THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Thursday, April 23, 2026
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 10:30 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; and, in camera, for consideration of a draft agenda (future business).
Senator Clément Gignac (Chair ) in the chair.
[Translation]
The Chair: Honourable senators, I would like to welcome everyone with us today, as well as those listening to us online on sencanada.ca.
[English]
My name is Clément Gignac. I am a senator from Quebec and Chair of the Standing Senate Committee on Banking, Commerce and the Economy.
Before proceeding any further, I would kindly ask my fellow committee members to introduce themselves.
Senator Varone: Toni Varone, Ontario.
Senator Pupatello: Sandra Pupatello, Ontario.
Senator Galvez: Rosa Galvez, Quebec.
Senator Henkel: Danièle Henkel, Quebec.
[Translation]
Senator Loffreda: Tony Loffreda from Quebec.
Senator Ringuette: Pierrette Ringuette from New Brunswick.
[English]
Senator McBean: Marnie McBean, Ontario.
Senator Fridhandler: Daryl Fridhandler, Alberta.
Senator Wallin: Pamela Wallin, Saskatchewan.
The Chair: This is our eleventh meeting on our special study focusing 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.
I want to welcome our special witness with us today: Mr. John Ruffolo, Founder and Managing Partner, Maverix Private Equity. Thank you, Mr. Ruffolo, for making yourself available today. I know you have a very busy schedule.
Since you are appearing by video conference, should any technical problems arise, please let us know.
I understand that you have some opening remarks. After that, we will follow with an exchange with our colleagues. The floor is yours.
John Ruffolo, Founder and Managing Partner, Maverix Private Equity: Chair and honourable senators, thank you for the invitation to appear before you today.
My name is John Ruffolo. I am the founder and managing partner of Maverix Private Equity. I founded OMERS Ventures, and I’m also the co-founder and vice-chair of the Council of Canadian Innovators, CCI. For more than three decades, my work has focused on financing and scaling Canadian innovation-driven companies.
I appreciate this committee’s focus on access to capital for small- and medium-sized enterprises because I believe Canada is facing a structural failure in risk capital that now represents a serious threat to our economic future.
Canada needs to strategically and purposefully rebuild our capacity to build and scale global innovation-based companies.
In the digital economy, it is the creation of wealth through owning and capturing value from intellectual property, or IP, data and standards that ultimately leads to the creation of jobs. In the post-World War II industrial economy, the opposite was true. If we had kept pace with U.S. growth over the last 15 years, Canada would generate roughly $1 trillion more in national income each year.
To build a globally scalable innovation-based company, you need three ingredients: access to capital, access to talent and access to customers and markets. New company formation in Canada is declining, particularly in innovation-intensive sectors.
Even more troubling, fewer Canadian firms are successfully scaling into global competitors. This is not because they lack customers, technology or talent. While there may be several factors at play influencing this disturbing trend, which might include onerous taxation policies, cost-of-living and market turbulence given geopolitical turmoil, many Canadian entrepreneurs point to the lack of risk capital available in Canada as the top concern.
Every successful innovation ecosystem is built on a ladder of capital. Each rung supports the next. At the bottom are the highest-risk investors. At the top are the largest pools of capital. When one rung weakens, the entire system becomes unstable.
Canada’s challenge is not that the ladder does not exist; it’s that several rungs are too thin. When we do support our early opportunities but cannot fund them through their growth phase, we effectively export company building to foreign jurisdictions.
In other words, Canada increasingly pays to create ideas and talent, while other countries finance the scaling, capture the value and retain the strategic assets.
In my most recent Substack article, Rebuilding Confidence: Why Canada Must Fix Its Capital Formation Gap, I argued that Canada’s challenge is not ambition; it is capital formation and, more importantly, confidence: confidence in Canadian entrepreneurs, confidence in domestic ownership and confidence that we are willing to back our companies for the long term.
When companies reach the scale phase, often requiring tens of millions and eventually hundreds of millions of dollars, the Canadian capital market largely steps aside. Founders are left with impossible choices: sell early, relocate the company or accept foreign capital that frequently results in offshore control of intellectual property, governance and decision making.
When you review Canada’s venture capital investment activity, you will note a marked decrease in the number of companies funded but a corresponding increase in the average amount invested. When you take a closer look, most of the capital invested in the largest opportunities in Canada comes from U.S. capital sources. This is why I have said publicly that Canada is not losing companies; we are giving them away structurally.
Risk capital is not just money; it is belief. Today, belief in Canadian-controlled growth companies is uneven at best within our own system.
If Canada is serious about productivity growth, economic resilience and national competitiveness, we must act decisively. In my view, there are four areas that require urgent attention.
First, Canada must better align its largest pools of capital, particularly pension funds and financial institutions, with domestic risk-taking and growth investment. I am not advocating for mandated allocations, but pension funds are creatures of public policy. They benefit from favourable regulation, tax treatment and long-duration capital stability. With those benefits should come an expectation to meaningfully support Canadian company building, like the Caisse de dépôt et placement du Québec, or CDPQ, has.
Similarly, our banks benefit from significant regulatory protection and market concentration, and a portion of that advantage should be reinvested into supporting Canadian-controlled growth companies through risk capital, partnerships and balance sheet deployment.
Second, Canada needs scale in its domestic growth capital ecosystem. We have too many small, underpowered funds and too few platforms capable of leading growth-stage rounds. Public-private structures can help but only if they are designed to crowd in capital, attract top talent and remain anchored in commercial discipline.
Third, we must stop equating early exits with success. Liquidity is not the same as value creation. Policy frameworks should reward long-term scaling, patient ownership and domestic control rather than incentivizing premature sales that truncate economic impact.
