THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Thursday, April 16, 2026
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 10:31 a.m. [ET] to examine and report on access to credit and capital markets for small- and medium-sized enterprises as the basis for growth and improved productivity in the Canadian economy.
Senator Clément Gignac (Chair) in the chair.
[Translation]
The Chair: Honourable senators, welcome. I also wish to welcome those watching us today online at sencanada.ca.
I am Clément Gignac. I am a senator from Quebec and chair of the Standing Senate Committee on Banking, Commerce and the Economy. Before we go any further, I would ask my colleagues to introduce themselves.
[English]
Senator Varone: Toni Varone, Ontario.
Senator Fridhandler: Daryl Fridhandler, Alberta.
Senator Henkel: Danièle Henkel, Quebec.
Senator Loffreda: Welcome. Senator Tony Loffreda, Montreal, Quebec.
[Translation]
Senator Ringuette: I am Pierrette Ringuette from New Brunswick.
[English]
Senator Yussuff: Hassan Yussuff, Ontario.
Senator McBean: Marty McBean, Ontario.
Senator C. Deacon: Colin Deacon, Nova Scotia.
Colleagues, I want to inform the committee that my nephew Jeffrey Deacon is testifying as part of this panel. I’ve consulted with the Ethics Officer, and I’ll recuse myself from asking any questions to eliminate any risk of impropriety as a precaution. Thank you.
Senator Wallin: But it won’t stop us from asking questions. Pamela Wallin, Saskatchewan.
Senator Martin: Good morning. There will be a lot of tough questions for Mr. Deacon. Welcome. Yonah Martin from British Columbia.
The Chair: Colleagues, this is our ninth meeting on our special study focusing on access to credit and capital markets for SMEs.
I wish to welcome our first three witnesses with us today, two in person and one virtually. With us in the room, we have Mr. Jeffrey Deacon, well introduced by our colleague. Jeffrey is Co-Founder and Managing Partner at Private Debt Partners. We also have Mr. Trevor Simpson, Partner, Private Debt, FirePower Capital; and, virtually, Mr. Michael Wallace, Chief Executive Officer, Timia Capital.
I understand you have opening remarks, so I’ll start with you, Mr. Deacon.
Jeffrey Deacon, Co-Founder and Managing Partner, Private Debt Partners: We are honoured to be here. Chair, honourable senators, thank you for the opportunity to appear before you today. I’m Jeffrey Deacon, Co-Founder and Managing Partner of Private Debt Partners, here on behalf of the founding partners of the growth fund proposal, together with FirePower Capital and Timia Capital.
We are practitioners who originate, underwrite and service hundreds of SME loans each year, and we are here with a concrete, investable proposal to help improve productivity in Canada by closing the financing gap your committee has addressed.
Your 2023 report called on Canada to unleash new streams of capital into the innovation-driven economy. Since then, we have seen the urgency has only grown. Canada has 100,000 fewer entrepreneurs than 20 years ago, despite adding 10 million people. Net emigration has reached its highest level in the past 50 years; 70% of those leaving hold university degrees. Bank of Canada research shows that roughly 40% of Canadians who would rank in the top 1% of earners have moved south, accounting for up to two thirds of the Canadian-U.S. productivity gap.
The U.S. now produces 45 times more high-potential start-ups per capita than Canada, up from just 11 times a decade ago. When founders cannot access growth capital here, they don’t just sell their companies. They leave, and the tax base leaves with them.
On the ground, we live it every day. SMEs account for 98% of Canadian businesses and more than half of private sector employment, yet roughly half of their financing requests face rejection or partial financing. Banks are concentrating these days on lending to larger, collateral-backed transactions. High-quality, asset-light companies in the service, technology, defence and health care industries cannot access the growth capital they need and are too often forced into premature exits as a result. Our growth fund intervenes precisely at that point. Over five years, it has the potential to mobilize from $2 billion to $5 billion in flexible, non-dilutive financing.
That is a key point we want to touch on today: non-dilutive financing for underserved Canadian SMEs. It would require private credit managers to originate, lead and fund at least 50% of each loan. That’s our skin in the game. Pension funds co-lend the rest, supported by a federal guarantee covering 50% of the pension fund’s exposure. This means no new Crown corporation or bureaucracy and existing Canadian capabilities deployed through a transparently governed platform.
The proposed guarantee is solving a market coordination failure that exists in Canada. It brings together three parties: private credit managers who know how to originate and service these SME loans, pension funds that have long duration capital and a federal government that has a policy interest in keeping Canadian growth capital in Canada. The details of the structure are at a foundational stage, and we’re happy to walk through them during your questions.
Honourable senators, you may have seen recent headlines about distress in parts of the private credit market. It is important to understand that this is a product design problem, not an asset class problem. The funds under pressure are retail-oriented vehicles that promise frequent redemptions secured against illiquid loans. The underlying asset class is strong and is performing. The growth fund is built to be the structural opposite of what is failing and what we’re reading about in the papers.
We are a closed-end institutional vehicle that creates liquidity for investors via regular borrower principal and interest payments. While headlines about capital outflows for misaligned strategies make retail investors feel uncomfortable, they’re actively improving the return profiles for disciplined long-term investors. Wider spreads — we’re seeing it every day: stronger covenants and less competition. This is the exact time to move and deploy more capital in this market in Canada.
Bank of Canada Governor Tiff Macklem confirmed in a speech on March 4 that private credit fills real gaps in the corporate financing ecosystem while stressing the need for transparency and oversight. The growth fund is designed to sit at that exact intersection, channelling private debt into the SME gaps your report has correctly identified within a framework for reporting standards and governance. The proposed fund does not just react to your work; it helps implement it, turning your vision of domestically anchored capital into a concrete program that keeps Canadians’ savings working in Canada’s productive economy.
We would be honoured to present further details together with the CEOs of Canadian companies that have utilized private credit, private debt, to fuel growth and expand their workforce here in Canada.
Thank you, chair and honourable senators. We welcome your questions.
The Chair: Thank you, Mr. Deacon.
We will move to questions, starting with our deputy chair, Senator Varone.
Senator Varone: Thank you. Welcome.
A few years ago, Private Debt Partners issued a report that noted the SME lending spread was approximately 2.25% higher than in other countries in the OECD grouping — the 38 nations that are grouped together.
What are the main drivers of this higher cost of capital for SMEs in Canada? Is there anything we can do about it domestically?
Mr. Deacon: Yes. I absolutely believe there is. I think you’re hitting on the exact point. It’s the void in the market and this desperately needed financing for growth businesses and asset-light businesses that are driving that premium.
We see it relative to our competitors and private lenders in the U.S. It’s a much more competitive market, which drives rates down and makes each potential loan more competitive. Often, we encounter entrepreneurs or businesses that require growth capital, and we’re their only option. We’re growing our fund, but as I sit here today, there are 12 businesses and $70 million across seven provinces worth of transactions that we don’t have the capacity to fund.
Senator Varone: Are you suggesting, then, that it’s the lack of supply of funds that is driving the spread that is hurting SMEs in terms of growth capital?
Mr. Deacon: Absolutely.
Senator Martin: Thank you so much for your presentation.
It’s reassuring and also exciting to see the role that you are playing, that you’re in the gap. Some of the stats that you provided on what is happening, like the exodus and the shrinking number of entrepreneurs in Canada, are very alarming. We need to do something now. The timing is, in essence, perfect for what you are providing.
First, I already understand what you’re doing, but in terms of your approach to assessing and structuring SME loans, how would that differ from that of the banks? Are there lessons from your experience that could help inform federal efforts to improve overall access to credit for Canadian SMEs?
Mr. Deacon: I think I can start there.
We offer a different process than the banks, and we believe it’s much more efficient. I’m excited for you to hear from entrepreneurs who have utilized private credit in the next session.
Going back to the senator’s first question, a big part of how we can command this premium pricing is our ability to move quickly and fund loans on a very timely basis. I think now, more than ever, with these Canadian growth companies, having the ability to move quickly and at the rate of adoption of new technology is critical in the market we’re targeting. They need a lender that can move at their pace, and that’s what we are able to do. That’s a big differentiator between our compatriots at the banks and other Crown corporations. I think these companies see real value in being able to turn around a loan in 30 to 45 days compared to what the option would be with a more traditional commercial lending source.
Senator Martin: With that, are there specific changes to federal policies or programs that would enable you to do your work even better?
Mr. Deacon: I think why we’re so interested in speaking with all of you is there doesn’t need to be substantial change. There needs to be better alignment. It’s aligning existing resources within the Canadian financial ecosystem to incentivize deployment of more growth capital in Canada. Our pension funds are among the best in the world, and we’ve spent years and years trying to attract them to the SME market and utilize our financing to support this sector. There’s that misalignment. We can’t deploy at the scale they require, given their size.
What we’re trying to do is build a vehicle of Canadian private lenders and consolidate it so we can offer these large Canadian pension funds the scale they need in order to make this a realistic opportunity that they can fund.
