Investment fund releases business case


The Canadian Co-operative Investment Fund (CCIF) has released its business case.

CCIF is the showcase venture capital initiative of Co-operatives and Mutuals Canada (CMC). The fund was launched three years back with a plan to gather $20 million of investment to support the growth of co-ops in Canada. This didn’t seem much of a stretch. The Canadian cooperative sector is a pretty big space. According to CMC, “co‑operatives, including credit unions, have an estimated $415 billion in assets. Non-financial co‑ops do nearly $36 billion a year in business. There are about 9,000 cooperatives and mutual insurance companies in Canada that employ 187,000 people of whom over 88,000 are in non-financial co‑ops.” Desjardins Financial is the sixth largest financial institution in Canada, the largest after the federally coddled and protected big five banks. Federated Co-operatives is the largest company in the province of Saskatchewan. Calgary Co-op is one of the largest retail co-ops in North America. Mountain Equipment Co-op has more than four million members. That’s the kind of clout that should nail $20 million in development funds pretty quick. You would think.

Then there’s the co-op I live in, a little boutique of nine units in Ottawa that has just 12 members and operates on a budget well under $100,000 a year. Of the 9,000 co-ops in Canada, mine might be one of the smallest but there aren’t a whole lot of biggies like those above. Most of the 9,000 would be small and medium-sized enterprises, co-opsmes. Their need for capital has long been evident. Co-ops have had difficulty getting funds for development or expansion from the usual sources since they began to be created in colonial days. It’s not that co-ops are riskier than other enterprises. Far from it. Several studies maintain that co-ops have a better survival rate than corporate startups. They are sustainable through hard times, closer to the communities they serve with more loyal customers and workers. But conservative bankers prefer not to understand the democratic governance feature of co-ops. Venture investors have no interest in businesses not built to maximize profit. Co-ops respect the need for profit but they don’t make it their religion.

There was much applause back in 2012, which not entirely coincidentally was the U.N.-declared Year of Cooperatives worldwide, when the grandees at CMC, the apex of the sector in Canada, announced the $20 million fund. Three co-ops leapt aboard as founders, pledging a total of just over $10 million. And then . . . then . . . then not much. Seldom was heard an encouraging word. By 2013, when the fund was originally supposed to be operating, three more co-ops were in and pledges had crept up to almost $14 million. By the end of 2014 the total in the fund was still shy by a whisker of the original goal, at $19.35 million. This was still the total in the business case published this month (April 2015), which also reports that the number of founding partners now stands at eight.

In the meantime, the goal has been increased to $25 million because, on inspection, it became evident that the lower amount would not have generated sufficient returns to provide adequately for management and administration of the fund.

CMC presents this business case as a restart, a new beginning for a fund that stumbled out of the gate three years ago. That’s fair enough. It puts a lot of numbers on paper which always makes financial people happy, though it goes far-too-far with financial projections reaching out a decade. It describes the potential gain for investors in the fund. The founders aren’t philanthropists. They want a return. This document presents a credible scenario. It’s a 45-page sales tool.

But toward the end it takes a different turn, a what if turn. What if the federal government were to add $50 million to the sector’s $20 million (down from $25 million in this scenario because there would be no need for the bump to pay overhead)? Well then CCIF would have $70 million to help develop co-ops in Canada. This would be a little less than three times $25 million. And what would it achieve? It would provide 688 loans worth $172 million over 10 years instead of 232 loans worth $58 million, or a little under three times as many loans worth a little less than three times as much. The argument is simple. Give us more money and we’ll do more of the same. The only major difference would be return to investors. The $25 million scenario will pay 3% dividends starting in six years and generate $137,420 in retained earnings after ten years; the $70 million scenario pays 5% dividends after four years and accumulates $6,678,988 (how’s that for precision?) after ten.

How CMC is persuaded that the feds should, could or would cough up $50 million I do not know. They asked for it in a pre-budget submission last October. They didn’t receive it from Finance Minister Oliver’s presentation this month. With the business case they’re venturing again, Hail Mary. But co-ops in the queue that started forming in 2012 have not been looking to government for support. The promises made and still unpaid came from the sector itself and that’s where they ought to be settled.