The $400 million man

Blurb: Fonds de Solidarité FTQ, president Pierre Genest oversees the investment of hundreds of millions of dollars a year in Quebec SMEs. Here's how to get a piece of it.

Years ago, when Jean Leduc still worked as a foreman at one of Quebec's biggest flooring plants, he was hit constantly with the gnawing feeling that he could do better.

So he and a friend invested several hundred thousand dollars to start their own business, and today, Appalachian Flooring produces about $20 million year in pre-finished hardwood flooring that is used in residential kitchens, living rooms and bedrooms. But there was another, more quiet partner involved in Leduc's success story: The Solidarity Fund QFL.

"They were there at the start," Leduc said. "I talked to many other investor groups, but the fonds people really understood what we were trying to do."

Leduc, isn't the only businessman who feels that way. The Solidarity Fund, Canada's largest worker sponsored venture capital firm has also emerged as one of Quebec's most important backers of small businesses. Last year, the fund exceeded $5 billion in assets under management for the first time, more than half of which is invested in 2,148 business across the province.

Last year alone, the Solidarity Fund invested $405 million in 60 projects. There are few consistently successful small and medium sized business owners, that haven't at one time or another talked to Solidarity Fund professionals

That's ironic because the fund stands for two things that many North American businessmen are leery of: unionized labor and government involvement in the economy. The Solidarity Fund is backed by the Quebec Federation of Labour, the province's biggest labour union, and is funded by investors who benefit from large tax credits at both the federal and provincial level, in addition to their traditional RRSP deductions.

But Quebec businessmen are more used to government, labour and business cooperation than those in the rest of Canada and the United States. And most are far more concerned with finding out how they can get the Solidarity Fund interested in their business ideas, than they are in complaining about traditional bugbears.

None of the SME managers that we've talked to who have had dealings with the Solidarity Fund, had qualms about dealing with an organization, in which more than half of its contributions come from unionized workers. And after a couple of minutes with fund president Pierre Genest it's easy enough to figure out why.

"The first question we are always asked by entrepreneurs is "if you invest in our company, do we need to bring in a union?" And the answer is no," Genest said.

According to Genest, about 85 per cent of the companies that the Fonds invests in do not have a union. And more than half of those companies that did bring in a union after the Solidarity Fund invested, were approached by a union other than the FTQ.

"If we went around handing out union cards every time we invested in a company, then not many people would want to deal with us," Genest said.

Genest is an actuary by trade, who spent most of his career in the insurance business, including a stint as CEO of SSQ Financial Group, before taking on the top job at the Solidarity Fund in early 2002.

Since then he's taken a low-key approach toward making investment decisions. He continues to favor an investment philosophy that's in keeping with the Solidarity Fund's traditional role of backing projects that lead to new job creation or preservation, a broad mandate that gives fund managers fairly wide latitude.

Last year close to 80 per cent of the money the Solidarity Fund invested was in traditional businesses, because "that's where all the jobs are," said Genest. But the fund also found $85 million to invest in real estate and high-tech deals.

Project funding can take the form of equity participation or debt financing, but officials are fairly flexible.

For example earlier this year Appalachian Flooring needed a bridge loan to finance the purchase of machinery to set up a varnishing line at its Cowansville plant.

The machinery came from Italy but "the banks wouldn't give us the financing until the machinery arrived in Canada and the Italians wouldn't put the equipment on the boat until they had a check," Leduc said. "We are lucky that the fund was able to help us out."

According to Genest, the fund is open to investing in a wide range of business ideas, but there are several key prerequisites that will make a proposal stand out. Companies that are looking for funding need to submit a detailed business plan, including a cash flow analysis and market study. But just looking good on paper isn't enough. Fund managers are giving increasing importance the quality of the management team, including its depth, experience and breadth.

"Our investments that have been most successful have been those in which management has consisted of professionals from a wide variety of fields," Genest said.

"You don't want just inventors. You want people who can market the product and sell it too," Genest said. "These days three engineers with an idea is probably not the best management mix."


Sidebar: Solidarity Fund investment criteria

o Solidarity fund managers are primarily looking for investment projects in traditional industries in which new jobs can be created or old jobs saved
o Companies do not have to be unionized
o To get fund managers interested, companies must submit a business plan, cash flow budget and market study
o They prefer a broadly diversified management team, that includes specialists in production, marketing and finance.
o The fond can invest in companies outside of the province as long as there are significant spin-off benefits for the Quebec economy
o As an ethical fund, the Solidarity Fund places a premium on companies with a favorable "bilan sociale," in areas such as pollution, workers rights and so on.

Fact Box:

Company Name: Fonds de Solidarité FTQ
Owner: 554,796 individual investors
Founded: 1983
Products: Worker sponsored venture capital fund
Employees: 405
Assets: $5.2 billion
Companies invested in: 2,148
Phone #: 514-383-8383


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Peter Diekmeyer
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Montreal, Canada, H9S 1T6, 514-631-0025


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