Senator Martin: You’re making that effort to align things better, but if things are misaligned, how do we correct that? I guess we have to align it. It sounds so straightforward, but what needs to happen?
Mr. Deacon: Our suggestion is that if there were a guarantee put in place for these pension funds and a program that attracted private lenders and private credit firms across Canada to participate in this program — instead of Private Debt Partners, which deploys $80 million to $100 million a year — if you consolidate these lenders across Canada into one program, you’re all of a sudden deploying $500 million to $600 million a year, and you could be deploying up to $1 billion to $2 billion a year. It’s capital constraint.
Senator Fridhandler: It’s an interesting idea. Have you spoken with pension funds that say, “If you meet our return, we will be in; you just need to get a government guarantee”? Or is this a horse and a cart and you’d want to go to them in the first place? What is the dynamic in all of this? Beyond pension funds, maybe it’s life insurers and other long-term capital players.
Mr. Deacon: And endowments. Absolutely, you’re right. We have, and there’s interest. Both domestic and foreign pension funds have approached us. They get the macro thesis here, where there is a void in the Canadian market for financing for these businesses, which goes to capturing that premium. It’s an attractive investment thesis. It’s the scale that is lacking for them.
Senator Fridhandler: So would this fund be a closed fund, and the pension funds would invest in the fund, or would they be a sidecar to match on a commitment? Are they pooled in the same fund, and then you operate from there?
Mr. Deacon: No, it’s a matching program. The private lender would put up a minimum of 50% of the individual loan and be able to access that matching facility from the pension fund or funds.
Senator Fridhandler: But it would be an automatic drawdown. Because the pension funds have the guarantee, they aren’t going to get into the examination. Their manager will.
Mr. Deacon: Right.
Senator Fridhandler: Is this fund on the private lender’s side a pooled fund that, for example, you or some other manager would manage? Or are you an individual, loan-by-loan kind of —
Mr. Deacon: This is a critical question, and I’m glad you raised it. The concept is to have the governance, and the standards exist as an entryway into the program. Lenders are evaluated on their track record and on their performance over the course of their lives to gain entry into the program. Once they’re accepted and approved as a lender within this small-business funding program, they now have access to the matching. They make their own individual investment decisions. They continue to move at their own pace. It really is the qualification standards to participate in the program that we need to drill down on.
Senator Fridhandler: In terms of the legislative framework, you can potentially have numerous competitors that are managers, like yourselves. Would the government say they will commit to $1 billion in guarantees but need to then allocate that among a number of lenders, or would you say there’s only one growth fund in Canada?
Mr. Deacon: No, absolutely not.
Senator Fridhandler: It is open season.
Mr. Deacon: Absolutely. Open platform, and that’s what we’re trying to build — improve the market for these entrepreneurial businesses and attract as many qualified lenders as possible.
Senator Fridhandler: This is my last question: If private lenders’ money is raised relative to their creation of a growth fund and you would have investors behind you, is that your own deal? They make sure you get your 50% money to the table.
Mr. Deacon: Yes, that’s where we are today and why we’re here. I am excited for you to hear from Trevor and Michael as well because the genesis of this idea came from our frustration about the number of businesses we see that we don’t have the ability to fund because we’re restrained by capital. And these are good transactions.
Senator Fridhandler: Does this model exist in other jurisdictions?
Mr. Deacon: There are similar programs around the world. There’s nothing exactly like this, but others around the world don’t have the same pension fund strength that we do here in Canada.
Senator Fridhandler: Is there anything you can give us in writing? Can you refer us to a few comparables?
Mr. Deacon: Absolutely. I can follow up after this.
Senator Fridhandler: Okay. Thanks.
The Chair: It is very exciting, your exchange. Thank you for that.
[Translation]
Senator Henkel: Thank you for joining us, gentlemen.
My first question is for Mr. Wallace. Thanks to your algorithm or technology-facilitated lending process, when a company doesn’t have any physical assets, you can still evaluate its risk by using performance data.
Why isn’t this type of approach used with SMEs, whether in the manufacturing, agricultural or services sector, that have predictable revenues but no assets to offer as collateral?
What’s stopping the broader use of this model in the Canadian economy?
[English]
Michael Wallace, Chief Executive Officer, Timia Capital: Thank you very much. That’s a great question. We work primarily with technology and software companies. Our underwriting is focused on a mix of 40 or 50 different variables. We look into their businesses — into their financial statements and their performance — to understand whether a business fits our criteria.
We are working with SMEs. We typically work with businesses that generate between $2 million and $10 million in revenue. They typically have anywhere from a dozen to upwards of 70 or 75 employees. These are typically small businesses.
The majority of our businesses are not venture funded. Many of our businesses are bootstrapped or have raised a little equity money from friends and family.
The distinction that we draw between a technology business that we lend to and, say, a manufacturing business or a more traditional services business is not that we have any different types of data about the companies we lend to. We’ve simply designed our underwriting criteria to suit a segment of the market where we have experience and expertise. That allows us to distinguish a high-quality from a medium-quality or lower-quality credit company and to have the expertise to help these companies in the event their performance begins to shift or change. It’s not that we couldn’t apply the same approach to the sectors that you mentioned; it’s just that we don’t.
[Translation]
Senator Henkel: My other question is for all three witnesses, but probably more for Mr. Deacon.
How do you measure the success of your financial interventions with SMEs? Are productivity and growth among the key performance indicators you track? If not, do you have other indicators to help you assess the impact your fund is having?
[English]
Mr. Deacon: That’s another great question, and the answer is it’s a work-in-progress. Today, we monitor job growth among our borrowers. That’s a very important statistic to us, and it draws back to the structure of the original loans because we want the proceeds to be used for growth — for example, hiring, capex or expansion into new markets. These are the use of proceeds that we look for that are appealing and match with our investment criteria.
So I think that is a real opportunity for a fund like this, to better monitor those stats across the country among private lenders. That’s something that could easily be built into this program. It’s something that I’ve asked Trevor about, and he’s put together some great information regarding the job growth that his portfolio has experienced, and I believe Michael could speak to it as well.
Trevor Simpson, Partner, Private Debt, FirePower Capital: One of the main key performance indicators, or KPIs, we look for is not just job growth but enterprise value growth. There are a number of options earlier, around $2 million, $4 million, to help grow a company, and there are a number of options when you get above $30 or $40 million, but in that void in the lower-middle market, there are not many options. One of the exit plans we look for is helping a company grow and then moving them back to a chartered bank when their profitability has increased or their enterprise value has increased, or maybe they can raise at a much higher valuation. They’re not giving up control of the company at that point because they are much stronger. So enterprise value growth is a real KPI that we look to track.
Senator Wallin: I have a couple of quick points. It’s interesting because we keep hearing this over and over again. You’re not even talking about dealing with the banks because we know they don’t deliver in this market. It’s interesting that your mindset is there.
On the whole question of pension funds, people get a little nervous about the use of pension funds. This is their future, so you would have to have some kind of government-backed guarantee.
Mr. Deacon: It doesn’t require it. Certainly, there are a number of mid-tier pension funds in Canada that participate and invest with private credit managers in Canada today.
The challenge that we’re trying to address here is that we have some of the largest pension funds in Canada, and the scale at which these small-to-mid-market lenders are operating today does not align with the investment policies of the largest Canadian pension funds. So what we are trying to offer and consolidate is offering them that scale. I can work with my competitors, and that means, instead of $80 million individually, we may be able to deploy as a group $500 million to $1 billion a year.
Senator Wallin: You’re just making it easier for them to get to the client. You’re not asking them to do something riskier.
Mr. Deacon: Absolutely not. For example, the Canada Pension Plan, or CPP, deployed $35 billion in private credit globally. Almost none of that gets back to Canadian SMEs.
Senator Wallin: Thank you for that stat. That’s what I was looking for.
The other comment you made was about how you don’t need new bureaucracies, and, to use the Prime Minister’s favourite word, we’re “catalyzing” everything these days. We’re catalyzing housing and defence and climate spending, and it does seem like an awkward and expensive way to get at partnerships with the private sector and companies that may be coming up, in the defence field, for example. Are you saying you could move in and do that and replace that system?
Mr. Deacon: I think we can complement that system but move faster and offer a way to get there sooner. The investment profile exists. It’s just the scale that we’re trying to solve for here. I listened to and read through everything that you’re speaking to, and that’s what ignited this idea for us to work together with our competition here and offer that scale to have the pension capital redirected into this very important and underserved market in Canada.
Senator Wallin: Without the bureaucracy.
Mr. Deacon: It all exists, as I said. We don’t need to create or build anything or layer on any incremental cost. The origination, the portfolio management — it all exists. The one thing we are lacking, in order to grow our own businesses, is capital. It could be deployed efficiently and effectively.
Senator Wallin: Thank you.
The Chair: Thank you. That is very interesting.
