Growth funds team up in U.K., Canada

$15M FOR B.C. FIRM

TORONTO • The Canadian Business Growth Fund and a similar pioneering fund in the U.K. are partnering up to invest $15 million in a Vancouver-based digital consulting firm, the first such joint financing between the two entities.

Appnovation Technologies Inc. is expected to announce the investment from the CBGF and the United Kingdom’s BGF on Tuesday, with the money anticipated to help bolster the firm’s balance sheet, expand its domestic and international presence and add new hires.

The two private-sector funds aim to invest long term, taking minority ownership stakes in small and medium-sized companies looking to grow larger. The funds were created and bankrolled by major financial institutions in Canada and the U.K., including Barclays PLC, Manulife Financial Corp. and Royal Bank of Canada.

“They’re not here for a short-term flip,” said Arnold Leung, founder and chief executive of Appnovation. “They’re patient capital, which is something fairly new, I would say, to the Canadian marketplace.”

CBGF launched in June 2018 with capital commitments of $545 million and a similar purpose as that of the BGF, which was founded in 2011 following the global financial crisis.

Stephen Welton, CEO of BGF, said they had recognized there was a lack of equity financing for smaller, growing firms, which worsened after liquidity dried up in the wake of the financial crisis. The fund has now invested more than $3 billion in over 285 companies in the U.K. and Ireland.

“I think in doing that, we have absolutely convinced ourselves, and I think others, that there is a real gap for growth capital for growing companies,” Welton told Financial Post. “And what has been exciting for us is to see that our experience in the U.K. has been sort of reviewed internationally, with a view to sort of replicating it on a local basis.”

The Canadian fund was founded after an advisory council warned the federal government of a lack of growth capital in the country. Australia is now eyeing a similar investment fund.

Since its launch, CBGF has recorded seven investments of its own. Those investments typically range in size between $3 million to $20 million, and are made in mid-market companies earning $5 million or more in annual revenue.

CBGF and BGF, while independent of each other, have also struck up a relationship.

“And here is a chance to bring both of our philosophies together and together invest in a company that actually has significant operations in both Canada and the U.K.,” said CBGF chief executive George Rossolatos. “As we find other opportunities, where both of our mandates can be addressed in one investment, we would love to do more together.”

Appnovation’s operations and 350 employees are spread across 14 offices in six countries. This includes locations in New Brunswick, Quebec and Reading, England, where BGF also has an office.

The “full-service digital consultancy” was founded in 2007, and helps firms develop their technology, user experience and overall digital strategy, Leung said. And Appnovation’s clientele, as it happens, includes some of the backers of CBGF.

“Had we known Arnold the day we launched, he would have been our first call,” Rossolatos said.