What's Building Value in Canada?

According to a report released Thursday by the Canadian Venture Capital & Private Equity Association, buyout investors added $25 to $30 billion in value to the Canadian economy and created 114,000 jobs between 2002 and 2006.

Take another look - 114,000 jobs created. No doubt - private equity builds value for Canadians.

Posted by Jeffrey Watson at Loewen & Partners, the Private Equity partner working with integrity for Business Owners and Family Businesses.

Private Equity Growing

Despite reports of Private Equity firms under siege in the current financial markets, the sector is continuing to prove resilient. Serent Capital, a mid-market fund from San Fransisco, was able to raise $250 million last month, 25 percent above its fundraising goal of $200 million.

Posted by Jeffrey Watson, Loewen & Partners., Toronto, Canada.

Private Equity at 2006 Levels

There were 29 private-equity buyouts in Canada in the first quarter. Only nine deals disclosed their values, of which purchase prices came to $2.4 billion. That tally is consistent with performance in 2006.

Posted by Jeff Watson, Loewen & Partners.

Canada's Biggest Private Equity Deal

On Wednesday, May 28 BCE asked the Supreme Court of Canada to hear an appeal of a lower court decision that could kill its planned buyout, saying it was important to clarify rules governing corporate boards. Bondholders successfully argued before a Quebec court that the C$34.8 billion privatization of BCE would unfairly devalue their bonds. This decision imposes obligations on company directors to creditors that have never before been recognized by a court in Canada.

Posted by Jeffrey Watson, Associate at the private equity firm, Loewen & Partners.

Raising Capital - A Fresh View From Toronto

A Guest to Canadian Private Equity Blog

A warm welcome to Jeff Watson, our guest columnist. We hope Jeff will visit us on a weekly basis to give an update on what is hapening in the world of private equity. Here's what's new from Jeff Watson:

Private Equity Funds are turning their attention towards the emerging markets as the U.S. and Western Europe economies continue to withstand economic slowdowns and the global credit crunch. New York-based private equity giant Kohlberg Kravis Roberts & Co (KKR) announced this week that it will be opening an office in India by the end of this year.

KKR has a history of investing in the region, having acquired Flextronics International for $900 million in 2006, the largest ever leveraged buyout in India. Earlier this year, the private equity firm said it would invest $250 million in Bharti Infratel Ltd., India’s largest private telco firm.

That's some key note speaker at the CVCA Conference

Sometimes Private Equity people get poorly characterized as Gordon Gehko from the movie Wall Street. Remember Michael Douglas playing the smooth talking, phone throwing, "lunch is for wimps" smoothie? Oliver Stone, the director says Gehko was supposed to be the greedy, materialistic financier who the audience would vilify but instead, the character probably inspired thousands of MBAs to swerve away from careers in industry and head for Wall street instead. According to John Loewen at Loewen & Partners, "that unsettling, cartoonish image still lingers in the heads of many when thinking about private equity finance people."

But there are some private equity guys who are changing this stereotype. How? By playing in their own garage bands in public and having U2's famous lead singer - Bono - on their investment team. How can you not trust those guys?

Check out the story in the Globe & Mail. Here is their amusing description of McNamee's band:

Canada's Venture Capital & Private Equity Association is in Montreal this week for its annual conference and claiming a record number of investors will attend over three days beginning tomorrow. At the gala on Thursday evening, Roger McNamee, who is managing director and a co-founder in 2007 of Elevation Partners, is the marquee entertainment, performing with his rock band Moonalice. Mr. McNamee goes by the name Chubby Wombatt Moonalice when he's playing bass and guitar with the band. Shades of Frank D'Angelo and his Steelback beer and.Mr. McNamee's private equity fund, operating out of San Francisco and Manhattan, runs $1.9-billion (U.S.) focused on investments in media and entertainment companies. Among those on the investment team are a former Blackwater Group principal and a former CFO of Apple. Mr. McNamee is also addressing the conference as a keynote speaker.

Private Equity Fishing for Deals

Raising capital might seem to be a difficult task at this time in the economy but sit tight as the fish are biting.

