing some of the management teams in which I had invested sooner rather than later.

Private Capital  §  Quarter 3 § 2014 11

Pioneer Insights What are your views on Canada’s largest institutional investors/pension plans establishing active direct investing programs?


SS: I’m not sure how the institutions really operate in this class. For those who get into the VC area, or growthoriented small and mid-sized PE-backed companies, I wonder if they really have the business building expertise within their organizations? In high-growth businesses, this is of paramount importance. The real work of a private capital investor comes after the investment is made, and business building capability is critical.

Where do you think the best returns in private capital investing are likely to come from in the next decade? SS: If I knew the answer to that I would come out of retirement and return to the industry! The best returns are going to accrue to the investor who can find great management teams. That criterion has not changed over the decades. I’ve always believed that I would rather back an “A” management team with a “B” product, service or technology, rather than the reverse.

What are your thoughts on the geographic scope of investing and fundraising, then versus now? SS: I think the trend over the past number of years has been to be more global rather than local. Free trade has boomed and ease of communication has made global competition much more the norm. Whatever one is working

As the national conduit for positive understanding and partnership between Aboriginal business and corporate business Canada, CCAB is proud to celebrate 30 years of fostering engagement across all business sectors. We wish to congratulate and thank those who had the foresight to see a brighter future for our Aboriginal people and invite CVCA members to support CCAB by becoming a member and exploring the great potential of business partnerships.

PTI was one of Sandy Slator’s favourite companies and one of the biggest wins in the Vencap portfolio, according to Peter van der Velden, CVCA’s current president

on locally, someone, somewhere is working on exactly the same thing. This prompts greater collaboration and therefore more global investing, and by extension, fundraising.

Hot sectors then versus now? SS: The hot sectors, during my time in the industry, were computer hardware and software related technology. There were other sectors, of course, but those were the primary focus of many funds. Today, in my opinion, the best sectors that I would pursue would be somewhat more specialized: 1) technologies focused on or related to food production, supply and distribution; 2) technologies related to energy efficiency, in conversion, finding and utilization; and 3) water remediation.

How do you feel about your time as head of CVCA and as an active investor in the Canadian market? SS: Despite the many challenges, it was a most satisfying run. The fund for which I was responsible was really quite successful. As the head of CVCA, I don’t believe we accomplished everything we had set out to do, but we did establish, I think, a little higher profile for the industry. We established the Entrepreneur of the Year Award, which did gain us quite a bit of favorable press.

Would you do it all over again? SS: Yes, I would definitely do it all over again, in a heartbeat. 

www.ccab.com | 416-961-8663 12

Private Capital  §  Quarter 3 § 2014

Steve Hnatiuk is chair of Private Capital magazine’s editorial board and a member of CVCA’s Government Relations Committee. Steve is managing partner of Lighthouse Equity Partners, a buyout firm focused on lower middle market Western Canadian businesses.

Remembering TED ANDERSON T


By Barry Gekiere

ed Anderson left us on May 8, 2014 after a courageous battle against prostate cancer. Ted was my good friend, colleague and business partner for over 13 years at Ventures West. Ted was well known in the venture community and has been described as a statesman of the industry. He started his venture career in 1982 with Roynat, served as president of the CVCA from 1996-1998 and was with Ventures West for 15 years where he became managing partner. I have been trying to think of a way to describe Ted to those of you who may not have had the pleasure of working with him to give you a sense of the kind of person he truly was. There was a tribute event to honour Ted held at MaRS and more than 60 of his friends and business associates took the time to provide quotes or memories of Ted. I took key words that were used multiple times and I want to share them because I think they give a sense of who Ted was. Kind, compassionate, generous, true friend; Selfless, no ego, humble, modest; Honesty, integrity; Sage advice, listener, mentor, coach; Passionate, inspirational, gutsy, courageous, committed; Insightful, smart, intelligent; Common sense, thoughtful, business acumen; Sense of humor; Family balance; A true gentleman in every sense of the word.

What made Ted even more special was his commitment to social causes including his work as an advisor to venture investing in support of SMEs and the agricultural value chain in Africa. Ted received the CVCA Community Leadership Award in 2012 in recognition for his volunteer work in Africa for organizations like the World Bank, the Canadian Investment Fund for Africa, the Lundin Foundation and the Ghana-based West African Agricultural Investment Fund and Injaro Investments. A touching quote in honor of Ted at his tribute was from his Injaro team in West Africa: A man who did not need to do any more good but who chose to do so anyway; A man who could have offered his wisdom and experience elsewhere for greater rewards but directed it towards improving the lives of the less fortunate; A man of integrity, whose reputation opened many doors for us; A man who inspires us to work tirelessly everyday to get better at what we do.

Ted’s last passion was his work at MaRS where he took the position as director of the Center for Impact Investing. Impact investment is defined as capital used intentionally for social or environmental benefits in addition to financial returns. Ted had seen that markets could generate social impact based on his work in Africa and felt strongly that it could work on a broader scale. Ted’s late career purpose was to show that capitalism and market mechanism could be used for greater good, as well as for financial returns. He threw himself into this work and to leading his team despite his battle against cancer and the draining chemotherapy treatments. Deborah Cumming, Ted’s life partner, said she never saw him more passionate about his work or more involved with his team. Ted became Canada’s representative on the G8 Social Impact Investment Taskforce, participating in efforts to come up with solutions to grow the global impact investment marketplace and travelled to meetings in Washington, London and Berlin in the last months of his life. The Anderson family, Deb, Charlotte and Caroline, would like to see Ted’s work continue on in some way, so that his vision is not lost. Efforts are being made by his team at MaRS, the Anderson Family and business colleagues to come up with an appropriate legacy to carry on Ted’s unfinished business. We will keep you posted. 

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CVCA 2014 Annual Thanks for making the 2014 CVCA Annual Conference, which took place May 20–22, in Ottawa, Ont., a success. This year, we were host to over 500 industry professionals and influencers from across the country and around the world. Participants enjoyed this year’s hockey theme of “Positioned to Succeed,” which focused on future investment opportunities in Canada. B 14

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Delegates received a f


free NHL jersey of their choice to wear at the conference

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D 16

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CVCA Award Winners 2014 Private Equity ‘Deal of the Year’ Award Winners: Fulcrum Capital Partners and Brookfield Asset Management Fulcrum Capital Partners Inc. invested $9.6 million to acquire a controlling interest in A&B Rail Services Ltd. in June of 2008. Over the next five years, Fulcrum, together with A&B Rail management, embarked on an aggressive growth strategy, including completing two strategic acquisitions and building out new services lines including an LRT division, signals, communication, civil and rail component manufacturing. These initiatives transformed A&B Rail into the premier national rail services company in Canada. In 2013, Fulcrum sold A&B Rail to a private equity investor group realizing total cash proceeds of $137 million, or 14.3x invested capital, for a 74.2 per cent IRR. Brookfield Asset Management invested in Longview Fibre Paper and Packaging, Inc. in 2007 and instituted a multi-year operational turnaround focused on upgrading management, emphasizing safety and environmental performance, rationalizing the manufacturing footprint and optimizing Longview’s product mix. This turnaround increased EBITDA by 300 per cent from US$40 million to US$160 million over Brookfield’s ownership period. In July 2013, Brookfield sold Longview to KapStone Paper & Packaging Corp. (NYSE: KS), realizing total proceeds of $1.1 billion, generating an IRR of 69.6 per cent, representing a 10x return on invested capital of $114 million.

