As many as 142,000 small and mid-sized businesses in Canada are expected to be sold or shut down as their current owners retire or cash out.
That creates an opportunity to expand business ownership and create wealth for women and other underrepresented entrepreneurs via specialized buyout funds that help purchase such businesses and put them in the hands of a new generation of CEOs.
The Business Development Bank of Canada is launching the Thrive Entrepreneurship through Acquisition Fund, or Thrive ETA Fund, with C$50 million ($36.5 million) to help 60 women purchase and operate existing businesses in Canada – and keep them away from American buyers across the border.
“Every day in Canada, more businesses are being sold than created — and for the moment, women are in really small numbers among acquirers,” says Sevrine Labelle of the Thrive Lab for Women, which will manage the fund. “We believe that by putting women at the helm of those existing businesses, many of them will over time be transformed to become more impactful for their community, more inclusive and more environmentally responsible.”
Search entrepreneurs
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New Majority Capital’s Havell Rodrigues will present the entrepreneurship-through-acquisition strategy at this week’s Neighborhood Economics gathering in Chicago. New Majority Capital has financed nine entrepreneurs to acquire good cashflow-generating businesses. Its 10-week bETA accelerator has trained more than two-dozen entrepreneurs currently on the hunt for businesses to purchase.
Search funds allow an entrepreneur – the searcher – to raise a pool of capital from a group of individual investors to source and diligence an existing business for purchase. The investors get the right to buy a stake in the business that the searcher finds. The searcher typically gets a minority equity stake of up to 30% in the acquired business, which vests over time as they run it.
New Majority is looking to get a 2X return on its investment and create close to $3 million in wealth for each new firm they help acquire during the first five to seven years of ownership. Through similar projections, employees will receive between $50,000 to $75,000 in profit sharing over the same period.
In the US, other search funds seeking to expand access to entrepreneurship through acquisition for underrepresented entrepreneurs include Boston’s Search Fund Accelerator, which helps diverse cohorts of aspiring entrepreneurs become equity-owning CEOs. Village Search Partners, based in San Francisco, has helped close to a dozen women entrepreneurs in the US launch search funds to find and purchase existing businesses in Connecticut, New York, Georgia, Rhode Island and Minnesota.
In the Canadian province of British Columbia, Regenerative Capital Group is helping purpose-driven impact entrepreneurs find and acquire growth-stage small and mid-sized social enterprises.
Supporting women
In Canada, as in the US, women have not been fully represented on the path to business ownership through acquisition. Women lead less than one-quarter of the more than 700 search funds launched since the search fund model was incubated in the US in the 1980s by business professors at Stanford University. The Women’s Search Network, which provides education, tools and support, says it has more than 100 members actively searching for possible acquisitions.
With the backing from the Business Development Bank, Thrive Lab for Women will invest C$40 million directly into women entrepreneurs to purchase Canadian businesses through search funds or management buyouts. It will invest the other C$10 million in small private equity funds in Canada that support women-led business acquisitions. Thrive Lab for Women will launch an accelerator program that provides training, mentorship and networking opportunities for aspiring women entrepreneurs.
BDC launched the lab three years ago to inject C$100 million of equity into Canada’s growing ecosystem of women-led social enterprises. Through a separate C$50 million ($36.5 million) carveout, Thrive Lab for Women has invested in 18 early-stage women ventures.
“The Thrive ETA fund is our way of saying that even though we’re supporting women to create new companies, we will never get a fully equitable economy in Canada if we’re not also supporting women to buy all of those businesses that will transfer hands in Canada,” Labelle told ImpactAlpha.
“By building excitement around entrepreneurship through acquisition in Canada, we hope to bring more angel investors, and also other firms and institutional funds.”