Now is a great time to invest in private equity, David Rubenstein of Carlyle Private Equity said at Davos, noting that deals with the best returns are historically done during downturns. One problem is that sellers are in denial over their companies’ values, refusing to accept lower valuations. Instead, they’re postponing selling, hoping that prices recover.
“And sellers are probably going to take six to nine months before they realize it's not coming back anytime soon, and so they probably will sell,” Rubenstein says. “But, once we're through that, I think we'll see some extraordinary deals and extraordinary returns generated for investors.”
For the time being, deals are much smaller and have less leverage. Private equity is moving overseas. Rubenstein says, “It's clear that some of the greatest growth opportunities for private equity moving forward are in China and India and other so-called emerging markets.” John Loewen says, “We will see more and more firms begin to invest overseas.”

Innovate Before You Raise Capital

"Before your go for financing," says John Loewen,"make sure you do some innovating."

Want to design the next great service or product? Upgrade your product, but can't decide what to add or change? Add a new feature to your product, but can't decide how to implement it?

Forget focus groups. Forget endless meetings and brainstorming sessions. Throw an ultra-rapid-design party, and do it in a single day. This approach exploits the wisdom-of-crowds through a process of enforced idea diversity and voting, so no consensus, committee, or even agreement is needed. And it's way more fun.

The Innovation Dinner Party takes 9 people, a pile of diverse "inputs", and has each of the 9 people voting on--and pitching--one another person's ideas to continuously reconfigured groups of 3 people, letting the best ideas rise to the top. The process is a little complicated, but it's derived/modified from an existing rapid-prototyping design. The basic idea looks like this, although there are a million ways to modify it:

1) Preparation:
Pick 9 people, ideally from different parts of your company and including some customers. (If you don't have a company yet, pick 9 friends--preferably those who don't know each other well) Buy/borrow/find at least 20 "input materials" including books, magazines, a short film, graphic novels, etc.
Assign (randomly) at least 2 "inputs" to each person. Do NOT let them choose (it's important they not be allowed to gravitate toward things they're already comfortable with)
2) Idea Generation

Give the group 30 minutes to generate 4 ideas (if it's a feature/upgrade party, then 4 different features or feature sets... if it's a feature implementation party, then 4 different ways to implement the already-decided feature, etc.) These 4 ideas don't have to come directly from their input materials, although participants should be highly encouraged to describe at least one new thing they learned that inspired their idea.
3) Round One begins:

Split into 3 groups of 3 people (see chart below). Each person gets no more than 10 minutes to "pitch" four ideas to the other two in their group. There are 12 total ideas for this group, so allow about 30 minutes. Record (anonymously) the selections of each person, which represent a "vote" for the ideas.
At the end of Round One, each person must select their two favorite ideas from each of the other two members of their group. So if Group One had Fred, Mary, and Sue... then Fred must select his two favorite ideas from the four that Mary pitched, and his two favorites that Sue pitched.
4) Round Two begins:

Reconfigure the groups so that each person is now with different people (see chart below). Instead of pitching their own four ideas, each person pitches the four ideas they chose from their previous group members. Again, they have about 10 minutes to pitch the four ideas. Remember, the point is that each person is no longer pitching their own ideas! At the end of Round Two, each person must again select their two favorite ideas from each of the other two members of this new group. Record (anonymously) the selections of each person, which represent a "vote" for the ideas.
5) Round Three begins:

Reconfigure the groups again. Each person in the group now pitches the four ideas (two from each of the two members of their most recent group) they chose in the previous (Round Two) round. At this point, each person has pitched a total of 12 ideas:

• Round One: pitch your own four ideas*
• Round Two: pitch four ideas from your Round One group to your new Round Two group -- two ideas from each of your previous group's other members.*
• Round Three: pitch four ideas from your Round Two group to your new Round Three group, as before.

At the end of Round Three, again each person selects their top two favorite ideas from the ones pitched by the other two members. Record these as a vote. You should now have a total of 108 votes. Choose the top 9 vote-getters (you'll have to be creative about tie-breaking... you could choose more than 9, for example). Give each person a copy of the 9 ideas, and send them back for another round of "inputs." Again, assign each person different materials from the ones they used at the beginning. Give the participants 30 minutes to use their inputs and flesh out a single idea from the nine.