“These transactions highlight the role and value of private equity as dedicated, experienced and highly motivated partners, who take a long-term perspective on creating value in businesses, while working alongside management teams to achieve that success. Both transactions also highlight how private equity backed companies support a stronger and more productive economy and contribute to overall job creation,” said Mike Woollatt, CEO of CVCA.

2014 ‘Entrepreneur of the Year’ Award Winner: Robert J. Deluce Established in 1992, the purpose of CVCA’s ‘Entrepreneur of the Year’ Award is to promote, highlight and celebrate the achievements of Canadian entrepreneurs who lead private equity or venture-backed Canadian companies. Mr. Deluce established Porter Airlines with an objective to add competition to Canada’s scheduled air service landscape, providing additional choice for travellers and offering a unique flying experience. Porter Airlines was launched in 2006 with two Bombardier Q400 aircraft and one route between Billy Bishop Toronto City Airport and Ottawa. Mr. Deluce sought to offer complementary services that were increasingly uncommon for other airlines, such as access to airport lounges for all passengers, beer and wine onboard and food service. “By blending a refined flying approach and the convenience of a downtown airport, with a cost efficient operating structure, Bob was able to realize his vision,” explained Samuel L. Duboc, president and managing partner at EdgeStone Capital Partners. In addition to EdgeStone Capital Partners, Porter Airlines’ institutional investors include OMERS Strategic Investments, GE Asset Management Incorporated and Dancap Private Equity Inc. Today, Porter has grown to a fleet of 26 aircraft flying to 20 destinations in North America. In 2013, the company flew 2.5 million passengers. Porter employs more than 1,450 individuals. It is an Official 4 Star Airline® in the World Airline Star Rating® by Sytrax, and rated 18

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Best Small Airline in the world by Condé Nast Traveler’s Readers Choice Awards. Duboc described Mr. Deluce as “a driving force behind the growth of Porter and Toronto’s downtown core. He is one of Canada’s most knowledgeable and respected airline owners and operators. He is a true entrepreneur and brings to the business a history of successfully owning, financing, restructuring, operating and managing a number of airlines in Canada, including White River Air Services, Austin Airways and Canada 3000 Airlines.” Robert J. Deluce was honoured at the Gala Evening at CVCA’s 2014 Annual Conference in Ottawa, Ont. on Wednesday May 21, 2014.

CVCA Award Winners 2014 ‘Ted Anderson Community Leadership Award’ Winner: Samuel L. Duboc The purpose of this prestigious award is to honour individual CVCA members who have “given back to community”. This award serves to highlight that, in addition to supporting Canada’s economic productivity, our members also foster strong corporate social responsibility as a foundation to building solid, vibrant communities. Samuel L. Duboc is a longtime member of CVCA and is known to the members as the founder, president and managing partner of EdgeStone Capital Partners. He previously served as managing director at CIBC Capital Partners and cofounded and developed Loyalty Management Group Canada Inc. More recently, Mr. Duboc served as the Clifford Clark visiting economist and special advisor on Venture Capital for the Department of Finance Canada, leading a team in designing and implementing the Government of Canada’s Venture Capital Action Plan. In January 2014, Mr. Duboc was appointed Chair of the Board of Directors of Business Development Bank of Canada (BDC), where he continues to help support and develop Canadian entrepreneurs. Mr. Duboc has contributed outstanding leadership and support to a variety of non-profit and community organizations for over 20 years. Mr. Duboc also plays an instrumental role in the continued success of Pathways to Education Canada. He became involved in Pathways to Education in 2003, when it was a small, single community program in Regent Park, Canada’s oldest public housing project and one of the most economically disadvantaged neighbourhoods in Canada. In 2005, he co-founded and became chair of Pathways to Education Canada, a national organization established to dramatically scale the successful Pathways program across Canada. Under Mr. Duboc’s leadership, Pathways has grown from a

single community program in Regent Park operating with a budget of approximately $2 million, serving some 600 students, to serving over 8,000 students and alumni in 16 communities across Canada from Winnipeg to Halifax and approximately $27 million in annual revenues a year today. Throughout his time with Pathways, Mr. Duboc has led a number of successful fundraising campaigns, raising in excess of $150 million, including significant fundraising support from the Government of Canada and the Province of Ontario. Analysis done by a variety of organizations on Pathways including the Boston Consulting Group confirm the social return on investment of Pathways to be in excess of 24 dollars for every one dollar invested. Mr. Duboc was honoured at the Gala Evening at CVCA’s 2014 Annual Conference in Ottawa, Ont. on Wednesday May 21, 2014.

2014 Venture Capital ‘Deal of the Year’ Award Winners: BDC Venture Capital and GrowthWorks “It is my pleasure to announce that BDC and GrowthWorks have won this year’s venture capital category award for their successful realization of Layer7 Technologies,” said Sandra Bosela, chair of CVCA’s Awards Committee and managing director, OPTrust Private Markets Group. “The company and its investors showed a great deal of patience and although the company was approached by potential buyers several times over the course of its 12 years of existence, it chose not to sell until it had established itself as a market leader and had achieved the value enhancing milestones of sustained profitability and revenue growth.” With more than $1 billion under management and more than 25 years of industry experience, BDC Venture Capital is an investor of choice focusing on IT, health and energy/ cleantech companies, as well as venture funds, with high growth potential. From seed through expansion to exit, BDC’s mandate is to help build outstanding Canadian companies, while working to create a sound financial ecosystem for Canadian technology ventures. GrowthWorks managed funds provide investment capital for Canadian companies and tax-advantaged investment

opportunities for Canadian investors through the Working Opportunity Fund (EVCC) Ltd., GrowthWorks Atlantic Venture Fund Ltd., and GrowthWorks Commercialization Fund Ltd. Building on more than 20 years of venture capital investment expertise, GrowthWorks is a leader in Canadian venture capital management. Private Capital  §  Quarter 3 § 2014 19

Private Capital Funds & Services AccuVal-LiquiTec

3 Director Ct., Ste. 102 Vaughn, ON L4L 4S5 Phone: 416-531-4237 jmoran@accuval-liquitec.net www.accuval-liquitec.net

When structuring deals, “more” matters. With AccuValLiquiTec, expect intelligent valuation guidance backed by experience — which maximizes your return with more leverage. From accurately understanding your collateral position to closing confidently, you’ll have the industry’s most accredited appraisers at your service. Enjoy more flexibility when you’re partnered with a firm whose work is accepted by all major Canadian and U.S. lenders. Call (416) 531-4237 at the front-end of your next deal.

Appraisals § Auctions





argosy partners



Succession Fund argosy partners


Shotgun Fund and Succession Fund

141 Adelaide St. W., Ste. 760 Toronto, ON M5H 3L5 Larry Klar: 416-867-8090 klar@argosypartners.com Richard Reid: 416-367-3617 reid@argosypartners.com

Through Shotgun Fund and Succession Fund we purchase secondary shares in successful owner-operated private businesses. We assist management in providing liquidity to shareholders. We make fast decisions and can commit capital quickly to solve shareholder issues. We seek investments in businesses with sales of more than $25 million and a history of profitability. We are active at the board level, where we work with our management partners to create long term shareholder wealth.

www.shotgunfund.com www.successionfund.com

Investments via Equity or Convertible Debt § Private Equity Investor § Secondary Share Positions in Private Companies

BeauVest Canada Inc. 77 Broadway Ave. Orangeville, ON L9W 1K1 Phone: 416-529-4879 ajaiswal@beauvest.com

BeauVest is a direct investment firm managed by experienced investors and business operators, focusing on Canadian midmarket companies. We build exceptional companies by investing and managing for the long term. We target the financial services, high-tech and consumer products and business services sectors.