Finally, and critically, the Government of Canada must support Canadian companies directly through procurement, not grants.
If we want to build globally competitive firms, governments must act as customers, not just funders. Strategic procurement, done transparently and competitively, creates revenue certainty, reference customers and scale. Grants do not. Executed properly, procurement is a very effective form of non-dilutive capital.
And “Canadian companies” must mean Canadian-controlled companies. We cannot continue to subsidize foreign-controlled entities under the guise of domestic industrial policy. We should have learned this lesson through recent missteps involving battery plants, foreign-controlled data centres and similar initiatives where public dollars did not translate into Canadian ownership, capability or sovereignty.
Procurement is how successful countries build national champions, while keeping control, talent and value at home.
In closing, Canada’s capital challenge is not theoretical. The consequences are visible in declining company formation, under‑scaled firms and lost economic potential.
If we do not fix access to risk capital, especially growth capital, we will continue to export our future.
Despite the geopolitical turmoil we face today, there is a silver lining. We should not waste this crisis but use it as the impetus to rebuild. We should leverage Canada’s domestic capital to build our sovereign capacity in critical areas so that Canada positions itself strongly in our changing global disorder.
Thank you. I look forward to your questions.
The Chair: Thank you for your opening remarks, Mr. Ruffolo.
Colleagues, you have probably received the opening remarks from Mr. Ruffolo in your inbox. He has attached some interesting charts and tables.
I propose that this first round will be limited to four minutes, including the answer. We will start, as usual, with our deputy chair, Senator Varone.
Senator Varone: It’s nice to see you again, Mr. Ruffolo. I appreciate your insights. Given the structural failures you have alluded to, can the government effectively create structural solutions? You went into some minor details of what those mean, but if you were finance minister for the day, can you delineate the structural improvements you would look for from the government?
Mr. Ruffolo: Sure. Thank you, senator, for the question. I have articulated through that Substack article that I had written that at each link in the chain — so that’s in Appendix C — there is not a magic silver bullet that solves the one problem; it depends on where you are on that ladder. Let me give you two examples. Every stage, unfortunately, is weak. Let me start with a bottom stage, and then I will go to a top one.
At the angel level, a very frustrating point there is the taxation policy. We had an issue with respect to capital gains taxation, but there are other improvements that are being highly recommended. Those could include capital gain rollovers as long as you reinvest in Canadian companies. It could be expanding the qualified small business corporation tax exemption, which right now is very modest compared to the United States, or it could be angel tax credits.
So a lot of that at the bottom of the ladder is specifically centred around taxation policy so that people could use those additional dollars saved to reinvest.
Now let’s speak to growth equity. Right now the government has proposed $750 million in capital to help support more capital in the ecosystem. It is still being considered right now — I know the details are still being ironed out — but that will certainly help.
At the very top of the ladder, for example — and this is really one of the big ideas that I had proposed a few months ago, and I know the government is looking at it. Does Canada actually need a sovereign wealth fund, particularly when we are dealing with sovereignty issues? Here is the problem: Every country in the world, including the United States and China, is looking at sovereignty, and they are all trying to keep their own domestic capital within their own borders. Canada needs to be doing the same thing.
Interestingly, our current largest capital pools actually disproportionately invest outside of the country. When you look at risk-based assets, it is not even remotely close. Virtually all of the capital, maybe with the exception of CDPQ, is invested in risk-based assets outside of Canada. For most other countries, the inverse is true.
Senator Varone: Thank you.
Senator Fridhandler: Thank you, Mr. Ruffolo. That’s very interesting. The number one item on your list was the capital that is in our largest pools: the pension funds, the big banks and, in fact, the investment banks that they control, which are completely risk averse and focused on wealth management. Part of being in a strong country for the pension funds is not only being able to deliver to your beneficiaries at the end of the day, but having a strong economy is the other side of the coin.
You said that you don’t want to mandate them. How can we change their behaviour to get them into the system better?
Mr. Ruffolo: Thank you, senator. That is an excellent question. My preference is to use carrots, not sticks. But if someone is not reaching out for carrots, maybe you might use the stick. I’m speaking from my experience. I founded OMERS Ventures back in 2011. It was the most successful venture firm in Canada for a decade. When I started it, my mandate, which I told OMERS Ventures, was to invest exclusively in Canadian companies. Frankly, people thought I was crazy. People thought it was the path for horrible returns. And I had the most successful track record in venture by investing almost exclusively in Canadian companies.
The companies are here, and I am trying to encourage pension fund leaders to focus on their home jurisdictions. The entrepreneurs and opportunities are here; they just need to have confidence in investing in them.
Now, in terms of using the carrot, I do remind every pension fund in this country that there is a reason why we have one of the strongest, if not the strongest, pension fund industries in the world. It is because, largely through taxation and public policy, we have allowed them to grow and, in essence, create the lowest cost of capital. But there are a lot of things that we have done. Whether it is the foreign property rule that we waived or their ability to debt leverage Canadian companies without any limitation, the Canadian public has supported the pension funds through these attractive policies. We didn’t have to do it. I think that there is an obligation if the Canadian public is supporting this growth, and for good public policy reason. By reinvesting in Canada, it creates this flywheel of more jobs, more folks who are members of unions, more contributions, and you get this incredible flywheel.
I would hope that they come to realize that without enforcing a particular specific allocation, but it might come to that if the situation continues to stay as desperate as it is right now.
The Chair: That is a very interesting topic, by the way. Mr. Ruffolo, thank you for reminding us that you created OMERS Ventures. I think it is important for colleagues and Canadian listeners to know the story.