Their one idea can be a modified version of one of the nine, based on their "research." Their one idea could be a mashup of two or more of the nine ideas. It cannot, however, be something completely new. Participants should be prepared to explain how something they got from their inputs helped in some way (not an absolute requirement).

Go Ahead and Choose
Now it's up to you what to do with the ideas. You might choose just one, or take all 9 "winners" with their pitches back to another person or group.

What is the Future of State Capitalism?

Raising capital today means that private equity companies are bumping into state owned funds, particularly when seeking capital for larger deals. If a fund manager tells a client their capital will come from a state owned fund, often the client’s first question is how ethical is that fund? How did they make that money? Who benefits from the incoming revenues from these investments?
The concern arises as there is the perception that some States do not channel money to their own people’s social welfare.

This is State Capitalism at its worst.

If the answers to customer concerns can be given easily, then that capital will be willingly accepted. The West is able to think beyond xenophobic attitudes that if money is not money made here, we don’t want it. Remember the Nineties when Japan bought up property?

We do need to look at why so many citizens of some countries with these huge funds are choosing to vote with their feet and leave their home land for the West? This has been developing for decades. Why did these people travel far to North America, Europe and Australia? Being an immigrant myself, I have put this question to other immigrants many times over the years. The answer is the same – my government has leaders enriching themselves rather than taking up the role to help everyone in the nation.

Otherwise, I see business leaders – my clients – embracing seeing other nations rising up, experiencing their own industrial revolutions and going global. "There may not be global rules for State Capitalism yet," adds John Loewen, "but these will come because the customers are asking the questions more and more. The market-human beings- is demanding transparency and states need to show where they spend their money and who benefits from it."

No, it’s not perfect in any country so let’s not be grand standing and silly about who is pure and who is not. The point is we have now arrived at a point in history where every human being on this planet now understands that their State is obliged to look after their people first, before enriching themselves and indulging in their vanity projects. Otherwise, the steady outflow of their best and brightest will continue.

Raising Capital for Women

I get asked why women can not raise capital and am frankly, flummoxed. In my experience, female run companies get capitalized. Recently, one of my female clients got $5M and appears on the front covers of business magazines as CEO of one of the fastest growing companies in Canada.
She had a good service and spent the time and money putting together a detailed five year financial model. That preparation when going out to raise capital makes the difference, not your gender.

I guess it is difficult to overcome stereotyping that by simply being female, you are not going to get money or that a female run company is not good for loan or investment repayment. Countries that are having gender roles change, such as Rwanda, are discovering that women are better at business than the men. The Washington Post explains the reasons why empowering women eliminates the cycle of poverty. It’s hard to imagine the lives Rwandan women for example, have lead, hard to relate to a circumstance where you have no rights, no standing, and no physical power to protect yourself. So why now, with just the slightest assistance, are these amazing women beating out their male counterparts in business? Easy - they’re women which seems sexist to say!

Here's an excerpt from the report: Officials at Vision Finance, the microloan arm of World Vision International that launched a program in 2005 in a Rwandian town of 40,000, said that while women make up the majority of borrowers, four out of five defaulters are men.
"They say that women care more about the family, but I do not know if that is true," Mukandayisenga said. "I think it has more to do with the self-control woman show in hard times.”

Curb Your Greed

Indulge in your inner child - or channel Gordon Gehko from the movie Wall Street - and let out the greed. Diane Francis has a new book topping the best sellers' lists and it is about who has got the cash in Canada and who are the new ruling families. 60% are newcomers to Canadian shores but that will not come as a surprise to those in finance who get to see the passing parade of entrepreneurs.


Perhaps, to reflect on national identity, John Loewen says, "the Canadian identity is not wrapped up in business success but more around what do you contribute to the community and that old fashion ideal of leading a decent life." The more American approach to business and drive to succeed is to be found amongst immigrant parents who limit TV time and curtail friends with the emphasise on homework and developing skills for the CV. If you play ping pong, you will do it with a coach and drill away at serves - not just for the fun of it.

Or perhaps the big families have removed their wealth from tax collectors' grasp to the Gurnsey Isles or Bermuda.

We will be giving Diane Francis's new book to the presenters at the Canadian Innovators Forum which will be discussing raising capital with private equity. The CEOs attending will be able to read the pages of those who have managed to make their fortunes here in Canada without a membership to that inner club. By the way, where is that inner club? I have asked Diane Francis to write the foreword to Money Magnet and will let you know how that goes.

