Evidence of meeting #12 for Government Operations and Estimates in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was business.
A recording is available from Parliament.
Louis-Martin Parent Policy Analyst, Canadian Federation of Independent Business
Our members can call us to ask questions on any topic. We also provide information to our members who have questions on the process to follow in their specific case. Finally, we provide information to them on any topic.
Today, as I looked at our list, I noticed that when a question had something to do with procurement, people were referred to the Office of Small and Medium Enterprises in order to obtain more information on their specific questions.
Conservative
Jacques Gourde Conservative Lotbinière—Chutes-de-la-Chaudière, QC
Do people call you afterwards to tell you whether it worked or whether they were able to obtain a reply?
Policy Analyst, Canadian Federation of Independent Business
Generally, if things worked, they do not call us back. If a problem has not been settled, sometimes they do call us back, but not often.
NDP
Mathieu Ravignat NDP Pontiac, QC
Thank you, Mr. Chair.
Thank you to the witnesses for being here. They were very interesting presentations.
I'm particularly interested in your comments on fairness. Of course, there are a number of ways in which fairness could be questioned. And to my question, everybody is welcome to respond--including you, Madam Scarborough, if you feel so inclined.
So there are a couple of ways. For example, we could build criteria into a program or within a process that disadvantages automatically a certain size of business. Also, we could talk about how small businesses are defined within OSME, for example. They've chosen, rightly or wrongly, to define them as 500 employees or less. But I notice that Export Development Canada, on the other hand--I can understand why there's so much confusion, as there doesn't seem to be the same definition of small business across the board--uses the definition of $20 million or less of business.
I'm wondering if you have an opinion on what would be a fair definition, or a fairer definition, of a small or medium-sized business.
Vice-President, National Affairs, Canadian Federation of Independent Business
I think one of the eternal struggles is to understand what is the correct definition of a small or medium-sized business. At our organization we use 20 to 50 as small, 50 to 500 as medium, and 500 upwards as large.
Then we have “under 20” as the micro-enterprise size. I think it's important to identify that. Too often, especially once you get into the five-person type of business, they're not included in many calculations. They're often not included in many programs because they're so hard to get to, and yet they represent 80% of all businesses out there in Canada.
Sometimes when I read research reports or whatever from other organizations, it's often only for 20 or more employees. When it comes to fairness, then, sometimes we neglect the fact that there's this large segment of the business population. They're often not included when it comes to government programs or statistics or research that's being done out there, and yet they represent a significant portion of the business community.
When we talk about our membership, the average size of our members is about 14 employees. That's actually a little bit larger than the average business out there in Canada. Going up to 500 I think is fine for small and medium-sized companies, but I'd be more interested in knowing what percentage of the people they're assisting are in that 100 to 500 category versus those who are in the zero to 20 category, and knowing how that reflects to the actual business population.
Co-Chair, National Angel Capital Organization
I was interested in hearing...because it's actually something we too struggle with. At the same time, we would consider a start-up company with one to two employees as a small business.
I know you're from the Pontiac. A lot of the companies over on the Pontiac side would be considered a small business enterprise, by our definition. Therefore, we would be looking to those companies in terms of fitting our criteria for investment potential, really.
In our opinion, a 500-person company would be considered a large company, not a small one. A company of one person up to 50 people, particularly as it relates to the technology space in manufacturing, would still be considered a small company, by our measures. We would consider, more on the mathematical side, the dollar value into a company to be relevant.
NDP
Mathieu Ravignat NDP Pontiac, QC
What dollar amount would that be? Could you give me a ballpark figure?
Co-Chair, National Angel Capital Organization
If you think about the majority of companies that are, again, small enterprises, you're looking at companies that have zero to $5 million in sales, if you're thinking about it in those terms. You can go upwards of ten, but at the $10 million mark in sales, you should be exceeding 20 to 25 employees. If you're going to redefine, I would consider looking at the revenue line item as well as the number of employees as part of your criteria.
NDP
Mathieu Ravignat NDP Pontiac, QC
I was rather shocked to see that 94.1% of your people weren't aware of OSME's role, and I know there's a great website in place. What do you think the government could be doing more to ensure that businesses know about OSME?
October 25th, 2011 / 4:10 p.m.
Vice-President, National Affairs, Canadian Federation of Independent Business
I think one of the key things is connecting more with business associations and other organizations that do have that touch with businesses that are going to be interested in procurement-type practices. I know they do some of that outreach already, but I think that's probably the most effective way of getting into the smaller business type of environment. Traditional methods of flyers and seminars don't really work well with very small businesses. They just don't have the time to go to the seminars. They don't really read government flyers. It is a challenge with many organizations. We know that.
We certainly would be happy to try.... We ourselves, as Louis pointed out, do talk about it with our members. We do have it up on our website. This is an access point of information. But truly, in the end, it's going to come down to word of mouth and being effective in terms of helping some small business owners, and then talk about them to other small business owners. That's ultimately how it's going to gain traction.