[Translation]
Senator Henkel: Good morning, Mr. Ruffolo. Thank you for being with us.
I had a question on the special economic zones. What are your thoughts on creating and establishing special economic zones in Canada to attract investment in the more critical sectors? What conditions would be necessary for it to work here in Canada, somewhat along the lines of what Israel and France do?
[English]
Mr. Ruffolo: Thank you, senator. That is actually an interesting question that I have not thought about, largely because I think of Canada as the special economic zone really from a geographic perspective. My view tends to be that if we create the conditions across Canada so that, first, Canadian domestic capital invests here, it will have the force of attraction by attracting foreign-based capital because they want to take advantage of great investment returns.
The problem that we have run into is that when we rely upon foreign-based capital to replace the lack of domestic capital, we do get these anomalies. Ultimately, we end up with an erosion of these companies because they get pulled out of Canada or — and we’ve seen this play out right in front of our eyes — we hand money to foreign companies that really don’t have a vested interest in Canada. When they do this on the basis of certain conditions and the time is over, they come back to the table or come back to the trough and ask for more money. And if they don’t get more money, they just say, “Well, I’m sorry, but I’m going to leave Canada.” We have seen this play out time and time again, particularly in industrial-based businesses.
Again, because we’re dealing with issues that are critical to our sovereignty, do we really want foreign capital to have the power to influence the sovereign decisions that we will make?
This is not to exclude foreign capital, but, again, in order to strengthen these companies in Canada first, we better strengthen our domestic capital.
What’s interesting is that Canada is not naturally forming capital. There are a number of reasons why. There may be a little exception with the province of Alberta with its energy surplus revenues, but really the rest of Canada is not. That means that the domestic capital that we have — i.e., pension funds, banks and other sources of capital pools — needs to be investing here, or else we end up with no investing.
So, long story short, to answer your question, I haven’t thought about it. I will think more, but I like the idea of not having the government potentially select the winners and losers — and that includes geographic zones — but creating a level playing field where everywhere in Canada is attractive and may the best entrepreneurial opportunity win.
Senator Wallin: Mr. Ruffolo, you have talked about the importance of the role of government. I want to get your views on the impact that it has not only with the money that it spends itself but in creating an environment where private sector money wants to come.
You mentioned the battery plant. We have hundreds of examples of government decisions regarding funding based on political imperatives and short-term political needs. We have the question and the issue of the caveats that the government adds. They have policy objectives. They want to reach net zero. I was just reading a story this morning about First Nations groups warning private investors that they will spend their lives in court if they try and go ahead with this investment. And then perhaps the biggest issue is the regulatory choke points that are created.
What is your own experience with that? When you explain these issues to the government, is there any response?
Mr. Ruffolo: There is a response. The response doesn’t satisfy my question, perhaps. I would say, senator — and let’s be honest about it — that politics does get in the way of many of these questionable decisions.
The starting point is this. For the last 80 years, since World War II, when we had our focus on an industrial economy, a manufacturing-based economy, the concept of economic multipliers or spillovers actually worked well. If you had an automotive plant and you invited a U.S.-based automaker to come into Canada and spend billions of dollars, the physical supply chain around that plant — from the auto parts manufacturers right to the people working in the cafeterias, et cetera — created a return that absolutely justified making that capital effectively deployed in Canada. Lots of taxes were paid. A typical study would show that, for every one dollar of foreign capital coming in, nine dollars would be delivered to the economy. That was particularly for an automaker.
That no longer applied starting about three decades ago, but more particularly, starting about a decade ago, there are not these physical plants. In fact, we’re seeing the reverse happen. In the digital economy, there are not physical supply chains. There is not the economic multiplier. In fact, I would argue it’s a negative multiplier because it becomes a sieve for our employees, whom we trained here, to leave to go to the United States.
We still think we can get foreign-based capital to create jobs. Jobs did create wealth — that really worked — but that’s using an old playbook. The United States doesn’t even use that playbook anymore. Canada is still stuck in the past. We have to create and scale intellectual property-based businesses in whatever industries. The wealth is here, and then that wealth and that value create the jobs.
When you look at the battery plants, first of all, I was particularly annoyed because we had some great early-stage technology that actually works here. We had all of the raw minerals here, whether it’s lithium, cadmium, graphite, nickel, et cetera. There was no requirement to secure Canadian supply chains. All of the intellectual property was owned overseas. So it was going to be this massive payment and subsidy with no economic return. I think trying to educate Canada that this is how the new economy works is the fundamental point. When I get the responses, the problem is that the knowledge is still based on how the world used to work, not how it is working now.
The Chair: Thank you.
We need a culture shift in Canada. As a former economic and trade minister, I think we have to work on that, Mr. Ruffolo.
Senator Loffreda: Thank you, Mr. Ruffolo, for being with us this morning. I love your five recommendations. It wouldn’t be fair in the course of the next four minutes to deep dive into any one of those because I think it wouldn’t do it justice. If all five were met, we would no longer have an access-to-capital problem in Canada. It’s a matter of how you do it. I’ll let you choose what your priority would be there.
I wanted to also talk about the sovereign wealth fund and where the capital would come from and what have you. For the sake of time, on those five recommendations, maybe you can send that to us in writing.
It’s fine to bring them up, but realistically and pragmatically — we’ve talked about it for years — 3% of our pension funds are invested in Canada because we have 3% of the global equity markets. They’re very profitable, amongst the top tier.
I liked your comment on the carrot and the stick. If the carrot doesn’t work, then it’s the stick. Maybe you can send us further details on how you would go into that.