Acquisition Advisory § Business Advisory § Direct Investment

InstarAGF Asset Management Inc. Toronto-Dominion Bank Tower, 66 Wellington St. W., 31st Fl. Toronto, ON M5K 1E9 Phone: 416-815-6224 info@instaragf.com www.instaragf.com

InstarAGF, a joint venture between Instar Group Inc. and AGF Management Limited, invests in and manages high quality alternative investment products with an emphasis on mid-market opportunities in the infrastructure sector and other alternative asset categories in North America and globally. As an independent asset management firm, InstarAGF makes its investment decisions as a long-term partner and owner. Our growing team of seasoned professionals is committed to delivering sustainable and superior risk-adjusted returns to investors.

Infrastructure § Private Equity § Venture Capital

Institute of Corporate Directors 2701-250 Yonge St. Toronto, ON M5B 2L7 Phone: 416-593-7741 Toll-Free: 1-877-593-7741 education@icd.ca www.icd.ca

The Institute of Corporate Directors (ICD) is a not-for-profit, member-based association representing Canadian directors and boards across the for-profit, not-for-profit and Crown sectors. The ICD has more than 8,700 members and 11 local chapters across Canada. The ICD fosters the sharing of knowledge and wisdom through education, professional development programs and services, and thought leadership and advocacy to achieve the highest standard of directorship.

Director Education § Member-Based Association for Boards & Directors in Canada § Not-For-Profit


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CVCA Professional Services

Ironbridge Equity Partners 390 Bay St., Suite 1200 Toronto, ON M5H 2Y2 Phone: 416-863-0105 info@ironbridgeequity.com www.ironbridgeequity.com

Ironbridge is a Toronto-based private equity firm focused exclusively on investing in companies in the Canadian lower middle-market. We focus on traditional industry businesses in the manufacturing, distribution, consumer and business products and services spaces. We leverage our operating skills, diverse industry experiences and extensive network to drive value and accelerate growth in our portfolio companies.

Lower Middle-Market Buyouts § Growth Financing § Restructurings

Pangaea Ventures Ltd.

1500 W. Georgia St., Ste. 1555 Vancouver, BC V6G 2Z6 Phone: 604-800-0411 chris@pangaeaventures.com www.pangaeaventures.com

Pangaea Ventures is the world leader in advanced materials venture capital, backing world-class start-ups with disruptive breakthroughs in the physical sciences. Pangaea has offices in Vancouver and Hillsborough, N.J. Now investing its third fund, Pangaea has an outstanding portfolio addressing multi-billion dollar markets in energy, electronics, health and sustainability. Pangaea’s materials network spans multiple industry verticals, and includes 16 world-leading multinationals as strategic Limited Partners.

Early-Stage Financing § Strategic Partnering § Venture Capital

Pinnacle Fund Administration 625 Howe St., Ste. 615 Vancouver, BC V6C 2T6 Phone: 604-559-8921 dsmith@pinnacleadmin.com www.pinnacleadmin.com

Pinnacle is an independent fund administration company which provides customized back office services to private equity and venture capital funds. Pinnacle’s tailored offering includes accounting, valuation and investor reporting, financial statement and audit support services. With offices throughout North America, Pinnacle can service all types of funds and strategies. Please contact us to see how we can make running your funds as efficient as possible.

Accounting § Investor Servicing § Reporting


Rho Canada Ventures

1800 McGill College Ave., Suite 840 Montreal, QC H3A 3J6 Phone: 514-844-5605 jgrammer@rho.com www.rhocanada.com


Rho Canada Ventures is a division of Rho Capital Partners focusing on early-stage investing in Canada’s most innovative technology companies. With a combined 80 years of experience, the Rho Canada Ventures team offers entrepreneurs the expertise to turn Canadian innovators into global leaders. Rho Canada Ventures’ portfolio companies are a diverse group of investments that span new media, mobile applications, wireless infrastructure, semiconductors and materials and software (including SaaS).

Early Stage IT VC § Seed

Veracap M&A International 70 University Ave., Ste. 320, P.O. Box 11 Toronto, ON M5J 2M4 Phone: 416-597-1198 www.veracap.com

Veracap M&A International is a leading mid-market investment bank specializing in acquisitions, divestitures, financing and shareholder value advisory services. Veracap is a member of M&A International Inc., the world’s leading M&A organization with over 600 professionals in 40 countries. As a sister form of Campbell Valuation Partners, Veracap has developed unmatched expertise in identifying opportunities for shareholder value enhancement throughout a transaction.

Divestitures § Investment Banking § Valuation

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THE NEXT BIG THING is Actually Lots of Things What is the Internet of things? By Scott MacDonald, McRock Capital


t took 8,000 days to connect 2.5 billion people to the Internet, which represents over a third of the world’s population. Today, there are already 10 billion physical things connected to the Internet and it’s expected to grow to 50 billion devices by 2020. The next big thing is the Internet of Things (IoT). It’s astonishing to think about the magnitude of technological advancements that have erupted


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into the lives of a single generation. We now live in a world where a 10-year-old kid can hardly fathom being without technologies that didn’t even exist the year they were born. No Instagram, no Minecraft, no iPhone and certainly no touch screen tablets. The Internet, which only began its commercialization in the mid 1990s, has infiltrated almost every aspect of modern life. Most profound is the way in which

Internet of Things

One example is the Band-Aid-like wireless sensor that GE is developing. It is sensitive enough to detect a single drop of biomolecules, found in human sweat, in 2.5 million gallons of water. This sweat sensor can detect early signs of stress and fatigue in a person by sniffing slight increases in biomolecules in a noninvasive way. The sensors transmit the data wirelessly so analysis and alerts can be sent. This technology has huge potential in any human activity where physical and mental fatigue is a risk. Picture how useful this would be for surgeons, pilots and long-haul truck drivers. Consumer IoT applications such as Nest Labs’ Thermostat, which was purchased by Google for $3.2 billion earlier this year, get a lot of coverage in the media but industrial IoT (IIoT) applications are experiencing tremendous adoption. Shell has started deploying fiber optic sensors in oil wells to gather data used to increase production and more accurately predict remaining reserves. These super-sensitive sensors, created by HP, are also being used to find oil in depleted wells or in places where previous exploration indicated no oil existed. These new sensors generated massive amounts of geological data. In fact, a single Shell well generated one petabyte of information. Shell has plans to deploy these sensors in 10,000 wells, which would create 10

exabytes of data. That’s the equivalent file size to 100,000 hours of high definition video. There have also been significant advancements in the software analytics necessary to create value out of big data. Machine learning algorithms have been developed to predict when industrial equipment, and even specific components within that equipment, are about to fail based on minuscule performance changes. Companies deploying predictive analytics software have reduced unscheduled downtime by over 90 per cent in some cases. This is the next best thing to having a time machine or a reliable crystal ball. The IoT is already here today and the opportunities for entrepreneurs and investors are significant. By the time that 10-year old kid turns 20, they will be living in a connected home, in a smart city and seamlessly connecting and interacting with physical objects all around them. Welcome to the Internet of Things era. 