Senator Loffreda: Thank you, Jeffrey, Trevor and Michael for being here.
That was a great intro, Jeffrey. My question is for you.
You mentioned Canada performs relatively well in early-stage financing, yet many firms struggle in the scale-up phase. Where do you see the most acute financing gap today, growth, expansion or late-stage?
Congratulations on the billions you have deployed. Why is private capital not fully filling the gap? You did get into it, but maybe you could elaborate more on that. You mentioned federal alignment. Are there any specific regulatory tax or institutional constraints in Canada that are unintentionally limiting the growth of private credit markets?
Last but not least, the role of institutional investors, Canadian pension funds — they are globally active. You mentioned that and covered it well. What would incentivize them to allocate more capital domestically to SME financing without compromising returns? Is it structural, strategic or just a return? Canada’s global market is 3% of global equity, so most pension funds will put, say, 3% in Canada, 3% being the global equity. Is it a case of covering one’s bases in case something goes wrong? Is it the return? Is it the strategy? How do we incentivize that?
Mr. Deacon: It is a great question, and I know it to be structural. The opportunity for Canadian pension funds to deploy capital exists. That 3% would move the needle on the credit side if it were allocated to small- and mid-market potential borrowers. It would drastically move the needle. So we’re not talking about the big change here.
Senator Loffreda: You can’t deploy the full 3% to SMEs, obviously. So would we have to raise that to 6% or 7%? Would there be federal measures or policies you have to put in place for that without saying, “You are getting into our private market”?
Mr. Deacon: This is a perfect question and why I was so excited to come here and speak to all of you. It should not be a policy that pushes them to it. The return profile they are looking for exists in this market. It is the scale that’s lacking. I feel as if I’ve said it a couple of times, but the return profile is very attractive.
We’ve been down the road with a number of pension funds, but their challenge is we can’t deploy their $200 million a year, and they can’t be more than 20% of our fund. That’s where the misalignment exists. Trevor, Michael and I can all speak to it. We are hungry for more capital to deploy. We have it, but we don’t have it individually on the scale that those pension funds need.
Mr. Simpson: Jeff is right: It’s structural. In Canada, it’s particularly profound because the banks here are around 80% of all lending across the board. When the banks are looking at a deal, it is the same amount of work for an underwriter and a manager to do a $20-million capital loan as it is to do a $500‑million syndicated loan with a number of other parties, but the fees are dramatically different.
Similar to pension funds and banks at a large scale, it is too expensive to put their top employees on these smaller loans. So it is just a scale problem. From our perspective, we’re not changing anything. We’re doing more of what we’ve been doing for the past 10 years. It is just more capital because we can’t supply the demand that we see in the market.
Senator Loffreda: A lot of the banks have started mid‑market divisions, and they have experienced people in there, but it is deploying the capital. You hit it on the head. Michael, anything you want to add to that?
Mr. Wallace: The only thing I would add — and I echo both of my colleagues’ statements — is to solve the problem in a small or mid-market, you need a small- or mid-market manager. They have to be scaled effectively to handle each of those transactions at a size that is economical for them. That’s the structural mismatch. That’s one of the challenges that the banks have with this size. They deploy so much capital. It is much more efficient to do so by writing bigger cheques or by automating processes and creating very structured boxes in which to operate.
A small private manager can be flexible on every deal. They can be creative. They can come up with a customized credit solution for each individual business at this size. However, that creates a mismatch on the scale, on the funding size. The volume of capital that we can deploy requires folks who can write large cheques, and those people have the same issue the banks do where they look to write larger ones with the structure and the efficiency that entails.
The Chair: Thank you, senator. As a former vice-chair of RBC, you are probably not surprised by the answers you have received today.
Senator Loffreda: No.
The Chair: Thank you.
Senator McBean: Mr. Deacon, if the notes I wrote are right, you were stressing non-dilutive in the opportunities that you are putting together with the growth fund. So how does access to flexible and non-dilutive private debt influence the SME’s ability to invest in productivity, scale operations and remain competitive?
Mr. Deacon: That is another good question. I look forward to you hearing from the entrepreneurs later this morning, because they can give you first-hand feedback.
What we see is that businesses that have growth opportunities, whether it is new contracts with large customers or new pieces of equipment that they need to expand their market share, often, it doesn’t work with traditional, very rigid bank-lending criteria. They are looking at options. Those options for most people, beyond the banks, are raising equity and diluting ownership, which leads to them losing control. Often what we are seeing in this lower or mid-market is that with the abundance of U.S. private equity, that’s the number-one option.
So now we are diluting our Canadian equity ownership and selling it to U.S. private equity. We feel we are a great option for that phase, where they’ve built a stable base. There is existing cash flow. Now there is a growth opportunity that debt can fund. It may not fit the rigid lending criteria of the banks, but a tailored, creative solution, as Michael was talking about, for that individual borrower is what they are desperate for. They don’t have to give up ownership. They don’t need to dilute.
Senator McBean: I feel as if I’m watching an episode of “Dragons’ Den” or something like that. I’m trying to figure out what is in it if you, if you are not taking ownership of it. How does that work in that model? I’ve been watching too much TV.
Mr. Deacon: It’s a good question. It is the returns. We are a private credit fund. Our investors are institutional, with family offices across Canada. What they are looking for is an enhancement to their fixed income portfolio, and that’s what we’re providing. We lend on a spread over the equivalent Canada bond yield. Private credit is now an established portfolio allocation in most optimized portfolios, and that’s the investment that we are filling. They are not looking to private credit or FirePower or Timia to satisfy their equity investment. We are their private lender. So we are delivering a cash yield on a monthly basis.
Whether they are managing liabilities on their end or whatever they are looking for, we are providing senior secured loans where the cash flow from those loans flows directly back to these investors.
Senator McBean: Mr. Simpson, are there specific sectors or business profiles that are consistently being underserved in Canada’s credit markets? How is private debt addressing those gaps?
Mr. Simpson: I think we’ve been talking about it. It is a lot of these asset-light companies. Thirty years ago, if a business wanted to grow, they would buy a piece of equipment or a facility. A bank would look at that. It is a hard asset, and if it is worth $10 million, they might lend you $6 million or $7 million on that. And on the scale that a bank operates, that is an easier underwrite. They can do that at scale and not be worried about the loss of capital.
But these days, we are often seeing that if you want to expand your outsourcing, you’re going to pay someone else. It will be an expense, and your debt-service coverage ratios and your profitability may be impacted. These businesses that don’t have hard, tangible assets on a scale the banks operate, they can’t underwrite. They don’t have a number of options. You may have $15 million in revenue and $1 million in profit because you’re reinvesting back into the company, new sales, new R&D, and continuing to grow. A bank will look at that and say, “You only have $1 million of profit. Do you have any hard assets?” You might get $2 million or $3 million from them with a personal guarantee.
You can come to a private lender, like one of the three of us or others in our industry, and we will look at. If you have $15 million in revenue, your enterprise value might be $30 million because you’re trading off a multiple of revenue, not just profit, because you’re growing quickly. We may give you $10 million today with the ability to go up to $20 million based on milestones.
That’s what these companies are looking for, just a surety and assurance that they have the capital to keep growing and scaling. Because the worst thing they can do is hire a whole bunch of people. They might even go negative for a while, they’re burning capital because they’re growing, and then have no solution.
That’s the market that we’re targeting. To Jeff’s point, we are able to command this premium because it is underserved. No one is targeting this until you get to $40-million or $50-million cheque sizes. There is a real gap in the market to get to that point.
Senator Yussuff: Jeffrey, Trevor and others, thank you for being here. It is interesting what you’re proposing. Of course, this is layered on the context of the federal pension funds, the CPP, the public sector pension funds. We have provincial government funds. These are all public sector workers. And then you have private pension funds. Most private pension funds, generally speaking, are in the market in some forms. They are not like the institutional Canada Pension Plan Investment Board, or CPPIB.
Are you looking at targeting one specific sphere of this, or are you, overall, broadly looking at pension funds in general? Because private funds have different criteria. They have their own mechanisms. But on the public side, with the provincial ones, every province has a pension fund of some sort — teachers and so on. Where are you targeting? More importantly, provincial legislation will be required to do what you are doing. At a federal level, we have to figure out how we would do that in a way that would get to these guys.
The backstop is interesting. Obviously, they haven’t done it. The big challenge will be around whether it is scalable enough. Can you get the provinces involved? I will let you respond.
Mr. Deacon: I believe the path of least resistance is federal or provincial pension funds. That is because we’ve had those conversations at those levels. Again, it’s been that we can’t accommodate the scale they need in order to execute on an investment. My belief is they’ve looked into our strategy. They’ve looked at the investment returns over a long period of time, and we all tick those boxes. Again, it is the scale they’re looking for. If we could offer them a scaled solution, I think this becomes a compelling investment for them.