Raising Capital Event

With billions of dollars in uncommitted capital, many private equity experts are saying: “Now is the time to invest…”

Join the CEO Roundtable
Thursday, May 15th, 2008:
10:30 am – 3:00 pm
at The National Club, Toronto.

Private Equity Investors are Ready to Spend
“The question is will market volatility quell the interest of private equity investors?”
says Peter Plows of Cobalt Capital. “Absolutely not! Private equity firms are now looking for quality deals more actively than ever.”

Cobalt Capital is a private equity firm made up of former business owners and operators seeking to help private companies grow and innovate by investing their own capital and contributing operating expertise. Cobalt Capital partners have significant business and entrepreneurial experience in a wide range of disciplines, sectors and geographies and work closely with their portfolio companies to help them achieve their growth objectives.

My Journey to Private EquityPatrick Bermingham, Bermingham Construction Ltd.
Patrick Bermingham, owner of a Hamilton based construction enterprise, discusses what his private equity partners have done for his company. As a fourth generation business owner, Patrick had a difficult decision to make; and the journey was not without its challenges. Learn about the key issues that needed to be resolved and the lessons learned. Find out what made the partnership with private equity triumph.

Iain Scott, Executive Coach & Roundtable Facilitator.
“CEO Roundtable events are organized to give business owners the opportunity to exchange ideas and gain insight into key issues that growing firms face.” This highly interactive session is designed to explore topics that are important to company growth strategy.
Please note that space is limited to maximize the value to attending CEOs by ensuring a highly interactive environment.


Map Location & Parking
Cost
CIF Members: $90.00 + GST

Non-members: $148.00 + GST
To Register (Please note, business owners and CEOs only):
Please email:
events@strategyinternational.com or call 416 961 0740 and ask for Anastassia

Private Equity Gets Respect

"Private equity is trying to improve its image in the public eye," says John Loewen, but they may not have to worry. According to a recent poll, politicians are the least respected and private equity did not even get a mention.
Why do teachers get paid less than lawyers for example, or politicians, or even TTC ticket collectors? If people were paid according to how much they were respected, then politicians may have a problem. Here's the quote:

"In the online survey of a representative national sample, a large majority of Canadians say they have a great deal or a fair amount of respect for doctors (94%), police officers (83%) and teachers (83%). At the bottom end are politicians (25%), lawyers (44%) and journalists (49%).
The results of the current survey are especially noteworthy when compared to those of an identical poll carried out by the Angus Reid Group in 1994. Interestingly, over the past 14 years, respect for every single profession—with the exception of doctors—has diminished across the country.
The professionals who endured the most noticeable slump are journalists. In 2008, less than half of all respondents say they have a great deal or a fair amount of respect for journalists (49%), compared to 73 per cent in 1994."

So you want to stay in your pond?

There’s an old Scottish tale of a frog living in a damp well. One day, another frog from a large pond hopped past the well. Interested in all things, this adventurous frog looked down into the dark depths and leapt inside.

Intimidated by the interloper, the first frog asked, “Who are you and where did you come from?”

The pond frog said, with a nod at the top of the well, “A large pond filled with water many times the size of this well.”

“How big is this water?” The well frog pointed to a boulder at the edge of the well. “Oh, many times the size of that boulder.”

“As big as that?” the well frog gestured at the shadow of a weeping willow tree.

“Much bigger.”

The well frog was momentarily struck, “How much bigger, then?"

“It’s many times the size of your well and it’s quite close. We could travel together to see it.”

“Why would I do that?” He regarded the pond frog suspiciously.

“You would have more water.”

The frog in the well gave a sideways look as if to say, “Oh, a wise guy, eh?” and swelling up with enough irritation to pop, said decisively, “Get out! Get out! I want nothing to do with frogs like you.”

“Why, because I can show you a bigger view, more flies to catch?” The pond frog realized that this frog was afraid to go beyond the bricked walls he had known for so long.

“Nonsense. You are trying to trick me out of my well.”

With that, the pond frog shook his head and hopped back into the sunshine.