Scott MacDonald is co-founder and managing partner of McRock Capital, entrepreneurial venture capitalists investing in the Industrial Internet of Things. For more information and reports on the IoT and IIoT, visit www.mcrockcapital.com and follow @ McRockCapital on Twitter.


Internet technologies have created new methods for humans to interact from the brevity of texting to the richness of videotelephony. The IoT will be a technological tsunami that will hit every industry and aspect of our lives. Once more, new forms of rich interaction will be created. Humans will interact with things and those things will start “talking” back as the physical world melds into the digital world. Cars will talk to other cars, which will talk to traffic lights making our commutes safer and faster. Pumps and compressors on oil & gas platforms will talk to software that will predict failure long before catastrophic events occur. Refrigerators will talk to food delivery services and shop for us before we run out of eggs. The ways in which we work and live are about to fundamentally change again. Cisco’s CEO, John Chambers, has pegged the IoT as a $19 trillion dollar opportunity over the next decade. The IoT era is being fueled by a number of converging trends, which include a trillion embedded sensors, seven billion mobile devices, powerful data analysis software and low-cost computing in the cloud. Sensors are being deployed everywhere from industrial machines to soccer balls and are establishing the data generation layer of the IoT. Sensors are not only getting cheaper, but are increasing in sophistication.

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M&A Deal Points Studies

How does Canada compare to the United States? By Cameron Rusaw, Davies Ward Phillips & Vineberg LLP


f you are a mergers and acquisitions (M&A) dealmaker, you’ve probably seen or heard about the many M&A “deal points studies” that have proliferated in the last several years. The studies conduct statistical analyses of various deal terms in M&A transaction agreements and are meant to show “what’s market” for these deal terms. Most M&A lawyers will be familiar with the annual deal points studies published by the American Bar Association (the “ABA”) through the Market Trends Subcommittee of the Mergers & Acquisitions Committee of the Business Law Section of the ABA. The first study was published in 2006, and looked at US private target M&A deals. The popularity of that study led to it being updated and published annually and spawned several other


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studies, including annual US public target studies, Canadian private target studies and European private target studies. The most recent addition was the inaugural Canadian public target deal points study, published in January 2014. In this short article I will highlight a selected few points and make some general observations. When I refer to the “Canadian Study” or the “U.S. Study”, I am referring to the most recently published ABA Canadian or U.S. private target or public target deal points study. In addition to the ABA studies, there are several other publically available deal points studies, only some of which are listed in the sidebar to this article.

Private M&A deals Without a doubt the most frequently asked “what’s market” questions that I get from clients and colleagues relate to indemnity caps, baskets and escrows.

Indemnity caps The trend over the past decade or so has been for the size of the indemnity “cap” (an overall cap on seller’s liability for indemnity claims) to shrink as a percentage of deal

M&A Deal Points

Without a doubt, the most frequently asked “what’s market” questions that I get from clients and colleagues relate to indemnity caps, baskets and escrows. tween 25 per cent to 50 per cent of the purchase price and 40 per cent had caps equal to the purchase price.

Baskets In most deals, indemnity claims are subject to a specified size threshold or “basket” (typically either a deductible or a first-dollar “tipping basket”) before the claim is payable. The trend has been to greater use of deductibles, particularly in the U.S. where they appeared in 59 per cent of the deals in the U.S. Study in which there was a basket, compared to 14 per cent in Canada. The size of the baskets ranges widely as a percentage of deal size (from .01 per cent to 1.38 per cent in the Canadian Study).

Carve-outs The caps, baskets and deductibles are typically subject to a number of exceptions, or “carve-outs, where they don’t apply. Common carve-outs include so called “fundamental” representations and warranties (such as title reps), where the cap is 100 per cent of the purchase price or, sometimes, certain reps such as tax where buyers typically resist agreeing to a deductible.

Escrows It is increasingly common for a portion of the cash purchase price to be held back at closing (and, usually, deposited with a third party escrow agent) for a specified time period as


size. This trend is more pronounced in the U.S., but is spreading rapidly to Canada. Forty per cent of the deals in the Canadian Study had indemnity caps equal to the purchase price, compared to only six per cent in the U.S. Study. In the U.S. Study, 48 per cent of the deals had caps of less than 10 per cent of the purchase price, 45 per cent had caps between 10 per cent and 25 per cent of the purchase price, and only eight per cent had caps above 25 per cent, including six per cent with a cap equal to the purchase price. In Canada, only three per cent of the deals had caps below 10 per cent of the purchase price, 25 per cent had caps between 10 per cent and 25 per cent of the purchase price, 18 per cent had caps b e -

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M&A Deal Points

security for indemnity claims and/ or working capital or other price adjustments. In the U.S. Study, 89 per cent of deals included an escrow (or holdback), compared to 52 per cent in the Canadian Study. Escrows are particularly popular where there are multiple sellers, and are often found in private equity deals. They are less common in deals between strategic buyers and a single seller where creditworthiness of the seller and/ or the prospect of having to pursue multiple sellers may not be an issue.

Public M&A deals In January 2014, the ABA published the first Canadian Public Target M&A deal points study. This was patterned closely after the annual US Strategic Buyer/Public Target studies, in order to facilitate comparisons. There are a few differences between relevant Canadian and U.S. laws which make direct comparisons meaningless, but overall the acquisition agreements in both countries are similar. In particular, we looked at certain representations and warranties, closing conditions, deal protections and other provisions typically found in public target acquisition agreements. The Canadian study is 117 slides long, and contains a wealth of information not previously available to Canadian M&A practitioners (including data on break fees and reverse break fees). In this short article, I will highlight only one finding from the study, on deal protections, to give 26

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Recent ABA Studies 2012 2013 2013 2013 2013

ABA Canadian Private Target M&A Deal Points Study ABA US Private Target M&A Deal Points Study European Private Target M&A Deal Points Study ABA Canadian Public Target M&A Deal Points Study ABA US Public Target M&A Deal Points Study

Other Recent Studies 2014 2013 2012 2013

M&A Deal Points Study – SRS/Acquiom LLC M&A Holdback Escrow Report – JP Morgan Purchase Agreement Study – Houlihan Lokey Canadian Public M&A Deal Study – Black Cassels & Graydon LLP

you a sense of what we looked at in the study. Generally, deal protection mechanisms in negotiated acquisitions are similar in both countries. One standard deal protection is a covenant by the target board to recommend to its shareholders that they accept the buyer’s bid, and not to change that recommendation. This covenant is almost invariably subject to a “fiduciary out,” enabling the board to change its recommendation if another bidder makes a superior proposal, after giving the buyer an opportunity to match the superior proposal. In the U.S. there has been a recent trend towards expanding this fiduciary out trigger to include not just superior proposals but also the occurrence of an “intervening event.” In 49 per cent of the deals in the US Study, the target board was able to exercise its fiduciary out in the face of either a superior proposal or an intervening event, or upon an intervening event itself. We have not yet seen this trend in Canada - there were no instances of it in the Canadian Study.