Senator Yussuff: At the provincial level, the provinces have far more control. They don’t have to worry about Big Brother and what they do or don’t do. Why have they not moved on your suggestion? Because local economies would immediately benefit from what you are proposing. Many of those entrepreneurs who are struggling would gain capital if they were to legislate or put some mechanism in place. It would be much faster because they have some controls at the provincial level.
Mr. Deacon: Again, I think they can move faster. Our friends in Quebec have done a fantastic job supporting funds like the ones that I manage. Again, there is just that misalignment. It comes back to scale again. There are examples of it happening, and it will happen. Our businesses are all growing, but we’re trying to accelerate that growth and create the alignment. We believe, if we could do that, there is a market interest from these pension funds.
Mr. Simpson: I can add to that. I can’t remember exactly what ACOA stands for, but in Atlantic Canada, they have something similar. It’s great to get up to $1.5 or $2 million. It’s a great jump-start for the earliest stage of companies, but then there is still this gap that Jeff is talking about, for real growth capital. When you’re looking for a more serious cheque, there is no provincial program that I’ve seen that is able to support that because it is a bigger cheque size. The numbers start to get big pretty quickly.
Senator Yussuff: Do you think the backstop will make a difference in getting them involved?
Mr. Deacon: I think — and hope — it makes it a no-brainer, given the return profile and the scale of the existing cash flow. They are making investments in credit managers globally that offer similar products, similar structure, but have a much greater ability to deploy than we do at this time. We see them making these investments in large U.S. credit managers, and to date, I’ve not been given a reason as to why we wouldn’t do it in Canada. It always comes back to, “Our minimum cheque size is X, and it doesn’t fit for our mandate.”
Senator Yussuff: Maybe we should hear from the —
The Chair: Perhaps on second round, senator. Sorry to interrupt.
Senator Ringuette: Thank you. It is very interesting, what you’re saying. I gather from this conversation that you are mostly focused on the “S” of the SMEs — the small — and technology-driven mostly. What would be the range of percentages? What would be the interest rate you would charge? What is the range that you would charge for these tech companies?
Mr. Deacon: I think we all fit at different cross-sections of that market, but you’re looking at interest rates anywhere from 10 to mid-teen percentages. It is a premium to bank offerings, but it’s certainly not credit card rates.
Senator Ringuette: Believe me, I know all about credit card rates.
Okay. How do these SMEs reach out to you? How does this dynamic work? Let’s say that I have a few SMEs in the tech area in my area. They go to the bank first, and they are wishy-washy. What is your marketing strategy? How do you get in touch with the specific client base you are looking for?
Mr. Simpson: We started nine years ago. It was a lot more outbound then. But over the past two years, especially, a lot of the time, we are being referred to opportunities from the chartered banks themselves. The companies may have small revolving lines and day-to-day banking and then some credit cards, but their borrower has outgrown them. The banks don’t want to lose the client. They like the credit. It’s a great deal, but the borrower needs more capital than what the bank can currently provide. So we come in as a solution. The bank keeps the day-to-day and a small revolver, and we provide the term debt. It is a fixed sum of money behind them to help them grow and scale.
We have a few instances now where that’s happened, and, three or four years later, they move back to the bank as profitability starts to ramp up. A lot of these tech companies or tech-enabled service businesses may be operating in the negative, but, eventually, they hit an inflection point and become quite profitable. It is that gap that we’re trying to fill.
Senator Ringuette: Again, I’d like to understand, from your experience, what would be the range of years for the specific product that you’re providing?
Mr. Simpson: I would say, on average, it is two to four years. Three is our average. We have extended; we have been repaid early as the business outgrew us and moved back to more traditional financing solutions. Three years is a fair average.
Senator Ringuette: Thank you.
The Chair: Before going to the second round, I have a question. In the previous session, we heard about several federal programs, including the Canada Small Business Financing Program offered by BDC. Could you explain to me how your product differs from what BDC offers? Do they compete with you in some cases? Could you describe that a little bit?
Mr. Deacon: BDC does extraordinary work.
I understand they deployed $11.5 billion last year in new financing. They serve over 107,000 entrepreneurs. But BDC is a direct lender with a broad mandate. We are targeting companies growing at a pace outside the BDC’s mandate. We are looking at businesses that don’t have the tangible asset backing for the loans that BDC typically finances.
Again, I am excited for you to hear from the entrepreneurs because that’s the first logical step in Canada: the BDC. They do a great job. However, when your business is growing at a pace that they cannot accommodate, that is where we fit well.
These borrowers will pay a slight premium compared to what else is out there if they understand there’s a real partnership and they have a lender that can move at their pace, grow with them and put a structure in place that maybe they can’t support today but can grow into. I view what we do as private lenders in Canada as very complementary to BDC.
The Chair: Thank you. That is very useful. We have 10 minutes left, so 2 minutes each, including the answer.
Senator Varone: I want to drill down on the intangible asset side of the lending sphere. You’re talking about the SaaS, or Software as a Service, industry as a typical intangible asset. If you’re borrowing from the bank, you’re at a prime-plus structure, whether it is prime plus one or prime plus two. If you go to BDC, that’s prime plus three or four. When you get to where you’re at because you don’t have tangible assets, because you’re more on the creative side in what you’re doing, it scales up even more.
How does that benefit — other than they need the capital? Is there a better way to provide SMEs with the funding of this capital that you provide at a cheaper rate? How do we get there?
Mr. Wallace: I will jump in quickly. Typically, when a software company comes to us to borrow capital, they’re often trading off against either not pursuing growth opportunities, funding those internally, with either cash flows or taking capital from their existing investors, or raising equity. That’s the big trade-off. Compared to a bank, which may not be a real option for a lot of these businesses, private capital or private debt can look expensive. Compared to selling a significant percentage of their business, potentially losing control of their business, there is a real value to affording that dilution. Offering non-dilutive capital, though it can be expensive from an interest rate perspective, can be a better trade-off for the entrepreneur in the longer term.
Senator Fridhandler: Maybe you can get back to me — and maybe it is your secret sauce — but I don’t want to dance around too much of what your target market is in terms of defining it. We haven’t even grappled with what we would define as an SME, but I would like to understand the growth fund target market. Because if we encourage government — you will not lend to real estate. Give us something in writing on what your specific target is, perhaps including ranges of lending as well, to help us refine any recommendations we would give.
On the question side for now, I have two things: Why can’t you raise the money? And why couldn’t the government simply guarantee the money that goes into the fund from private investors, as opposed to pension funds? Then you would have oversupply as well. There are a lot of people in this country who would like to put money out there and get 10% to 15% if it is guaranteed. So you don’t really need the government for pension funds. Other people could put it up.
Second, if the government does have to step up to respond to the guarantee, are they stepping in loan by loan? I’ve seen government-backed arrangements. They end up with the security. They don’t want the security and the assets, so what happens?
Mr. Deacon: I will look forward to following up in writing on your first point. On the second point, that’s the importance of utilizing the existing infrastructure. As a private lender today, we encounter default situations where borrowers can’t make their payments. That’s a part of utilizing long-term capital and aligning the interests of the pension funds with our strategy.
If you can provide a patient capital solution, often these borrowers can work through challenges. When building a business, I don’t know many entrepreneurs who haven’t faced a challenge along the way. That’s part of what our solution offers as far as understanding the premium relative to the bank.
We don’t move loans to a special loans department. I’m the special loans department. I work with that entrepreneurial team, that business, through their challenge. We may have to postpone principal payments. We may roll up our sleeves and assist that borrower with incremental capital to solve a challenge. Those are things we can do as a long-term lender.
That’s why the alignment with the pension funds is most attractive because they do have that long-term outlook on their capital.
The Chair: Thank you. Again, Mr. Wallace, for any question that Mr. Deacon receives, feel free to jump in. I mentioned that earlier, but it is still the case as we speak.
[Translation]
Senator Henkel: I’d be curious to know. Earlier, you talked about expansion. You said you’d like to have access to more SMEs in the market, which is normal, since you are filling a void.
What percentage of the companies you already own — in the technology sector, for the moment — were refused funding by chartered banks? What happens when the companies you fund are under stress in general or financial stress?
What do you do if you risk losing some of your assets?
[English]
Mr. Simpson: If a loan isn’t working out as expected, what makes us different from traditional lenders is that there are no hard assets there. In a traditional sense, if something isn’t working, you’ve done an analysis on the asset. Maybe you will collect 40 cents on the dollar. You will sell that, wipe your hands a bit and move on. But where we operate, these operating businesses, the real value is the customers, the knowledge workers there and the ability of that company to grow. As Jeff Deacon said, you’re rolling up your sleeves. A lot of times it is meeting with management multiple times a week and figuring out the solution — pausing amortization payments or extending your facility. They might have tripped a covenant on which you need to be patient and work through a debt period.
I encourage you to talk to any of the entrepreneurs who may have had challenges in the past. In the type of lending that we do, we don’t move it to a special loans department where you don’t have a two-year history with an entrepreneur, understanding the trials and tribulations they’ve been through. You underwrote it. You live with it. It’s cradle-to-grave, as we say, and you’re with that same borrower. You do whatever it takes.