On the banks, 65% are residential mortgages, 20% are capital markets and government and small- and medium-sized enterprise, SME, lending is, top range, 15%. They’re limited as to what they can do with their capital. We talk a lot about wealth management. It’s not wealth management. In wealth management, they’re managing those funds and investing in public companies. Their portfolio is invested 65-20-15. How do we bring the 15 to 25?
Maybe you can send us in writing what your carrot or stick would be, or maybe you can talk about your carrot and continue that discussion here.
On the other ones, I love each and every one of them, but I am limited in time. So I will leave it up to you. What do you want to deep dive into this morning?
The Chair: In two minutes, please.
Mr. Ruffolo: Thank you, senator.
I will send the clerk the summary of all of the specific recommendations that I have in an article that I wrote, and I will leave it to you to review because it is quite detailed.
On the point of whether it’s the pension funds or the bank, when we talk about them investing in Canada, watch very carefully what types of assets or allocations we are talking about.
The real issue is risk-based assets. This is venture and growth equity. I’m going to give an exception to the CDPQ and also, perhaps, the Ontario Teachers’ Pension Plan with their robust program.
For the most part, the percentage allocation in Canada versus the rest of the world is very skewed against Canada. It’s to your point on the banks. When they talk about investing in Canada — you’re right — it’s in mortgages and very conservative assets.
The issue is placing the risk with these entrepreneurs; that’s what we’re very specifically looking for. Whenever we’re having this conversation publicly, we should be very careful to remember the nature of the assets that we’re talking about, because it does get painted with a broad brush and includes things like real estate, infrastructure, et cetera, which is not suffering from the same critical shortage.
Senator McBean: Hi, Mr. Ruffolo. Thank you so much for your time with us today.
In your opening statements, you said that you specialize in financing and scaling innovation-driven companies. Our report is on access — I’m sure you know this — to capital and credit for small- and medium-sized enterprises. Many times we’re looking at the gaps.
I also think it’s good for us to know the success stories. I imagine, when they come to you at Maverix Private Equity, you’re picking them for a reason. What, in your mind, is making a winner, and who is making it through the market? Maybe, if you can identify what’s working, that also is a way for us to go forward with our responses.
Mr. Ruffolo: Sure. Let me give you one live example, and this is the last investment that I made at Maverix Private Equity. It’s in a company called Kepler Communications. It is right now the world’s leading data centre in the sky. We launched our first constellation in January. The constellation is 10 satellites that are going to be powering many applications, whether they’re around sovereignty, defence or environmental issues.
In fact, when Elon Musk and others, like Jeff Bezos, talk about a data centre in the sky, Canada quietly launched the first and biggest that is operating today. The issue is that it takes capital. They came to us. I’ve known these folks and watched them since 2016, when they were small and pivoting and supported by Canadian angel capital. Without that, I would not have been in that position in 2024.
I worked with them for about nine months to rearticulate their strategy to go head to head and be a globally relevant player and completely verticalized their strategy. With this, we launched the satellite with an ambitious plan to be the best in the world. We are on that path. It took significant capital from Maverix Private Equity. It’s Maverix Private Equity’s largest investment.
The Government of Canada is now looking at them as a real and viable choice to procure very significant services where we need to deal with our physical sovereignty issues in the Arctic, for example.
Now the government is in play, and we’re quite pleased at the level of engagement. But if we didn’t take the risk two years ago to put this into position, this company would either have gone bankrupt or it would have been swallowed up by a U.S.-based player and all of the great intellectual property would have been now owned by a U.S.-based player. So our capital was designed to keep them here, based in Canada, but to sell globally.
Senator McBean: When you started working with them, would you have said that they were medium at that point in time, sort of in this whole small, medium —
Mr. Ruffolo: I would say that they were small. If you use revenues as a judging point, they were at low single-digit millions in revenue. They were small, but ambition was huge. Now, in a very short period of time, they have moved from small to medium and may be on the cusp of having billions of revenue in a two-year time frame. So that is what capital could unlock.
It goes through this journey of small to medium, but if we don’t work on those small and medium companies, we’re never going to have large companies.
By the way —
The Chair: Thank you. I have to interrupt.
Mr. Ruffolo: No problem.
Senator Yussuff: Thank you, Mr. Ruffolo, for taking the time to chat with us.
I want to pursue a little bit your vision about a sovereign wealth fund for the country. In my previous life, I represented workers, so I understand all the pension funds in this country. Without workers, there would be no pension funds because their obligation and responsibility is to ensure, when the members get to that age, they actually have an income they can rely upon.
Of course, the ones that are significant in the country at the provincial level but also at the federal level, of course, are highly dependent on the fact that workers actually contribute to make them a reality.
Now, we’ve been hoping and praying that the government will finally figure this out and try to get it done. But maybe a conversation with you is about how we talk to the workers about their self-interests. We’re talking about Canada. We’re talking about jobs. We’re talking about taxation. We’re talking about creating wealth. The people who have the most fundamental interest in all this are the people who are actually members of the pension plan, but they’re not necessarily engaged in this conversation because, quite often, we talk above them rather than talk to them about their self-interests. A sovereign wealth fund could help the country grow its wealth but equally could create jobs and provide the taxes that will support all the things they want to see in the future of Canada.
How do you have that conversation with workers rather than having the conversation with the people at the top or the politicians? Unless they feel the political pressure coming from the people who actually have ownership and membership in the pension plan, we’re never going to change this.
Mr. Ruffolo: Yes. Thank you, senator. My response is that, number one, from a pension fund perspective, their sole purpose is to satisfy the pension obligations and secure the future of their members. There is no secondary objective.
There’s a little exception with the CDPQ, which has more of a dual mandate. By the way, I think they manage it extraordinarily well. It’s not easy.