Use with caution While the deal point studies are interesting, they should be read with a grain of salt, particularly the private target studies. For example, a major limitation of the ABA Canadian private target studies is that they include only a small sample of private M&A deals done in Canada. The studies look only at deals where the

acquisition agreement is publicly available on SEDAR, which limits the deals to those involving a Canadian reporting issuer for whom the deal is material. Excluded from the study are deals between privately held companies, including most private equity deals. This may explain some of the discrepancies that some M&A lawyers (including me) find between some of the Canadian statistics and their own experience. Accordingly, caution is advised in using these studies. By all means read them to get a sense of the trends. But be wary of lawyers who pull out a deal point study in the middle of negotiations as a means of settling a point. Every deal is different, and what you should be pushing for and accepting depends on the circumstances of your deal.  Comments welcome at privatecapitaleditor@cvca.ca

Cam Rusaw is a partner at Davies Ward Phillips & Vineberg LLP. He has a broad transactional practice with a focus on mergers and acquisitions, cross border transactions and private equity. He was the Chair of the ABA 2013 Canadian Public Target M&A deal points study and is an issue group leader in the upcoming ABA 2014 Canadian Private Target M&A deal points study.

Can You – and, More Importantly, Should You – Do an


Learn when they do and don’t make business sense By Nicolas Renaud, Canaccord Genuity



POs were once considered the golden path of exit for VC and PE alike. Lofty valuations came bundled with panache, visibility and, above all, a seemingly endless supply of capital. Yet during my years in PE we mostly planned for M&A exits, and IPOs seemed reserved for high profile billion dollar companies. Recently the TSX has been host to highly successful mid-market IPOs. Should you take a second look?

attract the attention they deserve, enjoy attractive valuation and still enjoy some additional degree of stability and ease of access to capital. So the window is here to be grabbed, but before you embark gung-ho into the process there are a few questions you may want to ask: Should you do an IPO? Can you do an IPO? What steps can you take to maximize value if you are still years away from potential IPO?

Markets are currently favorable

The right reasons to do an IPO: Prepare monetization

In Canada, the IPO market is off to a strong start and is not showing signs of slowing down. Recent highly successful IPOs such as Lumenpulse (TSX:LMP) and Callidus (TSX:CBL) demonstrated that significant appetite exists for quality companies. Even though earlier this summer Nasdaq slowed tech IPO market to a trickle, Kinaxis (KXS:TSX), Critical Control (CCZ:TSX), DIRTT (DRT:TSX) and Espial (ESP:TSX) all managed to raise equity through public offerings over the past few weeks. In short, TSX is currently the place to be for smaller companies where they can

If we look back at recent public highprofile monetization we have to notice that most successful exits did NOT fully monetize at IPO but rather benefited from a rising share price to extract maximum value. If we take the well-published example of Bain Capital investment in Dollarama, most of the value was realised after the IPO in successive steps.

IPO is not the best time to exit An IPO is usually done at a discount to the valuation in an effort to prepare positive stock momentum, as

such successful and well planned IPOs usually experience positive market performance in the first few months. Why would you monetize your investment at a time when you fully expect stock price to rise within a few months? In fact, an IPO is usually the option where investors retain the most exposure to future company performance. I would even argue that the true power of being listed only materializes if your monetization horizon is more distant. Here is why:

Benefits of being listed Higher valuation: public market valuations are usually higher than private valuation and in certain cases significantly higher, such as in the tech sector. Theoretically this is due to the liquidity discount as well as the comparatively limited pool of capital available to private companies vs. public ones. Acquisition currency and access to capital: both can boost your return by turbocharging performance, while for privately owned companies acquisitions need always be Private Capital  §  Quarter 3 § 2014 27

Who can do an IPO and what criteria should you meet?

Path to Liquidity

Of course there is no one-size-fitsall rule, but a few general “rules of thumb” can always help to assess your situation:

Size does matter Usually the most important limiting factor for an IPO is the minimum size to reach an “institutional grade” issue, i.e. an IPO that will attract significant attention from institutional investors as opposed to retail or specialised players. A good ruleof-thumb is that a minimum capital raise of $50 mm is required for an institutional investor’s audience to fully engage with the company. There are many ways to explain this threshold but for large institutional investors an order of $5.0 mm should not represent more than 10 per cent of the “float” to ensure some degree of liquidity. This $50 mm capital raise has some implications on possible sizes of the company to go public; valuation of your company is likely to be at minimum $150-200 mm to be able to justify such a raise (still do not expect to raise $50 mm for a company worth $10 mm). Note that as important as sheer size of the company, the use of proceeds is the key to attracting interest. The plan to put at work $50 mm of fresh money and accelerate growth or create sufficient value to justify this raise needs to be carefully crafted. Along with the usual general corporate purpose and balance sheet strength, expect a lot of scrutiny on the use of proceeds and how they are going to help the financial trajectory of the company.

Predictability financed. This results in their focus always seeming to be on the next round of funding, easiness of access to capital or ability to pay with stock in hopes of boosting growth and thus valuation. Setting a price reference: being listed gives a potential M&A acquirer a price reference to bid on, effectively serving as a floor in any takeover situation. In addition they will have a clear picture of your 28

Private Capital  §  Quarter 3 § 2014

financials and be limited by law in the amount of due diligence and representation they can ask from you. Increased visibility: Prospective buyers will notice you and start planning, but even if they do not, you will have just appeared on every investment banker’s radar. They will make sure to include you in all scenarios they feed to their clients.

Stock market is notably volatile and short sighted. Given our need to create positive momentum to support share price it is important to be confident in your ability to deliver on your plan. As such, performing public companies are usually able to give clear short-term goals that they meet, or exceed, with regularity. On the contrary, highly lumpy businesses that have not yet achieved critical mass to smooth sales performance are probably not ready to go public.


Preparedness Often overlooked is management preparedness. Public company reporting is notably demanding and muscling up your financial department is a must. Reporting tools will be put to the test as audited statements will need to be produced on a more regular basis and with a higher degree of scrutiny. Additionally, since perception is an important driver of stock performance, hiring experienced CFO and board members along with placing a key man in investor relation is probably one of your wisest investments.

The right sector at the right time IPOs are usually best done when the market is most receptive to new names, especially in a period of good sector performance where there is a lack of investable names. As the sectors “à la mode” tend to change fairly quickly, a good level of preparedness will put you in a position to seize the appropriate window. Envisage and prepare for an IPO early, even if your sector is not currently “hot.” It is worth noting that the reception for diversified companies (growth or yield) is currently strengthening, while tech appetite remains strong

(albeit with some concerns due to SaaS companies’ performances).

Optimizing your business model for an IPO? There is often a certain arbitrage to be made between growth and profitability, which is often hard to pinpoint. Public investors will tend to classify companies into three potential buckets: yield plays, strong profitable growth and hyper growth. Yield plays are usually companies with stable outlook for which valuation will be mostly influenced by their net income/dividend as well as their track record at stability. In general, they commend lower EBITDA multiples as their EBITDA is already more mature. Those companies usually require a larger size to go public as stock performance builds more slowly. Hyper-growth companies are the other extreme; usually tech companies that are “shooting stars”, growing above 50 per cent per year, will command high valuation despite not being profitable. Investors will typically focus more on sustainably of growth and the path to profitability at scale. They tend to trade on an EV/ sales multiple. Note that this bucket

is exclusive and a somewhat risky proposition to shoot towards as consequences of failure are often dismal (a bit like having your foot on the gas without a proper steering wheel). In-between companies with moderate to strong growth will be expected to show varying levels of profitability, but focus will be on EBITDA growth / operating leverage. The best advice is usually to be cognisant of the bucket you will fit in, and try to dominate it. Growth with too little EBITDA margins will confuse investors, and EBITDA margins too large with lower growth may be missing on valuation.  Comments welcome at privatecapitaleditor@cvca.ca

Nicolas Renaud is vice president of Canaccord Genuity, focusing on Quebec investment banking such as IPOs and M&A. He has worked on several high profile IPOs such as Lumenpulse, Halogen Software, and Urthecast, as well as numerous M&A, financing and advisory situations.