Senator Yussuff: Sorry to keep harping on this, Jeff, but I think it’s critical to my point. I ask you to think about this, and you may want to write back to us. There are far more provincial funds for Fédération des travailleurs et travailleuses du Québec, or FTQ. The Quebec model is great. The FTQ and Caisse de dépôt partnered together to do something quite innovative. It has worked tremendously in Quebec.
I’m not sure of that model existing elsewhere in the country. What you’re proposing is a similar model, but you need the backstop. In the context of what you’re proposing, I also believe there are far more opportunities at the provincial level, given the diversified workers’ pension funds they manage in terms of teachers, health care workers — I could go through the list of them. They have more ability to decide what level of thinking they may want to put toward bringing this seed idea to fruition.
You may want to give that some thought because I think it would be very much so. Clearly, we have the Canada Pension Plan Investment Board, or CPPIB, and, of course, the public sector fund here that the federal government manages, but, in reality, the provincial funds could also play an even greater role given that the entrepreneurs you are supporting are in their jurisdiction.
Mr. Deacon: The point is well taken. I look forward to following up with you. I think what you’re saying makes a lot of sense.
The Chair: The following question will conclude this panel.
Senator Ringuette: It’s a quick one. You mentioned default. What’s your rate of default?
Mr. Deacon: Typically, private credit runs between a 6% to 7% default rate across our portfolios. On those defaults, the market average is typically 70% to 80% recovery.
Senator Ringuette: Okay, so it’s marginal.
Mr. Deacon: It’s manageable relative to the return you’re generating across the rest of your portfolio.
With us, some of the tools we’re able to utilize by being patient capital and having that fixed structure allow us to work through challenges with borrowers and improve on those recoveries versus open-ended funds or banking competitors.
Senator Ringuette: Thank you.
The Chair: On behalf of my colleagues, we thank all of you, Mr. Wallace, Mr. Simpson and Mr. Deacon, for being with us. You have busy agendas, and we have rescheduled you, so you have been very flexible. We appreciate it very much. It was very interesting, and this meeting will no doubt influence our report.
We will continue our special study now with our second panel. I want to welcome our distinguished witnesses: Mr. Hamid Arabzadeh, Chairman and Chief Executive Officer, Ranovus; Ken Bicknell, President and Chief Executive Officer, Adtrackmedia; and Patrick Desrochers, Chief Executive Officer and Co-Founder, Ubiweb Media. Welcome. I understand you have opening remarks. Please limit them to four minutes each rather than five or six to allow our colleagues to have time for questions.
I will start with you, Mr. Arabzadeh.
Hamid Arabzadeh, Chairman and Chief Executive Officer, Ranovus: Thank you very much. It is great to be here for the second time and see the evolution of what you started a few years ago. You’ll probably hear some updates from our side. It is good to see how this interleaves in here.
Chair and honourable senators, thank you for the opportunity to appear before you today.
I am the Chairman and CEO of Ranovus, a Canadian semiconductor company headquartered in Kanata. I would like to share both my personal experience and our company’s journey as context for my remarks on access to credit and capital markets for Canadian scale-ups.
Prior to founding Ranovus, I spent over 15 years working across Europe, Latin America and the United States in what is now widely recognized as the high-value intangible economy, where intellectual property, or IP, is the primary driver of productivity, competitiveness and value creation.
Over the past 35 years, digital transformation has fundamentally reshaped the global economy. Wealth, power, and national security are now directly tied to ownership of intangible assets: IP, data and, increasingly, AI.
These assets behave very differently from traditional physical assets. They scale globally, concentrate value and require fundamentally different financing and policy frameworks.
Today, over 90% of the value of the S&P 500 is derived from intangible assets. This is the economic reality in which Canada must compete.
When I returned to Canada in 2010 after working abroad for 15 years, I observed something deeply concerning: Canada’s world-class universities and research institutions, our IP generation engines, were largely oriented toward collaboration with foreign multinational corporations. These firms had effectively filled the vacuum left by the decline of Canadian technology champions such as Nortel.
The result is a structural issue. Canada produces exceptional talent and world-class innovation, but much of the resulting intellectual property is captured, owned and monetized outside the country. We have, in effect, built a system that excels at generating IP but not at retaining or scaling its value domestically.
Ranovus was founded 14 years ago as part of a broader grassroots effort by Canadian entrepreneurs to build globally competitive, mid-sized technology companies and to engage the Canadian government in shaping policy for the new economy. We operate in the AI infrastructure space, developing optical interconnect technologies that replace copper connections in data centres. Our technology delivers 10 times the data capacity at one third of the power consumption to help scale AI compute. This enables AI-native and hyperscale data centre operators to connect GPUs not just within a rack but across entire data centres, an essential capability as AI workloads scale.
We have established commercial partnerships with companies such as AMD and MediaTek, and we are contracted with DARPA and Cerebras on next-generation compute platforms for the U.S. government.
Ranovus is headquartered in Canada, with global operations in Germany and Silicon Valley. We have 160 employees, reached break-even last year, are on track to double our revenue this year and have built a sales funnel exceeding $500 million for 2027. Our enterprise valuation stands at US$1.5 billion. These metrics reflect the value of Canadian-developed intellectual property, not simply employment levels.
Now I will move to my experience with the Canadian capital market.
Despite Ranovus’ progress, our experience with the Canadian capital market highlights significant structural gaps. Over 14 years, Ranovus has raised US$160 million in capital. Only 17% of that came from Canadian venture investors, notably OMERS Ventures, BDC and EDC. The most recent injection was in 2021.
On the debt side, our experience is even more telling. As we approached a break-even outlook by the middle of last year, we sought financing to scale specifically to grow our workforce and prepare for significant revenue expansion. We naturally engaged Canadian banks and the lending arms of our existing Canadian investors BDC and EDC.
Despite strong fundamentals and backing from major U.S. strategic investors, one of the most forward-looking Canadian banks declined to lend, citing a lack of a profitability track record. A government-affiliated institution initially engaged but ultimately withdrew from a structured financing opportunity despite being one of our existing investors.
In contrast, private debt providers, represented here, who understand IP-driven businesses were able to assess our value and close a $20-million debt financing round within seven days, enabling us to continue scaling to get to our strong market position in 2026.
This is not an isolated experience. Similar dynamics exist on the equity side, where large Canadian institutional investors often lack the domain expertise or frameworks to evaluate deep‑tech, IP-based companies.
This points to a broader policy gap. Canada’s financial system is not aligned with the realities of the intangible economy. Our policies continue to emphasize foreign direct investment and employment outcomes rather than ownership and scaling of intellectual property. As a result, Canadian talent is often deployed to generate IP for foreign firms, which then commercialize that IP globally with limited economic return to Canada beyond wages.
Canada needs to treat capital deployment as a core component of industrial policy. Specifically, pension funds and chartered banks, institutions that benefit from public policy and taxpayer support, should play a more active role in financing Canadian scale-ups. Capital should be deployed alongside experienced private investors and debt providers who understand IP-based business models and can perform effective due diligence.
Canada should develop a coordinated lending and financing strategy, similar to other industrialized nations such as China and the U.S., that supports domestic champions in strategic sectors such as AI and semiconductors.
Currently, we see large-scale financing being extended to foreign multinationals operating in Canada, for example, a $4‑billion loan to Ericsson by EDC in 2025. While these investments may create jobs, they do not build Canadian ownership of IP or long-term productivity.
The Chair: Thank you.
Mr. Arabzadeh: You have my conclusion in written form.
The Chair: I’m sure you will have an opportunity during the questions and answers to go over your conclusion.
Ken Bicknell, President and Chief Executive Officer, Adtrackmedia: Thank you, chair and honourable senators. I appreciate the opportunity to appear today. I’m Ken Bicknell, co‑founder and CEO of Adtrackmedia.
[Translation]
I am happy to participate in this important process.
Allow me to speak in English today.
[English]
Today, I share my experience building a company in the context of the financing gap here in Canada, specifically as it relates to an emerging, globally focused, very small company.
My background includes cofounding a Manitoba-based venture capital manager in the late 1990s. We raised $140 million and invested it into the local entrepreneur-backed economy, and since that time, statistics clearly show that there has been a decline in investment capital available to small emerging companies.
In 2021, I moved across the street, so to speak, from a supplier of capital to become an entrepreneur seeking growth capital. I joined with another experienced entrepreneur, Drew Craig, who successfully built and sold a television enterprise here in Canada.
As entrepreneurs risking millions of our own capital, we spend a significant portion of our time seeking capital to invest into our business against tangible and contracted growth opportunities that we have generated.
Adtrackmedia is a private Canadian corporation based in Vancouver and founded in Manitoba. I now reside in Toronto, where we have expanded. We operate in Canada, Europe and Asia and will soon operate in the Middle East. The Adtrackmedia trademark technology is patented in 30-plus countries and is an innovative, engaging media infrastructure technology.
