In recent years, issues pertaining to access to capital for productive investment have risen steadily on Canada's public policy agenda. They have also emerged more prominently as concerns of Canadian business and labour, the two constituencies of the Canadian Labour Market and Productivity Centre-CLMPC (now the Canadian Labour and Business Centre). An important new focus for the CLMPC is a current trend towards localized financial innovations in all parts of the country.

In 1997, the Government of Canada's four regional development agencies - the Atlantic Canada Opportunities Agency, the Federal Office of Regional Development (Québec), the Federal Economic Development Initiative in Northern Ontario, and Western Economic Diversification Canada - agreed to work collaboratively with the CLMPC to consider examples of recently-established local investment financing models (LIFMs). The aim was to learn what micro-level institutions and practices have achieved in attempting to reduce financing barriers for small business in diverse communities and regions across Canada.

Capital, Community and Jobs: Local Solutions for Financing Investment in a New Canadian Economy is the result of this collaboration. The report will be a useful resource document for private and public sector actors and decision-makers in communities and regions eager to obtain information about the practical experiences of their counterparts nation-wide. Relevant data and analysis has been provided by the CLMPC through eighteen case studies of LIFMs in western Canada, Ontario, Quebec and Atlantic Canada.

As a background to the case studies, Capital, Community and Jobs presents a brief review of current capital availability issues. In general, impediments encountered by new and developing small and medium-sized enterprises in obtaining adequate and affordable external financing arise for many reasons and are often specific to the nature of supply in individual capital markets for debt and equity. Furthermore, research shows that financing challenges that affect firms in all parts of Canada are especially daunting for those residing in communities and regions situated at some distance from major financial centres. It is this circumstance that has prompted establishment of micro-level institutions and practices of the kind illustrated in the CLMPC's LIFM case studies.

For the purposes of the CLMPC's case study project, an LIFM is defined as a strategic effort to create local, micro-level institutions and practices that help alter or enhance capital supply conditions for the benefit of locally-determined investment priorities and economic change mandates. So defined, LIFMs may be said to address one or both of the following imperatives:

>	the need to create locally (in a specific community or communities in a specific region), or secure local access to, a permanent source of long-term risk capital (equity or debt or both) for certain developmental uses; and
>	the need to create mechanisms and structures that reliably instill certain key qualities, such as expertise, information, networks and specialization, where requisite, in local investment financing relationships.

Most frequently, LIFM inception takes place at the behest of local, provincial and/or national stakeholders, from the private sector, government and/or non-government sectors, acting in partnership.

The CLMPC has "cast the net widely" in describing the LIFM phenomenon in an effort to highlight diverse investment financing concerns expressed in diverse economic regions of Canada. The essential criteria used for selecting case studies include (1) operation at the local level (i.e., a given community or communities within a given region) with a balance struck between urban and rural examples (2) the existence of multi-level private-public partnership arrangements in the creation and support of an otherwise autonomous model (3) a strategic focus on financing barriers, such as those encountered by small and medium-sized enterprises (at various stages of development), small dollar investment projects, knowledge-based and technology-intensive firms, aboriginal or women entrepreneurs and other potential sources of specialized demand needs.

To obtain case profile data, CLMPC researchers spoke to key LIFM informants on a variety of topics. Findings are briefly summarized in the document according to specific categories, including: details of the LIFM's inception and development; the institution's mandate; decision-making process and participants; the direct or indirect role of government, where relevant; investment criteria and process, where relevant; infrastructure for supporting projects (or in selected cases, demand-supply matchmaking); and activity to date. Each profile concludes with an overview of results achieved, where substantial history or formal LIFM evaluation permits such discussion. Cases are presented by Canadian region as shown in Table 1.

Table 1: Eighteen case studies of Local
Investment Financing Models (LIFMs)

Atlantic Canada

ACF Equity Atlantic, Inc. (Newfoundland and Labrador, New Brunswick, Nova Scotia and PEI) - Created with the support of eight lending institutions and five governments, this fund provides venture capital to high growth small business in Atlantic Canadian provinces.