Private Capital  §  Quarter 3 § 2014 29


Considerations for Canadian Venture Capital and Private Equity Funds What do Canadian funds need to do to comply? By Keno Chan and Connie Lee, KPMG LLP


he application of the U.S. Foreign Account Tax Compliance Act (commonly referred to as FATCA) has become clearer with the conclusion of the U.S.-Canada intergovernmental agreement (IGA), the enactment of Canadian legislation implementing the IGA (Implementation Legislation) and the issuance of FATCA guidance by the Canadian Revenue Agency (CRA). Generally, all funds controlled and managed in Canada are required to comply with FATCA, regardless of their investments or investor base. This article will describe the potential impact of the FATCA rules as applicable to Canadian venture capital (VC) and private equity (PE) funds.


Background The U.S. government enacted FATCA to combat tax abuse by U.S. persons who engage in tax evasion activities through the use of offshore accounts and investments. While originally announced in 2010, FATCA did not become effective until July 1, 2014. FATCA generally requires non-U.S. financial institutions (FIs) to report information about their U.S. account holders and interest holders to the U.S. Internal Revenue Service (IRS). A 30 per cent FATCA withholding tax on certain U.S. source income (e.g. interest and dividends) is used as a


Private Capital  §  Quarter 3 § 2014

penalty to compel compliance by non-U.S. FIs. In February 2014, the Canadian government entered into a “Model 1” IGA with the U.S. to facilitate FATCA compliance by Canadian FIs. On June 19, 2014, the Implementation Legislation received Royal Assent. Subsequently, on June 20, 2014, the CRA Guidance clarified the FATCA obligations for Canadian FIs required by the IGA to report certain information about their account holders and interest holders. Broadly speaking, a Canadian FI subject to the FATCA reporting requirements under the IGA (i.e. a Reporting Canadian FI) will need to register with the IRS, perform due diligence on its account holders and interest holders and report certain information uncovered during such due diligence to the CRA (which will, in turn, report such information to the IRS).

Meaning of reporting Canadian FI The Implementation Legislation defines a Reporting Canadian FI to include an FI that is an “Investment Entity” (as defined in the IGA) and that is a “listed financial institution” under the Implementation Legislation. A listed financial institution includes an entity that satisfies the following requirements: 1. The entity is represented or promoted to the public as a collective

investment vehicle, including a VC fund and PE fund; and 2. The entity is managed by an entity that is authorized under provincial legislation to provide portfolio management, investment advising, fund administration, or fund management. Since the investment managers and investment advisors of many Canadian VC funds and PE funds are generally not required to register under provincial legislation or are not otherwise regulated under any Canadian law, it appears that such funds would not be treated as Reporting Canadian FIs under the Implementation Legislation and would thus be excluded from the FATCA diligence and reporting requirements. However, the CRA Guidance indicates that an entity would be treated as being “authorized under provincial legislation to provide” portfolio management or investment advising services so long as the entity could perform such activities in the relevant province. According to the CRA, there would be no requirement to actually be registered with a provincial authority. The broad language in the CRA Guidance would appear to treat VC funds and PE funds that are not managed by a regulated investment manager or investment advisor as a listed

FATCA financial institution. Consequently, this would cause such funds to be Reporting Canadian FIs. This expansive definition of a listed financial institution is consistent with the definition of an Investment Entity in the U.S. FATCA regulations and the IGA, both of which contemplate VC funds and PE funds being subject to the FATCA diligence and reporting requirements. As a result, VC funds and PE funds would appear to be treated as listed financial institutions and, thus, would be Reporting Canadian FIs even if not they are not managed by regulated investment managers or investment advisors.

FATCA compliance requirements


In general, the FATCA diligence and reporting requirements for VC funds and PE funds that determine they are Reporting Canadian FIs would include: 1. Registration with the IRS; 2. Performance of diligence to identify financial accounts held by U.S. persons or by passive nonforeign financial entities (NFFEs) that have one or more controlling interest holders who are U.S. citizens or residents (U.S. Reportable Accounts); and 3. Reporting of certain information with respect to such U.S. Reportable Accounts on an annual basis to the CRA. Canadian VC funds and PE funds that that are Reporting Canadian FIs will need to register with the IRS in order to obtain a Global Intermediary Identification Number (GIIN) that will be used for FATCA compliance. The deadline for registration for such Canadian funds is December 22, 2014 in order to be on the IRS foreign financial institution (FFI) list to be published in January 2015. Being on the FFI list avoids the 30 per cent FATCA withholding tax from being imposed on certain U.S. source withholdable payments (e.g. interest and dividends) paid to such Canadian funds beginning January 1, 2015. VC funds and PE funds that are reporting Canadian FIs must also perform certain due diligence procedures on their preexisting and new

financial accounts in order to identify U.S. Reportable Accounts and accounts held by Nonparticipating FIs (i.e. FIs that are not on the IRS FFI list). The meaning of financial account includes an equity or debt interest in an Investment Entity (such as a VC fund or PE fund) that is not regularly traded on an established securities market. As a result, for most VC funds and PE funds, FATCA diligence would be performed on such funds’ investors. If, during the diligence process, a reporting Canadian VC fund or PE fund identifies any U.S. Reportable Accounts or any accounts held by Nonparticipating FIs, then such fund must report certain information with respect to these interest holders annually to the CRA in order to satisfy such fund’s annual FATCA reporting obligations. Reporting Canadian VC funds or PE funds that comply with their FATCA obligations will generally not be subject to FATCA withholding. For reporting Canadian VC funds and PE funds that have identified U.S. Reportable Accounts, the information to be reported to the CRA, annually, includes identification information of the interest holder (e.g. name, address, U.S. tax identification number) and account value. Reports of U.S. Reportable Accounts will need to be electronically filed with the CRA by May 1 of each year. The first such electronic FATCA report will be due May 1, 2015. There is no requirement for a Canadian VC fund or PE fund that does not have any U.S. Reportable Accounts or does not make any payments to a Nonparticipating FI for a particular year to file a “nil” FATCA report for such year. Since many Canadian VC funds and PE funds do not have any or have minimal U.S. investors the annual FATCA reporting burden on such funds may not be significant.

What should Canadian VC funds and PE funds be doing? Canadian VC funds and PE funds should determine whether they would be a Reporting Canadian FI under the Implementation Legislation.

If a fund determines that it is classified as a Reporting Canadian FI, then the fund should: 1. Register with the IRS by December 22, 2014 (if they have not already done so); 2. Review and revise new investor onboarding procedures to collect FATCA certification in order to facilitate identification of U.S. Reportable Accounts; 3. Perform due diligence procedures on preexisting investors to identify U.S. Reportable Accounts; and 4. Prepare for reporting by reviewing systems and processes to ensure that investor account information that needs to be reported is being collected and can be easily retrieved. Given that many Canadian VC funds and PE funds have no or minimal U.S. investors the FATCA compliance and reporting obligations of such funds may be minimal. As discussed above, it remains unclear as to whether the CRA Guidance actually causes VC funds and PE funds not having regulated investment managers or investment advisors to be treated as listed financial institutions. As a result, it may be prudent for such funds to err on the side of conservatism and classify themselves as Reporting Canadian FIs subject to the FATCA diligence and reporting requirements, particularly if the administrative burden of compliance may be minimal.   Comments welcome at privatecapitaleditor@cvca.ca

Keno Chan is a Partner in KPMG LLP’s U.S. Corporate Tax group in Toronto and heads the group’s alternative investment funds practice. Keno is also a core member of KPMG’s national FATCA team. Connie Lee is a Senior Manager with KPMG LLP’s U.S. Corporate Tax group in Toronto. She has significant experience providing advisory services to financial institutions and funds with a focus on U.S. tax information reporting, withholding tax requirements and FATCA.