NDP
The Chair NDP Pat Martin
Thank you, Mathieu. We're well over your time.
Next, for the Conservative side, Peter Braid.
Conservative
Peter Braid Conservative Kitchener—Waterloo, ON
Thank you, Mr. Chair.
And thank you to all of our witnesses for being here this afternoon.
Ms. Scarborough, if I could perhaps start with a couple of questions for you, please, I'm curious about the differentiation here. Could you begin by explaining the difference between angel capital and venture capital? You touched on that a little bit.
Co-Chair, National Angel Capital Organization
The lines are getting a little bit blurred. Angel capital really happens.... If you think about the pathway of a company to market, the company at the very early stage, pre-prototype, would seek typically a friends and family round. That would cover their costs of start-up and getting going, and hopefully get them to an early prototype stage. That's typically where an angel investor...where the angel risk capital would play. Angels would put in more than a friends and family round. Typically, angel investments range anywhere from $150,000 to upwards of $2 million into any given investment they make, sometimes with or without a follow-on round.
Venture capital is now going earlier. It never used to. Venture capital typically comes into the next round at a series A level, and the amount of money going in at an early stage venture round is typically in the neighbourhood of $500 to $1 million. It then ramps up from there all the way to $30 million, $40 million, $50 million, depending on the size of the investment and the capital requirements. That's the difference. If you wanted to follow a company through its financing rounds, that's how it would flow.
Conservative
Peter Braid Conservative Kitchener—Waterloo, ON
Great. Thank you.
You also mentioned that either the number or the amount in terms of dollar figures of angel investors will be doubling in the next two years, which is great news. It's very encouraging to hear. Could you elaborate a little bit on why that is, why that phenomenon is occurring, and what's changing in terms of our policy or economic framework to allow for that doubling?
Co-Chair, National Angel Capital Organization
There are a couple of things.
The doubling is really occurring, and has been occurring, for a little while now, based on a couple of factors, one being the diminishing of the venture capital industry. As you're probably aware, the venture industry in Canada is going through a bit of a rebirth. It is revitalizing itself in new forms, and that is only starting to occur.
What's happened is that you have a lot of early stage technology companies in particular that are looking for working capital and risk capital at the equity stage, to take their companies to the next level, and that venture capital piece of working capital that they would otherwise get is no longer there. So angels have been stepping in and filling that gap.
More angels have been playing a bigger and bigger role in not only providing their equity into the company from an investment perspective, but also their time and attention to mentoring the entrepreneur and helping that entrepreneur identify the mechanisms and the networks by which to grow their company.
That is probably the primary reason why you're seeing an increase in angel capital in the country. What's also happening, though, in tandem, is that angels are starting to form clusters. They're starting to group together in small groups, form investment clubs, and take advantage of the fact that there are a number of early stage opportunities that they can play a significant role in growing in order to identify potential opportunities for return, but also at the end of the day grow a successful business, which is really our bottom line. That's another reason why we're seeing a resurgence.
At the same time, there has been a change in the Canadian ecosystem around the development of companies at the commercialization stage. So if you haven't already seen information with respect to this--and you, being from Waterloo, would know about Communitech and the accelerator centre there--you're seeing a duplicate of accelerator centres starting to pop up all over the country, of various sizes, some private, some public, some a combination.
In Ontario, we have the regional innovation centres, the Ontario Network of Excellence. That whole ecosystem is helping to foster collaborative networks between very early stage companies at the prototype stage, entrepreneurs, and angel investors, who can all collectively come together for the purpose of making investments into those companies--so overlay capital requirements with a commercialization platform that's starting to take place across the country and that's what you're seeing.
Some of the things that are also contributing to the success of angel investors are the tax credits. In B.C. we have the tax credit program. Ontario is looking at a tax credit program, and so are some other provinces. Those will also help to drive more risk capital into the marketplace at the early stage and de-risk those companies for further investment.
Co-Chair, National Angel Capital Organization
I hope that answers your question.
NDP
The Chair NDP Pat Martin
That also concludes Peter's time.
You've really done your homework. I didn't even realize Peter's riding was Waterloo, and I'm the chair of the committee.
Next, for the Liberal Party, John McCallum.
Liberal
John McCallum Liberal Markham—Unionville, ON
Thank you, Mr. Chair, and welcome from me as to well to the witnesses.
I'd like to return to a subject we discussed a bit last week in light of the recent report of the expert panel on government support for innovation. One of the key proposals was to have somewhat less money for tax credits, SR and ED, and transfer that money into direct acquisitions, investments in commercializations through BDC.
I have a double-barrelled question, first to Ms. Scarborough. First, do you agree with that direction? And second, do you think BDC, as it now stands, is competent to do it? I mean, you could agree it's the right direction to go in, but there are execution problems with the agents involved.