Adtrackmedia is the global leader in and the creator of a new segment in the out-of-home advertising industry called in-tunnel media. This is a $70-billion global industry.
Adtrackmedia provides public sector transit systems with a new source of revenue at no cost to the transit system, supporting public transit sustainability.
The Trade Commissioner Service has been instrumental in supporting our trade diversification globally. We’re indebted to the efforts of the many trade commissioners around the globe, including the senior trade officer, Ms. Wilshaw. We’ve also received contract guarantee support from EDC, which has been very beneficial. We have not had success attracting investment capital from our Canadian banks, from BDC or from EDC.
In my view, expanded mandates focusing on a broader range would benefit small growth companies like mine at those institutions. The narrow industry focus and other constraints on access to capital at BDC do little to leverage the broader Canadian growth opportunity beyond the flavour of the day, industries that, in my view, are well covered by private sector venture pools.
Today, Canadian control of my company is at risk. Non‑founder equity investments into Adtrackmedia totalling commitments of $25 million are from two investors: one in the U.S. and one in the U.K. We have been unable to attract local equity capital, so that’s a challenge.
It is only through credit facility recently received from Private Debt Partners that we’ve been able to stay Canadian and fund our Canadian growth in Vancouver and recent contracts entered into in Toronto and Calgary. Private Debt Partners, presenting today, as you’ve just heard, are one of the founders of the proposed growth fund. It’s my view that the expansion of private credit availability to Canadian entrepreneurs through such initiatives as what they propose will benefit high-growth-potential global high-flyers like ourselves. We, in turn, create real value and jobs in Canada.
My experience is not theoretical, nor is it a point on a statistical curve. It’s 16 years of the grind, trying to source capital to continue to build a company. Thank you for the opportunity to share my experience, Mr. Chair and honourable senators. I appreciate it and look forward to questions.
[Translation]
The Chair: Thank you. Mr. Desrochers, you have the floor.
[English]
Patrick Desrochers, Chief Executive Officer and Co-Founder, Ubiweb Media: Chair and honourable senators, thank you for having us today. My two colleagues have done an amazing job at painting the landscape, and I want to echo some of their realities as well.
Ubiweb Media is a business I started with a partner in my basement, a story similar to many entrepreneurs’ throughout Canada. We were cold-calling with no resources and building a business based on intangible assets.
In 2017, when we started with all the hope in the world to create a business where we would help digitize small businesses in Canada, it was fairly easy for us to find support through the traditional institutions we’ve heard today: the BDC and their small-business growth plans. We were able to scale up to a point of about 5 to 10 employees, specifically being able to digitize small businesses, create websites and paid media ads and help them, in turn, grow their businesses.
Today we serve over 2,000 companies, close to 3,000 small businesses in Canada. We offer a service that helps them be found online, drive leads to their businesses and grow their small businesses. We employ over 100 people. Luckily, we’ve been able to make the pivot toward profitability. Our business today runs on a subscription-based model.
The unique thing about our business is that we have a very reliable and sticky product. Businesses that come to us are looking to showcase their brands online, and once that’s built, it’s something that’s hard to part ways with. We have a very reliable stream of revenue. Our experience with traditional banking institutions when we hit around the $1-million or $2‑million revenue mark was — I would call it “difficult,” but I don’t think that begins to explain it. It was just not present.
We did receive funding from BDC early on, and when the opportunity was in front of us to double down and truly grow our business to the scale that we thought possible, that meant burning some capital. The responses we received were very similar to those my colleague here just mentioned. There were no tangible assets to secure any guarantees. There was not enough profitability, and our run rate was just not enough for traditional institutions.
We ended up going to a private lending institution. Specifically, I worked with Mr. Simpson, who spoke previously, and the experience was life-changing for us and for our business.
Senator, you spoke about the interest rates and why we would go with an interest rate similar to what FirePower Capital was offering. For us, the opportunity is massive, and for a lot of these tech companies out there, that’s what we’re faced with. We’re faced with massive opportunities, and we see the unicorns and the gazelles you all referred to in the paper that was published. The opportunities are there. The split of 3% or 4% difference on interest is greatly outweighed by the opportunities presented to us.
I’m going to cut this off here; I’ll keep it short. In hearing all of you speak and the questions that you asked the private lenders before, I have a lot to say, so I’d rather spend that time on questions.
The Chair: Thank you all for sharing your experiences and stories.
[Translation]
Senator Henkel: Thank you for joining us. I hear that, regardless of the size of the company or the product being made, you’ve had the same challenges.
What do you recommend? I’d like to go back to what the Governor of the Bank of Canada, Tiff Macklem, said on March 4, 2026. He said the risks associated with private credit are hard to assess, but he also talked about the stress period a business goes through.
What do you have to say to SMEs that want access to private credit, but don’t know how it works? More importantly, is credit as risky as we think?
[English]
Mr. Bicknell: Thank you, senator. It’s a great question. Patrick alluded to it. As small businesspeople, there are very limited sources of capital that are prepared to deal with us. So, in the absence of any alternative, a private debt round that is non‑dilutive, for the most part — there are always a few little warrants or something in there to provide them with motivation to stay connected — in the absence of anything else, with the growth opportunities that we see, you look at the delta. It’s a delta of nothing or this.
Sovereign funds in the UAE will lend at 3%, but we have no access to that. It doesn’t matter what the percentage is. The question is whether my business plan can support the cost of that capital and what the opportunity cost of not taking that capital is.
In our exact opportunity, we were facing a significant transit authority contract to deploy our technology. It would be an inflection point for our company, and in the absence of the round we just did, we would never have been able to advance that. It’s 16 years of work against nothing — that’s the price point that an entrepreneur looks at. It’s not one or two points; it’s the only way forward.
The Chair: Next is our vice-chair, Senator Varone.
Senator Varone: Unfortunately, I only have four minutes, and I have about 1,000 questions.
I see the divide between banks lending to tangible assets and not understanding the intangible. Governance with respect to tangible assets is very strong, long-serving and provides the bank’s backdrop for these charter banks to lend. With the greatest deference to my colleague Senator Loffreda, who spent a lifetime in the banking industry, they are slow to react to the intangible side of the lending market.
The question goes to Mr. Arabzadeh. You are in the AI infrastructure, IP construct of business. Your product and your infrastructure far outstrip the governance models that need to back it up. I have always known that is an issue with respect to the banks because there is no governance model.
Is there room for your industry to help with governance in the manner in which AI or IP is controlled that allows banks to lend in terms of a more understood platform? Or do you have to wait for governments to catch up to the manner in which you are creating the infrastructure of AI?
Mr. Arabzadeh: Is that a business question or a financing question? I could go two directions on this one.
Senator Varone: I think they are intertwined.
Mr. Arabzadeh: Okay. I will start with a comparison between what is happening in the U.S. and here and what entrepreneurs are facing, independent of whether it is AI or anything else. In our sector, the growth is quite dramatic.
If you look at the U.S. ecosystem, the valuations of comparable companies are significantly higher than the enterprise value of the Canadian equivalents. They have more people who understand that sector and there is more money to put in, so valuations are typically higher. As a result, the amount of diluted funding they raise is significantly higher for the same dilution. Here, if you go to a Canadian institution, the valuations are lower because they are not experts in this domain. They have limited funds to deploy. They have $10 million for the life cycle of a company that needs $500 million. This is a mismatch there. So they are good for the early stages, and then they give you a lower valuation. Then you have to raise less money and have less dry powder for when you need to turn on the scale.
So at the moment you want to turn on the scale, you have no dry powder because you have not raised enough cash, so the only mechanism is debt. That’s really what one —
Senator Varone: We have mortgage rules. We have auto lending rules. We have credit card rules. That whole governance side has been well established for banks to lend against. With AI, IP and creative stuff, there are no rules yet. So I can see the gap in terms of why they are not lending. First of all, they don’t have smart enough bankers to lend to you and to understand your business platform, but I think it is intertwined with governance. How do you expedite governance? Is it solely with the government, or is there room for you guys to do that so that other SMEs in your industry can benefit?
Mr. Arabzadeh: We formulated an organization about 10 years ago to exactly address the policy issue and try to get the Canadian-owned enterprises together. We are about 170 companies right now. This is a body that can advise the government on various topics — privacy, IP, data, AI, banking and finance. We have been self-organizing ourselves to create that voice to engage the government. I will send that to you.
The Chair: Thank you. I gave you a little more time because you refrained during the first panel.
Senator Martin: I won’t ask a question but rather will give you time to say anything you wish to in response to the panel that you heard before. Mr. Desrochers, you said there is so much to say. I’m glad to hear about the 170 companies and growing. I think that will be key for us. Thank you for being in Canada and staying in Canada. I know others have left, and that’s what we fear. We need to address this gap, and I think your testimony and what you send will be important, even beyond this committee.