BCA Holdings and Venture Capital (Sydney, Nova Scotia) - Based on Cape Breton Island, this institution invests risk equity and other financing to locally-owned small and medium-sized firms.

Calmeadow Foundation/Royal Bank of Canada (Halifax, Nova Scotia) - With the Royal Bank's assistance, Calmeadow supplies a unique form of micro-lending and peer-based support to the self-employed in Nova Scotia.

SADC de la Péninsule acadienne (New Brunswick) - This locally-administered, non-profit fund provides loans and technical assistance to small business situated in the province's Acadian Peninsula.

Quebec

Aérocapital (Montreal, Quebec) - Created by the Fonds de solidarité de travailleurs du Québec (FTQ), this is one of several pools that deliver specialized risk capital to growing local firms in high technology sectors.

Le Groupe Forces (Shawinigan, Quebec) - This organization reflects a strategic combination of different pools with mandates for investing in small business and community development in this rural area.

Inno-Centre (Montreal, Quebec) - A unique business "incubation" centre, this institution helps young high technology companies in Greater Montreal prepare for successful investment.

Innovatech Sud du Québec (Sherbrooke, Quebec) - This is one of several venture capital institutions established to assist new and developing technology-intensive enterprises in key Quebec centres.

Ontario

Innovation and Technology Centre, Bank of Montreal (Mississauga, Ontario) - One of twelve such Canadian centres, this Bank of Montreal outlet offers specialized financing to local knowledge-based and technology-intensive firms.

OCEDCO's Specific Investment Opportunity Program (Ottawa, Ontario) - This unique program helps prepare Ottawa-Carleton entrepreneurs for potential matches with various investors, including local angels.

Prince Edward County Community Development Corporation (Ontario) - This locally-administered, non-profit fund provides loans and support services to small business situated in rural eastern Ontario communities.

Superior North Development Corporation (Terrace Bay, Ontario) - Focussing on remote northern Ontario communities, this locally-administered, non-profit fund supplies financing and technical assistance to small firms.

Waubetek Business Development Corporation (Birch Island, Ontario) - Aboriginal-controlled and non-profit, this institution delivers small loans to entrepreneurs in First Nation communities of northern Ontario.

Western Canada

Community Futures Development Corporation of Central Island (Nanaimo, B.C.) - A pioneer of its kind, this locally-administered fund provides loans and related support to small business situated in communities of the Central Vancouver Island region.

Community Futures Development Corporation of Strathcona (Campbell River/Comox Valley, B.C.) - Focussing on Interior rural communities of the province, this locally-administered, non-profit fund supplies financing and technical assistance to small firms.

Crocus Investment Fund (Manitoba) - Financing small business in provincial communities, this fund also offers several unique support programs, such as promotion of employee participation.

Exceptional Technologies Funds (Vancouver, B.C.) - Focussing on expanding knowledge-based and technology-intensive firms in Greater Vancouver, these are venture capital pools.

Saskatchewan Indian Equity Foundation (Saskatchewan) - This organization offers small loans and a range of other financing and support options to aboriginal entrepreneurs situated in various provincial communities.

Taken as a group, LIFMs are in a very early state of evolution and, consequently, most have track records that are too short for purposes of comprehensive evaluation. Nonetheless, the CLMPC derived considerable feedback from experienced case informants and from several capital market experts invited to review findings. Incorporating this feedback, it was possible to make several broad observations of the LIFM phenomenon using case study illustrations to make various individual points. These are intended to inform and provoke broader discussion.

(1) Local Orientation is Key

By establishing capital pools, financial techniques and infrastructure that are adapted to the particular needs and constraints of communities and regions, LIFMs offer a new mechanism for promoting economic development and jobs at the local level. In part, their strength lies in the cost and risk reductions achieved by localized, personalized and informed transacting.

(2) Local Priorities Must be the First Consideration

Canadian economic change and restructuring expresses itself with great diversity at the local level and, to be effective, LIFM activity must reflect this fact. Among the case studies, this is most evident in the different strategic investment objectives and innovations undertaken by urban-based examples as compared with their rural-based counterparts.