In the book, Money Magnet, the author, Jacoline Loewen, explores this theme of not wanting to explore past your every day groove is opened up for discussion. What are you missing by not even learning more about private equity and venture capital?

What is Venture Capital?

Your business is attracting customers but now to fill those orders but your bank is being difficult. It is time to look at the very exciting alternative which will change the way you do business for the better.

Venture Capital (VC), is risk capital invested in privately held companies by VC firms, through the underwriting of newly issued stock and/or convertible bonds.

If you plan to launch a new business venture or expand a young business which has not reached profitability, venture capital is almost always the only source of capital. For banks, it is too high a risk and why should they put their own customers' money at risk on your venture? Banks get given a knock for being cautious but they are being paid to look after their depositors' cash.

Do look for an expert in private equity to match you to the right fund and get your business "investor ready".

Venture capital funding is provided by Venture Capital funds. If you are interested in finding out more, you can read about it in Money Magnet: Attracting Investors to Your Business.

Raising Capital Rule #1: Swim in the right pond

It was a sunny spring day when I had lunch with a Profit Top 100 Fastest Growing business leaders and most of the conversation revolved around his search for capital.

You would think that his many listings as Ernst & Young Entrepreneur of the Year or Profit’s Top 50 Entrepreneurs or Rising Hot Stars to Watch would make it easy. He thought it would be but forgot the first rule of finding capital: Swim in the Right Pond.

What the heck does fishing have to do with raising money? People with cash have what is fondly referred to as their preferred “bite size” which is the amount of money they will invest in a company. This bite size could range from $200,000 right up to $50M and private equity investors cluster according to this investment size. My friend, the cover story of Profit magazine, could not understand why funds were passing on his company but when I asked who he was seeing, it became very clear. He was swimming in the pond for much larger bite size than required for his stage of business. He was wearing out the leather in his shoes walking around Bay Street and visiting what he termed the “best” investors. One of the people he saw was Brent Belzberg of Torquest who is one of Canada’s leading private equity investors. Torquest raised capital for their private equity fund from a range of high calibre sources such as CIBC and these sources will be expecting a high level of return. Torquest is under pressure to achieve their client expectations and have delivered so far due to their focus on size of investment or deal they will do. They are familiar with investing $20M and know how to work with this size. Anything lower would require a different type of involvement with the management team and a different financial structure. Quite rightly, Torquest politely declined and explained the company was not their "bite size".

My CEO friend could not understand how the size of money put into a business could be so different until I asked him if he fished: he glowed as he described catching bass up at Georgian Bay. I asked him if he gone salmon fishing in BC or deep sea fishing for marlin – yes, to the former, no to the latter - but what about catching a whale? It became instantly clear how each of these fish sizes would require different bait, hook, equipment and boat. Above all, the attitude of the investor becomes evident. Is this a weekend jaunt with beer in the cooler or is it for a living where if the fisherman does not bring home the big tuna, it means not being able to make a living? Torquest fishes where there are the big tuna and takes their risks out in the big sea. My Profit Hot Shot CEO needed to fish with the private equity funds who put in their own money, with a far smaller bite size.

But here’s the real hair raiser: the CEO went to a Whale sized private equity shop where one of the financiers advised against private equity but then said, “I’ll invest as I have just made a bonus and have $2M sitting on top of my dresser.” The irony is that $2M investment is private equity! This rich individual was putting in money - which is labeled as Angel investing - but he did not have passion for the business, it was just opportunistic. It is private equity at its worst!
By now though, the CEO was exhausted from swimming in all the wrong places which is the worst time to make a financial decision. He thought the big name of the rich investor would be good for his business and he went ahead and accepted the valuation thumb suck without even checking with a third party agent. This CEO believed the investor knew what he was doing. Absolutely correct – this private equity investor knew he was dealing with a great upcoming company with a vulnerable CEO/owner and jumped to put in his own money. He knew if the company grew, he would get a great payout and if it did not, well, he had the cash to burn. The situation was the equivalent of a Whaler captain deciding to fish with you but with a cooler of beer and no big deal if you don't catch much. Would you want that type of investor in your boat with you?
If this CEO had taken the time to even skim the book Money Magnet: Attract Investors to Your Business he would have known how to swim in the right pond.