Again, when I started OMERS Ventures, there was just simply a presumption that I would invest in Canadian-based businesses, but was I doing it out of patriotism? I am very patriotic, but I am maximizing the returns for the OMERS Ventures members. I was just confident that the returns were here, and they are here. That’s the point of the confidence issue.
Ignoring Canada as an investment jurisdiction is also a disservice to the members for maximizing their returns. In my previous career, I had asked those members, “If you had two opportunities with equal returns and one was in Canada and one was elsewhere, which would you select?” All of them said, “Canada, of course,” because they’re a flywheel. No one is suggesting to any of the pension funds to invest in subpar investment opportunities.
From a sovereignty perspective, the reason why a sovereign wealth fund works effectively is — some of the pension funds run into this tension, saying, “I can’t worry about sovereignty; I have to worry about my pension members.” That is absolutely true. If we had a sovereign fund — again, we’re looking to make money — whose mandate is primarily to secure Canada’s sovereignty and make a sustainable return, both could be possible.
Again, CDPQ has managed to do both at the same time, which is rather extraordinary. It’s possible to have a federal-based sovereign fund so that the pension funds leaders don’t have the excuse to say, “Well, I just can’t make these investments because I have to secure the returns for my members.”
Senator Ringuette: Thank you. This is very interesting. I have two lines of questions. First, you’ve talked about OMERS Ventures’ return. What is the range of return on that venture capital?
Mr. Ruffolo: Senator, we don’t publicly disclose it, but I can tell you that the average annual return for the eight years I was there was higher than every other asset class on average. Where the expectations and history were, there were negative returns.
Senator Ringuette: My understanding of the Canada Pension Plan, CPP, fund is that they’re looking at maximizing or at least looking for a minimum rate of return. So you’re saying that, in your experience with the OMERS Ventures fund, that minimum return with the CPP fund could be met in a sovereign fund?
Mr. Ruffolo: Yes, senator. In fact, I can give you a little bit of an indication. CPP is a little bit different because it doesn’t manage the liability directly, but the other pension funds need a certain level of return to manage the obligations plus their costs. It’s somewhere in the 5.5% to maybe 6.5% range. Beyond that, it just adds more dollars to the various plans.
The venture returns, on average, were four to five times that amount, but they should be because there is also way more risk. Your expectation should be that the rate of return is at least 20% plus. If you were to ask me about Maverix Private Equity, the expectation of my investors is achieving at least a 20% compounded rate of return because I’m taking far more risk.
Again, when these pension funds are allocating to their various asset classes, they take all of that into consideration.
Senator Ringuette: In your concept of the sovereign wealth fund, who would be managing this fund? How would it be adequately managed and distributed for its purpose?
Mr. Ruffolo: Thank you. Senator, I will also send the clerk the summary of the details of the sovereign wealth fund so you can go through it, but you have hit the exact issue. It’s around governance and making sure that there is no political interference.
It would be managed by a separate group of professionals who have a mandate to invest in sovereign opportunities for Canada but not exclusively because you still also want to ensure the stability of the program. It would be independently managed, much like how the Canada Pension Plan Investment Board, CPPIB, today is independently managed.
Senator Ringuette: Thank you.
Senator Galvez: Mr. Ruffolo, I want to talk about Canada’s innovation economy that has roots in the working research centres in Canadian universities. I want to use the critical mineral race as an example. You know that China controls 90% of the production of the critical minerals value chain.
This is a typical situation. So, 50 years ago, a Canadian university developed a biotech process to recuperate precious minerals from mining residues, but it also discovered that there are a lot of critical minerals in mining residues. That was financed both privately and by Natural Resources Canada.
Now, when it comes to the intellectual property, it cost the researchers half a million dollars. That was 50 years ago. There was no vision. We didn’t see this, so this opportunity was lost.
Who should pay for this intellectual property? Who should pay for this incubator? Who should pay to invest in this vision that, eventually, is good for Canada?
Mr. Ruffolo: Senator, that is an excellent question. This is one of my biggest frustration points at the university level. We have no shortage of spectacular research, particularly in mining and resources. People forget that the entire geopolitical situation that we are in today was, you could argue, driven by a Canadian technology that we don’t own: fracking. Once the U.S. took advantage of fracking and became a net oil exporter, boy, the world changed. How much did Canada get of that? Zero. This is an ongoing issue.
It is about the intellectual property and the rights. I don’t like it when we deal with grants, particularly to foreign-based companies — it’s just economic leakage — but also in universities. I’ve gone to each of the universities and really told them that when you have foreign-based companies that are sponsoring research projects, particularly in these critical industries, we’re using the great minds of our students, which we pay for with our taxpayer dollars, only to see the intellectual property leave the country.
This is utter nonsense. This is what is happening here. When I mentioned the issue around battery plants, the fact is that we actually have all of the same rare earth materials. We have chosen not to process them here. There have been environmental issues, which I think you can deal with, but then use the blessing of that and our technology to create our domestic industries.
By the way, it’s not only battery plants; it’s the chip sets that power all of the artificial intelligence, AI, all of the computers. Canada has some of the greatest natural resources, and we keep talking about how we are losing out on the AI race. How about the fact that Canada uniquely possesses the materials that actually make this processing happen?
There are opportunities, but we need to think about them right from the earliest stages, right from the universities and up. I think that the strategy you just described is exactly on point.
Senator Pupatello: It’s nice to see you again. I think you’re underselling. You took Ontario by storm when you launched OMERS Ventures at OMERS. Everyone in Ontario, of course, was delighted, so I’m glad to see that everyone else is hearing about this story.