Private Capital  §  Quarter 3 § 2014 31

The Succession Conundrum PART 2 OF 2

Business leaders, the weak link to successors, and the companies who try to finance them By Jenifer Bartman, Jenifer Bartman Business Advisory Services This is the second part in a two-part series on succession by Jenifer Bartman; the first part appeared in the Q2 2014 edition of Private Capital.


f succession planning is a challenge for business leaders, potential successors might describe the process as mysterious. While a business leader or founder has typically been at the helm of a company for some time, potential successors are often just trying to find a way to get to the table. One day, the founder is keen to step back from the company, while the next day retirement seems far in the future. For someone wanting a leadership (and ownership) role, this type of situation can be a difficult to deal with on an ongoing basis. Whether a potential successor is a longstanding “2-IC” (second-in-command), management team group or family member, their vantage point might provide relatively little information in terms of how the company actually operates, the business leader’s true expectations around succession and what it would actually take for a transaction to occur. Add in the mixed messages that can be so common with the issue of succession and it might be enough to cause a potential successor to scramble for the door, vowing to create an opportunity all their own (and on their own terms). This reality should be sufficient to get the attention of business leaders who are contemplating succession, if not outright relying on it as a means to monetize their ownership position. Given that a recent survey conducted by the Canadian Federation of Independent Business1 found that the top barrier to succession planning is finding a buyer/suitable successor (56 per cent), those seeking to exit their business should recognize that finding (and keeping) a potential successor is not to be taken lightly. Unfortunately, too many potential successors find just the opposite to be the case.

The successor perspective Something that many potential successors have in common is that they are keen to implement their ideas, take 32

Private Capital  §  Quarter 3 § 2014

the company in a new direction and just “get started.” Many have a reasonable expectation that succession will occur at some point in time, either by virtue of previous conversations on the topic, or perhaps, in the case of a family business, where succession is “expected.” Call it an informal succession plan. As a result, potential successors want to better understand how and when a transaction might occur. This is particularly true in the case of individuals who have invested a number of years working in a company, learning how it operates and directly contributing to building its wealth. They reach a certain age or point in their careers when they truly need to know: (i) if a succession opportunity actually exists; (ii) when it would occur; and (iii) what the financial implications would be, particularly in terms of the cost to undertake the transaction. In the absence of this information, a successor’s next best alternative is to move on to other opportunities, and given the effort they have invested in building the company (often, to the direct benefit of a shareholder group in which they are not included), this is understandable.

The opportunity Identifying a qualified and willing successor is only the beginning of the succession process, as there is often still plenty of learning to do in order to fully assume and conduct the leadership role. But even before this can happen, the parties need to be able to arrive at an agreeable value and the successor has to have the ability to pay, either by way of their own funds or through securing financing (in the absence of either of these options, it often comes down to the departing business leader to agree to be paid over time). Since the Canadian Federation of Independent Business survey found that valuing the business (54 per cent) and securing financing

Succession Planning

›› Assess the situation objectively. Due to the inherent uncertainty that often clouds the succession process, potential successors need to be able to get to the heart of the situation, to first understand whether or not an opportunity actually exists. This uncertainty is a relatively common frustration, and the reality

is that succession is only going to happen if a business leader is committed to undertaking the process. Advisors can help potential successors to see the situation for what it is, as well as suggest approaches to further discussions with the business leader or how succession could occur. In addition, successors might need to take action to put the situation in context, by identifying other possible succession opportunities as a comparison. Although business leaders might not like this very much, the reality is that there are situations where succession simply will not occur, no matter how much a founder might indicate otherwise. ›› Communicate. Given that succession can be a sensitive topic, it’s not uncommon for the parties to have difficulty having meaningful conversations around the issue; this can be particularly true in family businesses. Since succession represents a complex business transaction with numerous details to be considered and negotiated, it won’t just magically happen. Given the sensitivities, these conversations tend to get deferred and delayed, making succession seem less likely as each day passes. Starting the succession dialogue between the parties is critical, to map out an agreeable approach, but to also identify situations where an arrangement might not be possible, allowing both sides to pursue other opportunities. Advisors can help to start the conversation in a non-confrontation manner, in an attempt to find common ground, where it exists, and cover off areas that need to be addressed. This approach can also help to fill in knowledge and experience gaps that are common in the case of potential successors.


for the successor (48 per cent) are the second and third highest reported barriers to succession planning, all involved in the process need to take note. For potential successors to chart their course, there are a number of things that can be done on a proactive basis to better understand the particulars of the opportunity, as well as getting a plan into place. Seeking advice from those who have undertaken or financed business transactions can help to bring context to the situation, in terms of its appeal and how to help move the process forward. Here’s how: ›› Look in the mirror. The truth is, not everyone is cut out for a leadership role. Leading a company, in terms of both the role and ownership aspects, can be significantly different from the experiences of a potential successor thus far, including the scope of responsibility, level of risk and degree of commitment. As an example, in the event of insufficient cash flow, owners typically bear the responsibility to inject additional funds or decrease their own compensation to cover shortfalls. This type of uncertainty might fall outside of a potential successor’s risk tolerance level. Potential successors need to take a hard look at all aspects of assuming a leadership role, objectively balancing both the risks and rewards of ownership. Advisors can help by providing independent feedback or helping successors to undertake a self assessment to better understand the types of roles in which they fit best, before proceeding any further.

Private Capital  §  Quarter 3 § 2014 33

Succession Planning

Identifying a qualified and willing successor is only the beginning of the succession process, as there is often still plenty of learning to do in order to fully assume and conduct the leadership role.

›› Financial implications. Discussing money is often tough, not just because of the calculations and various financing structures, but simply because the parties might find it difficult on a personal level. In the case of family businesses, parents might be sensitive to the financial situation of their children, while the next generation might be concerned about not “offering enough” as compensation for all of the work that has been put in to building the company. Couple this with a founder’s understandable desire to receive fair compensation to finance the retirement they have been dreaming of and negotiations can stall. Potential successors often do not have a lot of experience in this area, and financial partners can be helpful in terms of transferring knowledge and suggesting approaches that could meet the needs of all parties. Regardless, those who are serious about taking on a leadership and ownership role at some point in the future need to ensure that their professional development program includes business financing, sooner rather than later.


Private Capital  §  Quarter 3 § 2014

Although it’s true that good successors are in short supply, all potential successors need to take a hard look at not only what is required of them, but also whether or not the opportunity at hand is viable. In times of investment (and that’s what succession is), bringing a professional approach to the table is a must to ensure that the right deal gets done.  Comments welcome at privatecapitaleditor@cvca.ca

Jenifer Bartman, CA, CMC, is the founder & principal of Jenifer Bartman Business Advisory Services. An executive in the venture capital industry for over nine years, she now works with companies in transition, including those in the early, growth, and succession stages of development. She has developed a succession-planning course that is sold nationally and also speaks and advises on this topic.

