Finance Committee on Nov. 25th, 2013

[Andrew Saxton, Conservative, North Vancouver, BC]

Okay. Thanks.

[The Chair, Conservative, James Rajotte]

Madame Freeman or Monsieur Côté?

Monsieur Côté.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Mr. Chair, I want to make sure that Ms. Freeman can have the floor.

Mr. Arsenault, you worked very hard for us today. As I am the member for the Beauport—Limoilou riding, in Quebec City, I became familiar with the work of Quebec's Community Economic Development Corporation as well as that of the Local Development Centre. What really struck me about these two organizations, is that not only do they offer their expertise and invest money, they generate momentum, in other words, they ensure investments. In turn, this encourages other partners, specifically those in the banking sector, to get involved.

Could you describe to us the effect of labour-sponsored funds of the same type? It is not simply a matter of investing money, they also provide expertise and support entrepreneurs.

[Chris Arsenault]

It is important for venture capital funds to attract relatively large funds. In fact, the smaller venture capital funds do not perform as well as the more substantive ones. The more substantive Canadian funds are comparable to small American funds, but for Canada, $100 million is significant. Why? Because it allows the management team to spread the risk and support businesses that are performing well in order to achieve a better profitability ratio over time.

Attracting talent is the added value, besides money, that we offer to businesses. When it comes to our VCs, when there is an investment of $5 million, $10 million, $15 million, or $20 million into a $100-million fund, the added value resides in the fact that they can attract more funds and reach a high enough amount to do an initial closing and start to make investments.

As for me, I strongly support the VCAP program. I think that it is a very good idea. However, it is clear in my mind that it is up to the entrepreneur to make sure that that money generates a return. For example, iNovia closed out Fund II in December 2011. Since then, we have made 17 investments in Canadian businesses. It is important to be able to act relatively quickly.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

How much time do I have left?

[The Chair, Conservative, James Rajotte]

You have two minutes left.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

That is perfect.

[Mylène Freeman, NDP, Argenteuil—Papineau—Mirabel, QC]

Could you leave me one minute?

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Okay.

Mr. Simard, when it comes to the countercyclical aspect, I would like to talk about the free movement of capital, which was paralyzed during the last recession.

Could you tell us very briefly about how labour-sponsored funds were able to counter this paralysis in the business community?

[François-William Simard]

Obviously, you are quite right to mention the last economic crisis. However, to illustrate the importance of something that may alleviate a problem that is quite cyclical, I will provide you with an even more concrete example.

Things are not going very well in Quebec's mining sector. This is partly because the global marketplace has slowed, but it's also due to certain policies which may be less favourable to Quebec's mining sector at this time.

The FTQ fund has previously supported the mining company Osisko. But in the current context, I do not think a project like Osisko would find it as easy to move forward without the FTQ's Solidarity Fund. I remind you that Osisko needed $1.2 billion before generating a single dollar in profits. It is important to remember such things. Presently, the mining cycle is not very favourable which means that capital is much more difficult to obtain. In such a context, these are precisely the kind of funds that will help deal with the situation.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Thank you.

I will share my remaining time with Ms. Freeman.

[Mylène Freeman, NDP, Argenteuil—Papineau—Mirabel, QC]

Mr. Simard, we have not yet touched upon workers' funds' investments in regions.

The FTQ's Fonds de solidarité and Fondaction have both created two sub-funds which focus their investments in less urban regions.

First of all, what expectations do you have with respect to the members of your regional chambers of commerce when it comes to these regional funds? Also, do you believe regions would be well served in terms of venture capital and development capital without the contribution of workers' funds?

[François-William Simard]

That decision by the government concerns the regional chambers of commerce. I would not use the word panic, because that would be overstating things, but this decision does give rise to concerns. But we should not mislead people either. Workers' funds will not cease to exist. However, some current investments may no longer be made given the new rules. There is some concern in that respect.

As to venture capital, certain studies were quoted earlier. It was said among other things that ill-considered projects should never have been financed by workers' funds. But any business or organization that makes investments has to deal with the funding of ill-conceived projects. That holds true in our own lives, unfortunately. Indeed, we all make bad decisions at times. Although this applies to workers' funds, it's equally true of other organizations. This bears mentioning.

