Export Development Canada (EDC) has launched a trial program through which it will match investment dollars for small- and mid-sized companies (SMEs) that export their products from Canada, the latest in a suite of government-backed fiscal programs to help businesses grapple with the economic fallout of the COVID-19 pandemic.
The credit agency, a Crown corporation that operates at arm’s length from the federal government, will match investments of up to $5 million in financing from venture capital and private equity investors as well as corporate partners, according to an undated internal memo obtained by The Logic. The program is meant “to enable the rapid deployment of liquidity” in response to COVID-19, the memo says.
Export Development Canada (EDC) is offering up to $5 million to small- and mid-sized exporting companies that EDC has previously backed, in a move to rapidly deploy financing to companies impacted by COVID-19. The government-owned credit agency plans to expand the trial to more companies, including those outside its portfolio, after the trial period.
“The potential investment program … is, for now, a trial we are doing with a small number of existing EDC partners. These companies and funds are ones in which EDC already has invested,” said EDC spokesperson Amy Minsky in an email to The Logic. “Since this trial phase has just launched, we have not completed any transactions.” The goal, said Minsky, is to expand the program beyond EDC’s partners after the trial phase, and that companies that have received other government funding will still be eligible for the financing. She did not say whether EDC has set a minimum deal size for its co-investments.
The pandemic carries added challenges for export-focused companies, which are facing travel bans and border restrictions that could interfere with the flow of goods.
“Our immediate focus during this time of crisis is bringing liquidity into the market in order to manage the challenges companies are facing,” said Minsky. “This approach – trying out a potential program with a small group of partners – will allow us to quickly assess the market and get real-world feedback.”
EDC’s investment-matching trial is the latest government-backed tool for businesses among the many rolled out incrementally in recent weeks.
On March 13, Ottawa announced a $10-billion Business Credit Availability Program (BCAP), with financing flowing to small businesses through the Business Development Bank of Canada (BDC) and EDC—financing for the investment-matching program is coming from the BCAP, Minsky said. The government has since promised to lend SMEs up to $40,000 interest-free through commercial banks until Dec. 31, 2022—offering to forgive a quarter of each loan if a company repays it before that date—and will cover up to 75 per cent of wages for small businesses that see year-over-year revenues drop at least 30 per cent for the months of March, April and May.
Many investors and founders have criticized the measures for being inaccessible to startups. Growth-stage companies are often pre-revenue and focused on raising money and building their business rather than generating income—those firms may not see a significant revenue drop, if any, but they may still be severely impacted by COVID-19. Several investors who spoke to The Logic said they plan to hold off on making new investments over the next few months, making it hard for startups to close crucial deals that could help float them through the pandemic.
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The Logic reported last week that BDC is planning to launch its own venture capital-matching program, in response to calls from the Canadian Venture Capital and Private Equity Association (CVCA). On top of requesting fund-matching, CVCA—which represents over 290 member organizations—asked BDC to help close active funding rounds, citing “severely constrained flow of capital into the Canadian innovation ecosystem.”