I have a couple of questions around something you’ve written about already. What level of taxation policy have countries enacted, which you might not have already mentioned, that helps bring in this private capital?
Yesterday, we had some examples. Someone mentioned that Sweden had done a complete review and brought in a number of them. Maybe you could speak to that.
On the question that Senator McBean offered as well about those that are on the receiving end — when you’re looking at the companies, those are the ones that are likely going to read the report that this Senate committee is going to table — what is it about these companies that are making them the sweethearts that these funders are selecting? Tell me some of those characteristics that make it on your list to actually fund.
Mr. Ruffolo: Sure. Thank you for the kind words, senator.
I didn’t go through the taxation policy. Again, when I send you the article I wrote, you’ll see the taxation policy.
Countries are doing two things, I would say, if I were to oversimplify. There is individual taxation policy, firstly, where Canada doesn’t fare well at all vis-à-vis the Organisation for Economic Co-operation and Development, or OECD. Canada, on a nominal basis, ranks fifth out of, I think, 34 countries in terms of the fifth-highest marginal tax rates. When you adjust it for the lower brackets in which they get taxed on, we are number 2 in the world, very closely behind number 1, which is Japan.
One of the problems is that a lot of these countries are ratcheting down those tax rates. The individuals — the technology individuals, the researchers, et cetera — are not motivated by tax but are dissuaded by high taxes. I would say to you that Canada’s ability to scale becomes very, very difficult when you’re competing for the individuals. There is a whole group of issues on the individual taxation front.
On the corporate front, interestingly, Canada is really at the middle of the pack of the OECD from a nominal basis, but then what happens is, like the previous senator had raised, that they’re creating special economic incentives. European countries — in particular, Ireland, the Netherlands, Luxembourg and Switzerland — all have these tax advantage structures, but interestingly, most of them are around intellectual property.
One of the ideas that we had proposed is if Canada had a special regime just related to the taxation of intellectual property. Do you know what it would do first? It would shut down all of the offshore structures that Canadian companies leverage today, which, I must admit, in my prior investing career, I was the architect of many of them. I’m an international tax professional by background, so I sort of regret the ingenuity that was done with some of these structures, but there are opportunities like that.
Senator Pupatello: Thank you.
The Chair: Mr. Ruffolo, does your agenda allow you to stay with us for another 20 minutes? We have so much interest around the table that we can go for a second round.
Mr. Ruffolo: Yes. No problem.
The Chair: Colleagues, I propose that you limit your time to two minutes. That includes your answer, Mr. Ruffolo.
Mr. Ruffolo: Sorry. I’ll be briefer.
Senator Varone: Mr. Ruffolo, just beyond the financial investment, you alluded to areas like mentorship and access to your network from within. How can you entice firms, like Maverix Private Equity, to contribute to fostering greater mentorship, resulting in a more robust ecosystem for SMEs?
Now, I know that this is something that you do, but is it transportable to the industry?
Mr. Ruffolo: Senator, yes, to some extent. The truth of the matter is that not all investment firms are equal in terms of capability, but one of the issues that holds these firms back is that it also takes resources.
It’s not just me. I have a team of 17 extremely talented people. I need to pay them. The way I could get the best people is by raising a fund of sufficient size and scale that enables that.
So many of the venture firms are under scale. Actually, if you were to look at the newest venture firms in Canada that have arisen, really, since COVID, the average size of these firms is about $30 million in fund size. If you apply a 2% asset management fee, which is typical, that is a $600,000 annual budget. You can’t hire a whole lot of folks and pay the rent and travel and all that.
This under-scale issue not only gives them more firepower to ultimately deliver that capital to entrepreneurs, and that’s what I exist here for. I’m an efficient vehicle to deliver money to the right places, but I have a team, and I need the dollars to spend for the team.
That’s why we are also asking for help with capital to get these venture capital firms to the right level of scale.
Senator Fridhandler: Mr. Ruffolo, back to your list of four key items, aside from the pension funds, stop early exits and losing our successes — you’re a private equity firm. You have a timeline in which your investors expect a return. Whether it’s 5, 7, 9 or extended to 10 years, you need to exit; you need a return on your investment.
We understand that the opportunities are very limited in Canada. The stock exchanges and the initial public offerings, or IPOs, don’t seem to present that opportunity so that we can keep control here. We need to sell to private equity in the U.S. or globally.
Can you comment on how to solve your early exit issue and act appropriately for your funds and your investors?
Mr. Ruffolo: Senator, that’s an excellent question. Ultimately, I need to exit the investments. Our ideal exit is on an IPO and that they remain headquartered here.
One of the examples I was going to give to the previous senator’s question was that I was the backer of Shopify. This is when I was at OMERS Ventures. The reason, frankly, why we were selected — Shopify had the choice of basically every venture capital firm in Silicon Valley — was that the founder, Tobi Lütke, wanted to maintain it in Canada. And 21 months later, we took it public. It is still headquartered in Canada. That is a poster child.
There is a much more recent example that you may have seen in the news, which is a company called Xanadu. At OMERS Ventures, I backed the seed round, the Series A round and the Series B round. Xanadu needed private capital to continue its journey. It was a monster of a bet, and they could not get private capital. They had to resort to a special purpose acquisition company, or SPAC, transaction. Otherwise, they could have sold themselves because they had no other choice of capital. Luckily, the SPAC market was there, but if it wasn’t for that, they would have been sold as well.
Many of these founders really want to remain here. But at the end of the day, if they cannot, it becomes this choice of selling out. That’s why they are selling out early and not giving the chance to ultimately be public.
