Desjardins Group’s new fund aimed at SMEs

The Desjardins Group is launching an investment fund aimed at small and medium-sized businesses it said could grow to $500 million over the next five years.

The fund, announced Thursday, will start with a combined annual commitment of $100 million a year from two of the credit union’s subsidiaries — Desjardins Private Wealth Management and Desjardins Capital.

The fund is “intended to support the growth of SMEs in all the regions of Quebec,” Guy Cormier, the president and CEO of the Desjardins Group, said.

He said businesses leaders are increasingly looking to large financial institutions for long-term investments, venture capital and development capital.

The fund will invest in small businesses that want to grow, Cormier said.

It also plans to invest in larger companies in an effort to keep their head offices in Quebec.

When medium-sized business are put up for sale, they’re at risk of being purchased by foreign companies. By being active in the market, Cormier said Desjardins would be able to intervene and help those companies find new owners in Quebec.

The fund will also provide a new asset class for customers of Desjardins private banking to invest in, Cormier said.

Purpose-built funds to invest in small and medium-sized businesses are a good thing, said Teri Kirk, CEO of the Funding Portal, a Toronto-based company that helps businesses find sources of financing.

Many smaller businesses, especially those with fewer than 50 employees, struggle to find money.

“Many, many SMEs are not strong candidates for bank debt financing because often they don’t have recurring revenue streams,” she said.

Venture capitalists and angel investors, on the other hand, are only interested in “gazelles” — the fastest-growing businesses — and even then are mostly interested in companies with extremely leading-edge technology, she said.

That has small-business owners taking on personal debt to fund their businesses.

“Thirty per cent of small-business owners in Canada use their credit card as a significant part of their ability to borrow the money they need,” she said. “Almost half, 49 per cent, rely on their own personal assets, mortgage their home, etc.”

But, she said, whether the fund will be effective at supporting small business that can’t access funding will depend on who it targets.

Desjardins also announced Thursday it formed a partnership with Siparex, a French private equity firm. The deal is intended to help French SMEs export or expand to Quebec and help Quebec’s small- and medium-sized businesses expand or export to France.

European markets have become more attractive for Quebec entrepreneurs, Cormier said.

The partnership will see Desjardins and Siparex jointly invest in companies expanding across the Atlantic, as well as provide less tangible forms of support, such as making introductions in their respective countries.

“We have a role here, with financial support, but also to help to open the ecosystem, to give confidence, to open doors, to facilitate contacts,” said Bertrand Rambaud, president of Siparex.