(3) Partnerships Result in New Pools and Sharing of Resources

Most LIFMs would not exist if it were not for extensive and continuous collaboration between diverse multi-sector actors and institutions over time. Such partnerships introduce new capital flows to communities and regions as well as strategic combinations for investment projects, often by drawing on the participation of local representatives of traditional constituencies (e.g., business, finance), but also non-traditional constituencies (e.g., aboriginals, labour).

(4) Co-investment and Syndication Can Guarantee Success

LIFMs actively engage in strategic investment partnerships as an important means for reaching small business and other projects that suggest above average costs and risks. Co-investments and syndications reduce the latter and maximize local opportunities in assorted ways, in part by introducing the value-adding capability of partners that possess investment-related attributes.

(5) Vital Risk Equity Supply is Distributed Across the Country

LIFMs are helping to give local new and developing small and medium-sized enterprises first-time access to key risk capital markets previously limited to central Canada. Several have specialized in delivering institutional venture financing while others have concentrated on matching entrepreneurs with angels or institutional investors.

(6) Long Time Horizons Make a Crucial Difference

For fast-growing innovative companies at the local level, several LIFMs provide a vital source of long-term capital supply and management-intensive support. This development is an important one for those regional economies in Canada that are engaged in extensive restructuring, in part through diversification of traditional industrial and employment bases to permit the emergence of new sectors.

(7) Government Plays an Important Role as Facilitator

Public policy, as practiced at different levels of government in Canada, has been instrumental in the establishment of the majority of LIFMs. To ensure autonomous evolution and performance, however, government has also tended to defer to local investment decision-making and professional management of new pools.

(8) CFDCs Support Partnerships Between Private and Public Sectors

CFDCs (Community Futures Development Corporations) have been of value in the leveraging and deployment of local capital resources, especially in rural and remote communities in Canada. Considerable potential exists for further investment financing opportunities brought about by private-public partnerships that utilize existing CFDC infrastructure.

(9) Deal-making Infrastructure is Important to Final Outcomes

Certain LIFMs (e.g., OCEDCO's SIO program and Inno-Centre) have concentrated on eliminating the often-underestimated structural barriers to successful demand-supply matches. Programs have been designed to effectively "prepare" entrepreneurs for introductions to potential investors, in part by making use of local business and financial advisors and mentors.

(10) Growth Management Skills are a Top Priority

An active capital supplier role in company development is often pivotal to its success in both the national and global economies. Several LIFMs have made a priority of acquiring professional managers who can instill high performance skills in investee firm personnel or who introduce the latter to experienced entrepreneurs in similar industrial fields as part of the investment process.

(11) Suppliers Must Specialize to Assist Certain Entrepreneurs

The emergence of new, value-added industries and new types of employment (e.g., home-based self-employment) has challenged financial institutions to adapt to the very specific needs of these clients. Several LIFMs reflect this trend in specialization, particularly in relation to enterprises in knowledge-based and technology-intensive sectors that feature new products and new productive merits.

(12) Specific Financing Barriers Require a Specific Response

The mandates of many LIFMs have been designed to respond to a variety of access to capital concerns at the local level, such as companies at different stages of growth or projects involving especially small dollar investments. Certain LIFMs have targeted particular non-traditional entrepreneurs facing an array of financing barriers, such as aboriginals, women and youth.

(13) Local Success Can be Adapted to Other Communities and Regions

There is considerable evidence that a positive LIFM experience in one community can be emulated in another, as long as particular local contexts are observed and addressed. Several of the CLMPC's case study subjects have already provided institutional and practical models for effective capital allocation and intermediary activity in communities and regions elsewhere in Canada.

CLMPC case studies were undertaken in response to a perceived demand in Canadian communities and regions for information on "what works" among micro-level institutions and practices geared to reduce access to capital barriers. Consequently, Capital, Community and Jobs will be most useful as a resource in nation-wide information-sharing. A continuing cross-fertilization of ideas among Canadian communities and regions about different LIFMs should, in turn, generate increased emulation and adaptation of best institutional practices achieved through multi-level partnerships. The beneficiaries may well be those new and developing enterprises that are most likely to create long-term job and income opportunities in all parts of Canada.