Senator Loffreda: Mr. Ruffolo, you are an international tax expert. Maybe you can share some of the best practices and what we can prioritize in Canada. As vice-chair of the Council of Canadian Innovators, what are you advocating for? Are there any tax measures you can share that might improve access to capital for SMEs, such as a rollover of capital gains deduction or what have you?
If you cannot do it in two minutes or a minute and a half, maybe you can send the rest over in writing.
Mr. Ruffolo: Thank you, senator. Yes, I will send it in writing. There is a series of them, and it depends on which level of the rung of the ladder.
Let me give you one little nugget. We just had the government announce some very good measures for the Scientific Research and Experimental Development, or SR&ED, tax credit. Great stuff. We applauded it at the CCI. I have been begging the government now for eight years running. Why do we give this credit to foreign-based companies whose intellectual property is not owned in Canada? We don’t benefit from it. It is an old reference to job creation. We are one of the only countries in the world that award research and development, R & D, tax credits to foreign-based companies who don’t have their IP here.
I have a very specific rule to stop that. What does that really mean? That is over $1 billion of savings per year that could go to support SMEs. That is just one example of how countries do it differently.
The Chair: Very interesting.
[Translation]
Senator Henkel: For the benefit of those listening, Mr. Ruffolo, I would like to know this: What market share do you have and what kind of criteria do you use to invest in companies?
There needs to be a return on investment, and I know you’re very much into technology, but what kind of criteria do you apply when deciding to invest?
Mr. Ruffolo: Thank you, senator.
[English]
Maverix Private Equity is currently investing out of its first fund. We are in the middle of closing our second fund, actually, as we speak. The criteria are relatively similar. Using our first fund, the companies that are primarily — we are a Canada-first fund and proudly a Canada-first fund. By the way, the opportunity set is overwhelming us, so there is no lack of opportunity.
The typical company has between $10 million and $100 million of revenue. It is typically not profitable, but it is not burning a huge amount of capital either. It is using the capital to scale globally. The typical value of these businesses at the time I invest is between $100 million and $500 million. The average cheque size that we have invested is C$75 million per investment. Our highest one was closer to $90 million. We are typically or ideally the last cheque before the company might decide to go public.
This next fund that we are raising and closing will, ideally, be at $500 million — it is denominated in U.S. dollars because so many of these companies actually denominate themselves in U.S. dollars — so it will be a C$700-million fund.
What that really means is 8 to 10 investments in Canada. All of them support Canadian sovereignty. By the way, we may not be the only investors. I will say to you right now that there are a couple of opportunities today, which will become known, where the investment size is between $250 million and $500 million. I will need the support of Canadian pension funds and others to help support this. This is why I say that there is no shortage of spectacular opportunities.
My commitment to my investors is that I generate a compounded rate of return over 20%, which basically means that I return to them two and a half to three times the money that they give me. That’s in a five- to seven-year time frame. So Canada is wonderful —
The Chair: I have to interrupt you or — you are passionate — you will be here for the next hour.
Senator McBean: I feel this is going on a bit from there. This is just checking on something we have heard from previous witnesses. Looking at specific actions that the federal government can take to not just improve access but keep recycling the money that has been made in Canada, we have heard talk about changing capital gains exemptions for money that is reinvested into the Canadian market. What are your thoughts on that?
Mr. Ruffolo: Senator, I love the idea. We have proposed the idea that, if you have a disposition, it must be reinvested in a defined Canadian company, which must be Canadian-controlled, under various conditions. We were specifically looking at the innovation sector, but you don’t have to limit it to the innovation sector, only to those sectors that we want to promote.
The wonderful thing about this — this is a similar idea to one in the United States. They do it for real estate, and it defers the gain as long as you reinvest within a one-year period of time. I think this would be very stimulative at the very earliest stages of angel investing, and I think it would generate a great return in our economy. I’m highly supportive of that idea.
Senator McBean: Thank you.
Senator Yussuff: Mr. Ruffolo, I want to come back to something you said earlier when we started the conversation. This sense of frustration that, despite the fact that almost all of our universities in this country are public institutions and taxpayers play a tremendous role in funding these institutions, all of the IP that is developed — and this has been a consistent argument before this committee and others. A simple change in public policy would ensure that, with the taxpayer money that funds it, research at our universities would remain in this country and be owned by Canadians. Maybe you can elaborate a bit more on this because there is a sense of anger and frustration that this continues to happen when we could solve this problem so easily.
Mr. Ruffolo: Senator, that is an excellent question. By the way, I would not limit that just to the technologies developed in universities. We have the Industrial Research Assistance Program, or IRAP, and we have SR&ED. There should be an obligation in anything that is taxpayer-funded that the IP must be maintained in a Canadian company.
In some countries, like Israel, when you do that and you decide to sell it, you must repay all of the grants or other monies. This was my idea on the SR&ED: if a foreign-based company were to be involved, they must form a Canadian company and the IP must be owned in that Canadian subsidiary. If they decide later on that they want to move, that is okay, too, but they will have a disposition of that intellectual property and must pay capital gains tax.
So with this way, no matter what, there would be a return to the taxpayer. Right now, we’re just giving it all away. This is why I say no more grants. We are just giving it away. Instead of giving it away, we should expect to have a return and have either ownership or some way to repay the mechanism.
I wholeheartedly agree, and I have been telling university leaders that this is what they should all be doing.
The Chair: Thank you for making the parallel with Israel, who are on the podium in terms of innovation and a country of productivity.
Senator Wallin: Could you provide a quick comment? We have heard a lot about strategic procurement. The government doesn’t do a very good job of that because they end up, as you say, giving money to foreign entities or not following through to ensure that the Canadian who receives it is more than Canadian in name only.
