Posted: January 13, 2016
In its recent 2015-16 budget, the government of Alberta put some serious financial meat on the bones of diversifying Alberta’s economy and encouraging the development of knowledge-based entrepreneurial enterprise.
Most significant was the allocation of an additional $1.5 billion in capital reserves to provincial government lender ATB Financial – enabling the government-owned financial institution to potentially lend up to an additional $10 billion to small and medium-sized Alberta businesses.
Close behind was a directive to the Alberta Investment Management Corporation (AIMCo) that the investment agency allocate 3% of its Heritage Trust Fund investments, about $500 million dollars, to invest in Alberta-based companies. AIMCo is a provincial crown corporation mandated to manage and invest some $90 billion (made up of the $18-billion Alberta Heritage Fund plus other government-related funds) in order to maximize returns.
Finally, the Alberta Enterprise Corporation (AEC) was allocated another $50 million by the new provincial government (over the next two fiscal years) to continue to “prime the pump” of venture-capital (VC) investment in Alberta firms. The AEC is a “funder of funds”. It makes investments in private, high-risk high-reward venture-capital (VC) firms, which in turn invest both the AEC money and their other partners’ cash in innovative, potentially fast-growth companies in both Alberta and elsewhere.
These are broad strokes indeed. These government initiatives will increase investments, grants and loans to innovative small and medium-sized Alberta businesses. Such are the companies that TEC Edmonton serves.
Thanks to the additional $1.5 billion capital reserve, ATB Financial Executive VP (Business and Agriculture) Wellington Holbrook says ATB Financial plans to lend an additional $4 billion to $5 billion to small and medium-sized Alberta businesses. Currently ATB Financial has some $7 billion invested in loans to small-and-medium-sized companies within Alberta’s boundaries.
AIMCo spokesperson Denes Nemeth says AIMCo has not yet announced how it will implement the 3% directive. AIMCo’s previous mandate from the Alberta government was simply to maximize the return on its investments to its clients, with no specific direction on where such investments should be made.
In 2009, the Alberta government gave the Alberta Enterprise Corporation (AEC) $100 million to invest in venture capital (VC) funds willing to consider investments in Alberta-based companies with growth potential.
By investing in VC funds, rather than in companies directly, the idea was to leverage the government money to create access to a larger pool of capital beyond the $100 million. The VC funds would be required to raise at least two-thirds of their capital from sources other than the AEC. For every $1 the AEC invested in a VC company, the firm would invest another $3 from other investors. .
The aim has also been to let the experts – the VC managers, not the AEC or the government of Alberta – make the investment decisions, and to provide the companies in which they invest with all kinds of financial, operational and sector expertise.
According to AEC CEO Kristina Williams, AEC has invested $70 million and allocated the remaining $30 million from its initial $100 million. The venture-capital funds in which the AEC invested have, in turn, invested close to $300 million in 27 Alberta companies. Every $1 AEC has invested, Williams says, has resulted in $4 of investments into Alberta companies.
Alberta’s new government agrees with the overall AEC investment approach and strategy as a way to encourage investment in worthwhile Alberta companies. The government is not only bringing another $50 million to the AEC table. It has also directed AEC to re-invest any profits from the first $100 million back into Alberta-oriented VC firms.
“Access to capital for worthwhile companies has always been a challenge,” says TEC Edmonton CEO Chris Lumb. “The tax and investment policies of provincial governments are one of the significant drivers of risk investment. We are pleased to see the new Alberta government recognize the importance of innovation-based economic diversification, and the importance of access to capital for high-potential innovative companies in Alberta.”