Panel examines the lack of capital available in province

By Rebecca Penty, Telegraph Journal |  link to original article

MONCTON – The consensus is that the banks aren't lending.

What's more difficult to agree on is what to do about it.

A panel of three speakers at the Future NB conference in Moncton on Tuesday addressed a scarcity of capital in New Brunswick, which prevents entrepreneurs from investing in company growth and communities in local development projects.

Future NB, hosted by the New Brunswick Business Council, brought out some 270 attendees interested in devising solutions to the province's fiscal challenges during sessions Tuesday. The summit continues today.

Calvin Milbury, president and CEO of the New Brunswick Innovation Foundation, is intimately familiar with the challenge, since his organization aims to bridge the gap in financing for high-growth, early-stage companies between the time angel investors want a piece of a startup and venture capitalists step in.

He said the arms-length organization has a tough time acting strictly within its mandate from the provincial government and invests also in earlier and later stages of company growth because of the overall lack of funding available to startup companies, which is a function of the banks have withdrawn.

“The banks have largely moved out of the region,” Milbury said.

The New Brunswick Innovation Foundation has spent more than $30 million on investments in startup companies since 2003, having leveraged another $180 million from other funding sources – a 6.5-to-one ratio that's better than its mandated five-to-one.

Milbury said that not only have the banks moved out, but since the downturn in the economy in 2008, venture capital seed money available to companies has dried up across the country.

“In New Brunswick, this is exacerbated,” he said.

The problem with attracting more capital is really a chicken-and-egg scenario, he said: Entrepreneurs say they need money to get their companies off the ground but investors don't move in until there are enough good companies with solid ideas.

“It takes a marriage,” Milbury said. “It is a two-way street.”

Duff Conacher, co-ordinator of the Ottawa-based non-profit citizen advocacy organization Democracy Watch, suggested governments literally force the banks invest.

Conacher, as chairman of the Canadian Community Reinvestment Coalition that represents some 100 community groups across the country, has pushed the federal government to consider introducing rules similar to the U.S. Community Reinvestment Act, which requires banks to create a pool of money that goes into community projects from profits.

Over the past 20 years, more than $1 trillion has been reinvested in the United States because of the rules there, but Canada's federal government has done very little to legislate reinvestment, Conacher said.

He suggested municipal and provincial governments could consider putting conditions on contracts, with banks or creating tax incentives that would force bankers to invest money.

Another idea would be to have public pension plans dedicate one per cent of investments toward venture capital, he said.

“Overall, what my argument is, is it's the public's money,” Conacher said.

David Barry, chairman and CEO of the New Brunswick Securities Commission, said the province's capital markets are not mature – a point that's proven out by a recent study his organization conducted.

Barry is pushing the idea of forming a $10-milliion sidecar fund that would co-invest with angel, venture capital and other investors.

“We're hoping the government will take a good look at it,” Barry said.