[The Chair, Conservative, James Rajotte]

All right. Thank you.

Thank you, Ms. Freeman.

Mr. Van Kesteren, please.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Chair. Thank you all for being here.

I'm sure you're aware that the expression “my ship came in” is something that came from the old Dutch Indies shipping company and basically was probably the greatest venture capital that ever existed in the history of mankind. Of course, these ships would go out into the wild and they could get shipwrecked, they could get hit by pirates, but if that ship came in, somebody became an instant millionaire. Back in those days it was probably worth a whole lot more than our millions are worth today.

When I think about the concept, the very concept of virtually where capitalism grew from, it was from those institutions, and then it spread off from New Amsterdam that became New York and Wall Street and all that trading. There was that understanding that when somebody had an idea or a product, if one were to invest in that, the greater the risk, the greater the reward would be.

I think about what happened in 2008-2009, the meltdown in the United States with the real estate bubble, and I wonder—I really don't wonder too long—had they not instituted a policy to lend money to people who really could never afford to pay it back or could never imagine to pay it back, if that meltdown would ever have happened. I think the answer is obvious; it wouldn't. Fannie Mae and Freddie Mac existed as an arm of the government to move that project forward.

I guess what I'm getting at is that I'm still looking for a good example of when government.... I know government has a role to play, but when government starts to mess with the natural flow of money.... In other words, banks normally don't lend money to people who can't afford to pay it back, and people with money are averse to lending money to somebody if the return isn't such that it's going to be worth the risk. So I'm sorry that our other witness couldn't attend, because I am certainly not a scholar in this field. I only learn what I've learned in life and what I've observed.

I'm going to go to you, Mr. Arsenault. You mentioned companies...I think you said Microsoft and Google and a number of others. Do you think maybe that the money would have come regardless of whether or not there would have been...? I think in the United States there was, if my understanding is correct, no program like we have here. Would that money have flowed naturally? Did they simply not recognize it?

[Chris Arsenault]

The SVI program actually kick-started the whole venture capital industry in the U.S. Without the SVI program, you would not have a venture capital industry in the U.S. It's very similar to different programs from the federal and provincial governments here in Canada.

Yes, I do believe when we seed-funded a Toronto-based company, very technologie très pointue, and the advertisement and user profiling space, we seed-funded the company when nobody else was there, but we saw an opportunity. We had the relationship. We brought talent into that company and that company went from $250,000 in revenue to $2 million, to $13 million, to closing above $40 million in revenue this year. This is a Toronto-based company that's making its mark in the overall industry.

If we had not been there, yes, that company would not have seen the light of day, or would have seen it in another form.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

But that's not my question. I guess my question is, would you have seen that company to be a company that would have returned an investment, regardless of whether or not--

[The Chair, Conservative, James Rajotte]

A brief response, please.

[Chris Arsenault]

In all of our investments, we do believe the company will be returning a substantial amount of capital.

[The Chair, Conservative, James Rajotte]

Thank you. Thank you, Mr. Van Kesteren.

I want to thank all of our witnesses for being here on this second panel today, here in Ottawa and in British Columbia. Thank you so much for participating in our panel discussions on Bill C-4.

Colleagues, I will suspend for a couple of minutes, then we'll come back with the Minister of Finance.

Thank you.

[The Chair, Conservative, James Rajotte]

Colleagues, I call this meeting back to order.

This is meeting number ten of the Standing Committee on Finance. Pursuant to the order of reference of Tuesday, October 29, 2013, we are continuing our study of Bill C-4, A second act to implement certain provisions of the budget tabled in Parliament on March 21, 2013.

We are very pleased to have with us today the Honourable Jim Flaherty, Minister of Finance.

Minister, welcome back to the committee.

I understand that you will have an opening statement for the members. Then we'll have questions from your colleagues here.

[Jim Flaherty, Conservative, Minister of Finance]

Thank you, Chair, and thank you for your excellent work as an interviewer in Edmonton.

[The Chair, Conservative, James Rajotte]

I've heard that those were the toughest questions you've had in over two years, apparently.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

I've heard that David Frost would be really worried—

[An hon. member]

You don't want the Nixon comparison, Mr. Chair—