Seeing as the government is in charge of carrots and sticks, how do you find the stick that will enforce strategic procurement on the part of the government?
Mr. Ruffolo: Thank you, senator, for the question.
This is actually one of my points of frustration. There has been an attempt to define a Canadian company. Never did I imagine that this would be as controversial as it apparently is.
I would suggest that the lobbyists on the door of government are earning their keep because many foreign-based companies rely on the Government of Canada to support their revenues here.
By the way, I’m not saying to end it. But you know the old adage: you don’t get fired by selecting IBM. And maybe IBM is no longer the appropriate company to reference, but the point is still there.
Many of these companies are now so massive that, because procurement was largely driven by the lowest cost and not necessarily the right thing to do it, it just went there. I am looking at changing the procurement laws to define much more tightly what a Canadian company is. That’s not to exclude foreigners because we don’t necessarily want to do that as well.
But there is one thing I would definitely stop immediately. It is one thing to procure services from a foreign-based company, particularly services or goods that we don’t produce, but then to give them grant money on top of that is absurd in my view. That needs to stop everywhere in Canada because it does nothing for us. That’s the double whammy that gets me going. We have seen several examples of that very recently, and it still continues.
The Chair: Thank you for an interesting exchange.
Senator Ringuette: I want to follow the issue of IP and Canadian investment in university research. I have been advocating for property rights for Canadians on this intellectual property.
You mentioned either the obligation for the IP to remain in Canada or having to repay the grant. How about Canadians, i.e., the Canadian government, having a share in that? Then that would be an incentive for venture capital and so forth. I see the domino effect in all this. What is your opinion?
Mr. Ruffolo: Senator, I think one of the ideas that we discussed is an IP-holding regime for Canada, where intellectual property created by public institutions is owned by Canada. If you’re a Canadian company, you get to leverage that intellectual property royalty-free, but if you are a foreign-based company, not so fast. It is an excellent idea.
Now, we have created the general box for this at CCI. But, again, maybe I will attach that idea as well. That was an excellent reminder.
Senator Pupatello: I wonder, Mr. Ruffalo, if you noticed in the last budget that the government is moving ahead to have our own rocket launcher for the use of, for example, launching our own satellites. So given your involvement in that company you mentioned, you would probably be delighted to have more options in the future. It has been a bugaboo of mine for years that we didn’t have our own capabilities in that space.
You mentioned the sovereign fund. Those you gave as examples have revenue streams like ongoing oil sales, like Norway, so it automatically fills the fund constantly. It’s the same with Alberta’s trust from their oil industry.
What would you propose if Canada were to launch a sovereign fund? How do we equate that kind of constant revenue when, obviously, our budgets are struggling at the moment? That is one question.
Secondly, regarding your view of the fund of funds that some governments, like Ontario’s, did propose and then institute, how do you see those fund of funds with the government? Would you say that the key there is to make sure you are using the private sector for the actual ultimate selection as opposed to the government? So those are two items.
Mr. Ruffolo: Senator, on the first one, the launch capability, in January we had to use SpaceX to launch, so we were down there. I will tell you that it crossed our minds. Here we are launching the biggest competitor to Elon Musk’s declaration of a data centre in the sky. We were kind of wondering: would they actually purposely blow up the satellite? It crossed our minds, number one.
Number two, it has become a strategic imperative for SpaceX to control all of the launches, so it actually is creating a choke point. So a sovereign launch in Canada is an imperative. By the way, our friends in the EU would also participate in that.
Number three, on the fund of funds program, you are absolutely right. It needs the ability to crowd in private capital. Let the private sources dictate the best asset managers. All this really should be is government dollars to top up what the private sector has already determined as the best places to deploy that capital.
The Chair: Mr. Ruffolo, I will conclude this panel with my own question.
Mr. Ruffolo: Sure.
The Chair: You operate from coast to coast. You know the ecosystem. Are there differences from province to province? Do you see that one or two particular provinces have an ecosystem that could be helpful for us, too? Maybe it could be a best practice, which other provinces could do.
I know the ecosystem in Quebec, for example, is different. They have different investments in Quebec. Could you elaborate if that makes a difference or not?
Mr. Ruffolo: Yes, the involvement of the provinces does make a difference. I would say that the leading provinces that we see are British Columbia, Alberta, Ontario and Quebec.
Quebec has, I would say, the deepest connectivity and support vehicles anchored by Investissement Québec and Fonds de solidarité des travailleurs du Québec, or FSTQ, and how they work together with CDPQ. That it is probably the most effective province because they have figured it out.
This is where it becomes very acute in the digital economy. I am fundamentally a capitalist, and I believe that the government should allow entrepreneurs the freedom of room. But in the digital economy, by the nature of how profits are made through intellectual property, standard setting and data, it must be in partnership with the government.
Quebec stands out, but the other provinces are following behind and starting to catch up. The most aggressive provinces recently have been Alberta, really tying innovation to their natural resources, whether it is data centres, et cetera, and then B.C. and Ontario through their fund of funds programs: InBC Investment Corp and Venture Ontario.
I think that more could and should be done. By the way, those four provinces account for approximately 90%-plus of our entire deal flow. We look for opportunities from coast to coast to coast.
The Chair: There’s nothing wrong with being a capitalist as far as I’m concerned.
On behalf of my colleagues and myself, thank you for your insights and suggestions. I understand that you will send some written material in the coming days.
Mr. Ruffolo: Yes.
The Chair: We congratulate you and thank you for what you have done for our country to help keep control of companies in Canada. I think that is very important.
Colleagues, our next committee meeting is Wednesday.
Now we will go into the in camera portion.
(The committee continued in camera.)