I will give my time to Mr. Desrochers to expand further on what he wanted to say.
Mr. Desrochers: I appreciate that, senator. One of the topics that I wanted to speak to was the speed of lending. I mentioned some opportunities before as they relate to the price of lending, but the speed of lending is a big factor for us, and it has been a big factor for us in the past. The BDC does great work, and traditional institutions — when the mandate fits what they’re looking to fund — are great as well. However, the reality is that, even in those cookie-cutter scenarios, the lending process can take up to a year. Sometimes that’s just too long, and the opportunity is gone. That can be the difference between us being able to pivot and be competitive in the Canadian and global markets and us being chewed up by a U.S. competitor. We saw that first-hand back in 2021 when we started working with FirePower Capital. The opportunity was there. The opportunity was there to expand, to triple or quadruple our staff and bring our business valuation from single-digit millions to 10 or 20 times that.
Private institutions were able to provide lending to us in 15 to 30 days. My jaw dropped; that’s how fast it was. We were able to rally resources and hire people very quickly. It made all the difference, when we were under attack by a competitor, to be able to allocate the resources within our business and organize ourselves properly to put ourselves in a competitive position.
I would like to give time to the others to speak, but speed is definitely a factor. Even when we look at BDC, again, while they do amazing work and are faster, we are usually still looking at three to seven months to fund larger projects.
The Chair: Thank you for your initiative in graciously offering the witnesses a chance to say more.
Mr. Bicknell: Thank you, senator. I mentioned I lived in Vancouver for 14 years — Maple Ridge, actually. We launched in Vancouver. It’s our first Canadian location for Adtrackmedia — a little advertisement. But I’m not here about me; I’m here about this industry and the opportunity.
I can echo the comments of the previous panel. If we’ve heard it once — from the family that started Disney all the way through — when you need $50 million, come back. Well, we need $10 million. We need this right now. The marketplace is so big where those huge pools of capital would dilute us out of our own business. Equity is not a way at this point on the curve. A debt round is really facilitative.
In my experience, BDC was talking to us and turned us down, but their price point was more than we paid to Private Debt Partners, just to put that on the record.
One of the interesting things I’ve seen is the bcIMC. They manage the provincial pension plans. They have allocated a percentage to alternative assets, being venture capital or small investments, into the B.C. economy. I think this is very much akin to what is happening in B.C. on a grand scale, putting together this pool of capital that numerous fund managers can access and then deploy to the likes of us. I find that very interesting.
Mr. Arabzadeh: You were asking about how to do marketing to get more deals — and I was just jotting some notes. Marketing is mainly done through entrepreneurs themselves. For example, when you go to a source of funding, speak with them and understand what their metrics are, even if they are a government organization, they should treat you in a different way because we are taxpayers paying their salaries and this is how it should be working — helping us out — you then never go back to that well again. Even if you put more money into that well, we would never go back to that because the friction in the engagement is such that it costs too much time and effort.
Once you have had a relationship with the partners — as I mentioned, within 30 days, they got us the loan while EDC had stepped out.
One of the other partners had stepped in and matched it, and we had a deal done. I think we then would pass this on to other entrepreneurs. I am, right now, bringing other companies that I am involved with to the same group of people. They know the background and the credit.
There is a massive opportunity and a funnel of trusted entrepreneurs and lenders that exist here. You just have to pour money into it.
The Chair: Thank you. Colleagues, we have 20 minutes left and seven senators. We have three minutes each. I will be more severe in interrupting you. The three minutes includes the answer, by the way.
Senator Fridhandler: I am wondering, on the private debt side, so we don’t miss the opportunity — we’ve heard about the growth funds and the limited capital supply.
Are there other things on the debt side, such as tax initiatives and regulatory barriers, that we can address to free up the debt market in a better way in Canada for SMEs, particularly those of the nature that banks aren’t interested in talking to?
Mr. Arabzadeh: We have other ideas, if you like. We are all about ideas.
Senator Fridhandler: We know the problem. We’re all about solutions here.
Mr. Arabzadeh: Yes. The most important element of this is the entrepreneurs who have a track record, who have done things. Money follows them wherever they go, and they have higher valuations.
If there were a framework, for example, to have a rollover — the capital gains tax is a perfect example. It doesn’t address what you are saying or this discussion here, but that is a phenomenal way to fuel the Canadian economy, with entrepreneurs and their own money based on some capital gains they’ve had in their previous company.
Where do you get advice and money of that calibre injected into the new economy and the new start-ups? You won’t get that with professors coming out of university doing quantum. You get that with people around the table and other entrepreneurs who have done this for many years, and now we’re taxing all their capital gains. That may be tangential —
The Chair: Thank you. Anything to add in one minute?
Mr. Bicknell: I will add something. I noticed earlier we were talking about the concept of the diligence to the funder. Actually, EDC utilizes this structure today. EDC equities will match a co‑investor who has met their criteria. It is very clear on their website. They defer diligence to the funding partner as long as it has been pre-qualified. It is exactly the model that has been proposed today.
That is something I am adding, that what they’re proposing is not outside today’s realm. I like the waiver on capital gains, and maybe reinvesting it into a Canadian enterprise would be helpful. It is very interesting.
Senator C. Deacon: I’ve been waiting for this moment. Mr. Arabzadeh, to see you here again is fantastic. Those of us who were on this committee over three years ago remember your story and the potential. I don’t know if you heard us cheering you on as we have been over the past few years, but it is great to see your growing success.
I want to speak to each of you. Thank you, Mr. Bicknell and Mr. Desrochers, for being here as well.
I want you to each speak about the different metrics that are valued by private debt groups and ignored by other investment or lending parties. I think it is important to consider that because they are valuing metrics that underlie the value of the intellectual property that others completely ignore. Could you each provide us some insight into that, please?
Mr. Desrochers: Sure. There has been a lot of work done recently in developing different tech arms. BDC has a capital division, RBCx, et cetera; they’ve done real work in trying to understand our types of businesses, IP and the value behind business valuations. However, the reality is that it is not at the level that the private institutions are.
When we come with opportunities, we’re not getting the same business valuations. We are not getting the same risk profile as we are with private institutions. When it comes to the traditional institutions and banks, they are starting, with certain branches, to see these things as having value to businesses. But, again, it is lagging by a significant amount of time.
Senator C. Deacon: Is it possible to speak to any specific metrics, things valued by these partners but not others?
Mr. Bicknell: Yes. At the stage of our company, we are burning still because we’re investing in growth. We are an asset capex, front-end heavy business. We enter a 15-year contract, effectively a lease with a transit authority for the right to invest our capital, install our technology and then generate revenue in the future from advertising sales.
We are like a TV station. In the old days, you would get a licence. There would be value to that. Then you would go and sell ads over time. We are very similar to that. We have the front-end equity or capex investment that we have to make.
The banks can’t get their heads around the fact that we don’t have any cash flow today but this 15-year contract is going to generate $100 million, whereas these guys absolutely look at that growth curve, the contract, the asset and our track record, then put value to it and lend against it.
Mr. Arabzadeh: One specific case we are working with PDP on at the moment is around a new business that is based around freedom to operate in a sovereign environment for Canada.
This is a major topic. You have all heard about sovereignty, data centres and privacy. There are so many angles to this. I’m sure you’ve heard about it in many different ways.
When we first approached and talked about freedom to operate as an asset, none of the investors understood. What does this mean?
This means that, for example, let’s say Microsoft wants to build a data centre here. Well, they can’t. Based on the CLOUD Act, they are not a sovereign data centre.
So if you have freedom to operate against those giants — and people understand what that means because the warfare out there is around IP and freedom to operate — that’s a completely different dialogue.
So within two days of discussion, we got to a point that they realized this is like a nuclear weapon.
Senator C. Deacon: If I can point it out, chair, that freedom to operate point was in our report three years ago. We identified that as a group as being critical to the future.
Mr. Desrochers: Thank you very much. To be more specific, with everything that’s happening now, the AI revolution that’s going on now, we are trying to automate a large part of our business through AI.
That means that we’re developing technology and IP specifically within our business. That’s something that has absolutely no value when we talk to the traditional banking institutions. They see it as a threat, but they don’t see the opportunities, whereas these guys do.
The Chair: Thank you, senator.
I want to publicly recognize your significant help and support in setting up these two panels this morning. On behalf of my colleagues and myself, I want to thank you. If time allows, there may be an extra question, but I doubt it would be possible.
Senator Yussuff: The challenges all three of you have faced — you have overcome them. You are growing. More importantly, you can see a horizon that is much different than when you started out.
Given that reality, what would each of you recommend that could help those who are going to go through the same reality that you did? What could we incorporate in our report that would make a difference? I understand the role of private capital. Fundamentally, there is a real impediment when we rely on our central bank. We trust them because they have a monopoly, and we protect that monopoly for a reason. Yet, on a much broader scale, it does not serve the most basic element, which is SMEs that need capital to grow. These are the lifeblood of the country.