Reference 1. Passing on the Business to the Next Generation, Canadian Federation of Independent Business, 2012

Quick Surveys

Quick Surveys Recently, we asked our members a few questions about the Canadian VC and PE industry.


arlier this year, we gave our members the opportunity to give their opinion on different topics relating to the Canadian PE and VC industry. Of the respondents, 57 per cent reported being a VC investor, and 27 per cent said they were PE investors. Other responders included LPs, advisors and “other” members of the PE and VC community.

Will Canada’s long-standing severe venture capital (VC) shortages be remedied by the Canadian government’s implementation of its Venture Capital Action Plan?



0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

For Canadian VC Deals For Canadian PE Deals A

Canada’s VC Industry: Canada’s PE Industry: Positive




D Negative

E 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

A: US and foreign investors are competitors for Canadian deals B: US and foreign investors are welcome partners in Canadian deals C: There is too much money chasing big deals D: There is too much money chasing small deals E: Most investors are interested in larger deals


0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Private Capital  §  Quarter 3 § 2014 35

YOU NEED CVCA. CVCA NEEDS YOU. CVCA’s mission is to promote the development of the venture capital and private equity industry. CVCA pursues this mission through active advocacy and development activities, such as:


Promoting sound public policy, including on tax, trade and securities issues to federal and provincial governments and regulatory bodies to bring about a strong, effective and internationally competitive venture capital and private equity industry.


Facilitating information exchange, communication and association among all persons engaged in the investment of risk capital in Canada through periodic networking and social events.


Providing a forum for the professional development of its members and those interested in the venture capital and private equity industry through regular educational events.

Encouraging Canadian and foreign institutional investors, including corporate and public pension funds and insurance companies, to allocate a portion of their monies under management to Canadian venture and private equity capital investment.

Encouraging individuals, including angel investors, to invest in, and provide advice to, early stage Canadian growth companies.

CVCA Enhancing ties with leading venture capital/private equity associations around the world, particularly in the U.S., Europe, Australia and Israel.

Top 20 Canadian Venture Capital Deals in 2014 (First Half)

Top Deals   in 2014


$ (in millions)

1. Aurinia Pharmaceuticals Inc.



2. WP Technology Inc.



3. Steel Reef Infrastructure Corp.



4. SHOP.CA Network Inc.



5. D-Wave Systems Inc.



6. Visier Inc.



7. Themis Solutions Inc.



8. BuildDirect.com Technologies Inc.



9. Transition Therapeutics Inc.



10. FilterBoxx Water & Environmental Corp. Alberta


11. XBiotech Inc.



12. Tasktop Technologies Inc.



13. Venus Concept



14. OMsignal Inc.



15. Trimel Pharmaceuticals Corporation



16. Vision Critical Communications Inc.



17. Thunderbird Films Inc.



18. TopHatMonocle Corp.



19. Vendorlink.ca Ltd.



20. Busbud Inc.



Top 20 Canadian Domestic Private Equity Deals in 2014 (First Half)

Top 10 Canadian Private Equity Deals in Foreign Companies 2014 (First Half)



$ (in millions)


$ (in millions)

1. Patheon Inc.



1. X2 Resources Partners LP Inc.



2. Atrium Innovations Inc.



2. Wilton Re Holdings Limited



3. CSV Midstream Solutions Corp.



3. Encana Jonah Field Operations



4. Bruce Power LP



4. London Array 1



5. Stornoway Diamond Corporation



5. Bord Gáis Éireann (BGE) Wind Portfolio Ireland


6. Transportadora de Gas del Perú S.A. (TgP) Peru


7. Brookfield Smoky Mountain Hydropower Project LLC US


8. Transportadora de Gas del Perú S.A. (TgP) Peru


9. Oxford County Telephone and Telegraph Company US


10. DMX Media


6. Certain Sears-Westcliff Joint



Venture Properties



7. Jamieson Laboratories Ltd.



8. Imagine Energy Corp.



9. Minacs Worldwide Limited



10. BlackBerry Limited



11. Canadian International Oil Corp.



12. Assiniboia Capital Corp.



13. Aspenleaf Energy Ltd



14. G4S Cash Solutions (Canada) Limited



15. Huron Resources Corp.



16. WSP Global Inc.



17. Tri-Line Disposal Inc.



18. Verafin Inc.


and Labrador


19. Tolko Industries Ltd.



20. SMi-Enerpro Inc.




Private Capital  §  Quarter 3 § 2014 37

About CVCA The CVCA is the voice of Canada’s venture capital and private equity industry. Its members manage the vast majority of private capital (venture capital, private equity, venture debt, mezzanine capital) that is designated to grow Canadian businesses. The CVCA fosters professional development, networking, communication, research and education, and represents its members on all matters of public policy matters. Founded in 1974, the CVCA has been serving its members for 40 years.

Benefits The principal benefit of belonging to CVCA comes from adding your voice to setting the agenda for the only organization in Canada solely dedicated to pursuing growth opportunities for the Venture Capital and Private Equity industry as a whole. As a highly regarded, professional organization, CVCA includes the large majority of industry participants – private and public sector firms as well as professional advisors. CVCA’s members actively collaborate to increase the flow of capital into the industry and expand the range of profitable investment opportunities. This is accomplished by CVCA undertaking a wide variety of initiatives, ranging from developing comprehensive and accurate performance and valuation statistics to promoting the industry’s interests with governments and regulatory agencies.

For pricing information and membership application forms, visit www.cvca.ca/membership 38

Private Capital  §  Quarter 3 § 2014

Specific benefits include ›› Government influences and access ›› Networking ›› Events ›› Publications and research reports ›› Recognition ›› Array of services and programs

Membership types Full Member – Canadian organizations with risk capital funds under management Partners – Service providers and advisors International investor members Industry affiliates

Contact us: P: 416-487-0519 | F: 416-487-5899 Email: cvca@cvca.ca Private Capital  §  Quarter 3 § 2014 39

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Our services include: Our Our Our services services services include: include: include: Our services include: Our Our Our services services services include: include: include: • Divestitures • • Divestitures • Divestitures Divestitures • Divestitures Our Our services services include: include: Divestitures •• Divestitures Divestitures • Financing •• •• Financing Financing Financing • Financing •• • Divestitures •• Financing Divestitures Financing Financing • Acquisitions • •Acquisitions • Acquisitions Acquisitions • Acquisitions •• • Financing •• Acquisitions Financing Acquisitions Acquisitions • Due Diligence • • Due • Due Due Diligence Diligence Diligence • Due Diligence •• • Acquisitions •• Due Acquisitions Due Due Diligence Diligence Diligence • of Due • Ted Due Diligence Diligence Contact Ted McCarron, President Contact Contact Contact MNP Ted Corporate McCarron, Ted McCarron, McCarron, President President President of of MNP of MNP MNP Corporate Corporate Corporate Contact Ted McCarron Contact Contact Contact Ted Ted McCarron, Ted McCarron, McCarron, President President President ofof MNP of MNP MNP Corporate Corporate Corporate Finance at 1.877.500.0792 Finance Finance Finance at at 1.877.500.0792 at 1.877.500.0792 1.877.500.0792 Finance at 1.877.500.0 Contact Contact Ted McCarron, Ted McCarron, President President of MNP of MNP Corporate Corporate Finance Finance Finance at at 1.877.500.0792 at 1.877.500.0792 1.877.500.0792 Finance Finance at 1.877.500.0792 at 1.877.500.0792

Profile for Private Capital

Private Capital | Q3 2014  

Private Capital | Q3 2014