What can you suggest that would be of value to the committee, based on your experience, that we could incorporate in our report? Each of you may have a different perspective. Please share whatever your thoughts are.
Mr. Arabzadeh: I can speak briefly. Revenue has the most significant value for a company, not financing. The Government of Canada has talked repeatedly about buying Canadian goods, and that’s really a very noble gesture. However, I think we need to step up and try to get the government to commit to things that they can execute. In the defence sector, for example, in which we are involved, there is a services industry in Canada. We don’t have any anchored defence players like we used to. We don’t have any integrators like Lockheed Martin, Boeing and all these players. How do you create that integrator? They are the ones who decide who then gets the rewards.
There is a structural problem. We need to work toward creating those types of champions that are integrators and give the prime contract to them for defence. Then they will trickle it down to the SMEs with venture capital invested in them as a strategic investment, so those smaller companies will have leadership, money and revenue.
It has nothing to do with this financing panel, but it is something that I think is foundational and is missing completely from the tool box for entrepreneurs.
Senator Ringuette: This will be a quick one, and it is to you, Mr. Arabzadeh. You said you need a framework to roll over capital gains tax. If you have that ability and you have two options, would you take that capital gains rollover and provide it to the private debt lenders or seek out a tech company to privately invest?
Mr. Arabzadeh: Personally, I would co-found a company. I have several of them that have their own CEOs. That would be the way I could add value to that company with my capital gains tax. I will reinvest it there. In Montreal, they had that case with media. I think there was a rollover. The mining industry has that. A couple of industries have that.
If you are still active and think you have some cycles in you, I would just do it myself and keep on investing, then talk to these folks to support those companies, which is what we are doing now.
Senator Ringuette: Thank you.
Senator Wallin: Thank you very much. We all know of the billions of dollars that have been handed out by government to companies operating here — no hold on IP, no job guarantees and no ability to even keep them in the country. Most of them have left. We are about to start this process again.
Hamid, you were talking about the defence industry setting up these bureaucracies to manage this. This is specifically to you, but I want to hear from anybody: Does anybody want to know what your chips do? Because we are all talking about data centres. If you want to buy Canadian, that would be a place to start. But to everybody, briefly, on this point: Is it ignorance or resistance — or is it resistance because of ignorance? We are trying to figure out where we can target some recommendations. Do you want to start, Hamid?
Mr. Arabzadeh: We have a lot of lobbying going on in defence because of the fact of being part of the Five Eyes. So there are a lot of frameworks in place already that will stop you from not buying American, because you cannot interoperate the systems. So it is a very sophisticated system they have put together.
I think we need to work together to create the policy, but criticizing it will not solve it. It is just that right now we are trying to work to get the defence bank here in Canada. That will be a major step if we can pull that off.
Senator Wallin: That’s why I am asking specifically about resistance or ignorance, so we can target the recommendation.
Mr. Arabzadeh: It is difficult for me to respond to that. That’s why I redirected it.
The Chair: It could be a written answer.
Mr. Desrochers: To speak to this tangentially, we are all familiar with the Canada Digital Adoption Program, or CDAP, and I think it was a great opportunity that fell flat on its face — because of ignorance, to answer your question — just completely detached from the reality of an entrepreneur.
We had an opportunity specifically at Ubiweb to support thousands of businesses. We ramped up our sales team directly in conjunction with this program to be able to reach out to Canadian small businesses. We worked with offices in Quebec that were tied to the government to try to simplify the process to get into the program. But the reality is — again, due to ignorance and bureaucracy — it was so complex that we ended up helping about 100 businesses, which was a massive waste of an opportunity.
When we look at these types of programs, I think the reality of the entrepreneur needs to not only be taken into consideration; they need to be built around it.
Senator McBean: Knowing that the strength and agility that the private lenders have had, should the banks be more included? But I think that was your question, so I am just going to do what we’ve really enjoyed, which is to give you more time back. I will start with you, Mr. Arabzadeh.
Mr. Arabzadeh: Are you asking if we should we get banks more involved?
Senator McBean: Yes. Shouldn’t they be taught to better recognize the intangible assets?
Mr. Arabzadeh: I think there is a learning curve there. If you look at layers of lending we have in Canada, or other things like the Strategic Innovation Fund from Innovation, Science and Economic Development Canada, or ISED, that’s a lending organization too, that looks at your technology and what you are trying to do and lends you money from the government directly.
When the banks see these types of layers being built, they should feel very comfortable that the governance is there. You are being audited all the time. All those things are in place. But they look at that not as a collateralized item, the money you are going to get from the government every quarter. They don’t see that. There is a disconnect completely between the government and the banks. They don’t recognize each other’s frameworks.
Senator McBean: Do you want the banks as partners anymore, or do you find them flat-footed and ancient?
Mr. Arabzadeh: I would say there is a lot of talk from the banks to participate in the innovation economy, but I think they are handcuffed. At least, that’s what we hear. I would not recommend any entrepreneur go to a bank at all.
Mr. Bicknell: You need them to wire money internationally, mostly. That’s it. I can speak very briefly. I can’t speak at this global level and what dials the government should turn. But as an entrepreneur, my experience has been, when a program — take the CanExport program supporting global diversification. In its infancy, it was fantastic, and they provided us with some capital to take off. We were out getting contracts internationally. Then, as the success grew, the compliance regime — I had an employee spend six months trying to recover $25,000. I said, “Wait a minute, I just paid you $50,000 to try to get $25,000. Let’s forget this program.”
We lose sight of what we are supposed to be doing in so many ways. In deference to the senator from the banking industry, I debate with a friend of mine who is a retired president from one of the banks. He argues all the time that they have a certain service and mandate, and it is not to take my equity risk. That’s not their business. So I appreciate that, and I look elsewhere. There has to be the full spectrum. We can’t just beat on the banks and say that they are failing. We have to look at opportunities in our marketplace to support people who can deliver those services.
Mr. Arabzadeh: I think banks are interested in wealth management of entrepreneurs —
The Chair: Thank you. To conclude this panel, I’m sure you will have a very interesting exchange with a former banker and RBC vice-chair, our esteemed colleague Senator Loffreda.
Senator Loffreda: [Technical difficulties] I put facts on the floor and we debate them sometimes. But that’s not the point.
I have a simple question to you now: Why and how? That’s the question. The reason I ask is our Canadian pension funds are among the largest, most influential, top-performing institutional investors in the world. There is no doubt about that. If I put it on the Senate floor, we will debate that, but there is no doubt about that.
We have a significant presence on the top 300 pension funds list. Many — Ontario Teachers’ Pension Plan and La Caisse de dépôt et placement du Québec — have top-tier positions. Our top six banks made $70 billion net profit, and our top two will probably make $50 billion this year.
So, if one of you were a CEO of those performing pension plans or those banks, I’m certain you would say, “If it’s not broken, don’t fix it.” My question to you is why.
We need SME financing. I put facts on the floor. We are not doing enough. I’m one of those who suggested we look into this, and I spent most of my years in commercial banking. I can talk for many hours to debate some of those issues.
But my question to you is why should they do more? How can we help pension funds and banks do more? The expertise is there. They can buy it with those numbers.
Mr. Bicknell: My interpretation, from what I’ve read from the previous presentations and my understanding of the proposal, is there is an alignment on both sides. The challenge is the pension plans have a minimum cheque size that exceeds the capacities of these institutions on their own. Aggregating a pool in the middle, which is something that you can do, facilitates both of those sides coming together, because there seems to be interest and need. So that’s the framework you need to create from what we’ve talked about today. I would love nothing more than to have another $100 million available to me to build out my business globally.
Mr. Arabzadeh: I’d say there’s a big difference between leading and following. The banks here do not want to lead a term sheet, but they’re very happy to follow one. So you have to always work on the lead, which is not going to come from here. So then why would you need them to follow? What purpose would that serve?
What we need is affirmative action. China did this so effectively. We’re so worried about the WTO and are careful about how we do things, right? Other countries are doing this every day of the week — unlimited capital, not even worried about whether you’re profitable.
Mr. Bicknell: Load it up.
Senator Loffreda: If you have any policies to propose, send them in writing to incentivize banks and pension funds.
Mr. Desrochers: I don’t have anything to add. I think my colleagues did a great job of answering the question. It was a great question.
Senator Loffreda: My last question was a good one, at least.
The Chair: Thank you. We’re working on having some CBA representatives come for our study, so I think we will have an opportunity to have some answers on this one.
On behalf of my colleagues and myself, I want to thank you. You’re very busy people, and your experience just confirms how relevant our study is. I think we have some gaps, and I think this will be very helpful to us.
So colleagues, I want to thank our witnesses, of course, and thanks to our analysts, interpreters and all the staff helping with this study.
Our next meeting will be next Wednesday at 4:15 p.m. Thank you. Have a nice day.
(The committee adjourned.)