BDC gets some pointers from Kevin O'Leary

If BDC has $6B of new capital to deploy...there are plenty of entrepreneurs clamouring for growth capital

If you’re going to be good at just one thing in life, my old friend Kevin O’Leary would tell you to excel at marketing (see prior post “When it comes to marketing at least, Kevin O’Leary knows what he’s doing” Aug. 13-14).

You might be a sub-par money manager (see representative prior posts “O’Leary Funds appear to shed another 20% of assets in 2012” Jan. 27-13 and “America discovers the mirage that is Kevin O’Leary’s investment prowess” Apr. 2-23), but if you had a zeal for sales, you could still spin a convincing story about your superlative investment prowess. Some journalists don’t seem to have time to check IRRs, and the one requirement is that you must constantly pound the table about your talents — whether that be on BNN, CNBC (see prior post “Did CNBC finally cut formal ties with Kevin O’Leary?” Nov. 20-24), Fox, the Toronto Sun or Dragon’s Den.

Oh, and don’t forget to feed online “news” platforms in places like Cyprus and India with juicy click-bait quotes to keep up your SEO rankings (while suppressing less flattering material from pesky Bloggers).

If you’re relentless, you can even convince The Globe & Mail to run a rehab piece under the heading “How Kevin O’Leary went from reality-TV supervillain to Oscars darling,” despite the fact that you didn’t actually receive an Oscar nomination. The same Globe and Mail that it once ran a highly critical magazine cover story about you titled “He’s not a Billionaire, he just plays one on TV.” Incroyable!

KO’s focus on marketing came to mind when one of my morning newspapers reported that Canada’s Business Development Bank of Canada (BDC) launched a $4 billion “platform” last December “as a way to help small-to-medium-sized Canadian businesses participate in major defence procurements and to support startups working on technologies with military and civilian applications.” Given the focus on bolstering our military capabilities, it was a timely announcement, even if the federal procurement system remains seriously challenged (see prior post “Hitting NATO’s 2% target a pipe dream without addressing Ottawa’s faux procurement machine” Mar. 26-24).

Over the past few months, the BDC team has advanced $91.7 million to 16 different small companies, which works out to an average loan size of $5.7M per name. You don’t have to be good at math to know that after the distribution of those modest cheques, BDC still has more than $3.9B of its initial $4B to deploy.

If the new team kept up this pace and shovelled ~$100M out the door every three months, the original $4B commitment will last a full decade.

Nonetheless, BDC has rushed to the MSM with the news that it has reserved an additional $2B for the ecosystem. Taken together, BDC wants us to think it’ll deploy $6 billion into a nascent sector, plus whatever private investors might sign-up for, in the near term. That $6 billion is a huge figure when you consider BDC’s entire gross loan portfolio amounts to just $42.4 billion, and the investment book runs a mere $6 billion in aggregate — and that’s after several decades of indirect/direct VC investing.

I get that Canada’s domestic defence industry deserves more support, and that OSFI has finally made it easier for regulated banks to support the sector, whether it be something as simple as opening bank accounts or fulfilling new working capital needs. These are important, overdue steps.

But the idea that after four short months BDC has already identified enough deal flow to launch an additional $2B of SME defence funding is laughable. As with Ottawa’s promise to make Canada a conventional energy superpower (see prior post “Canada must build—or risk being left behind” Oct. 2-25), hollow press releases won’t get Canada out of the ditch.

BDC would do well to either go public and add some competition to Canada’s banking sector (see prior post “Take the Business Development Bank of Canada public” Jan. 21-25), or focus on truly solving the problems surfaced by a recent study by David Stein and Gideon Hayden from Leaders Fund (see prior post “Where have all the Canadian startups gone?” Oct. 22/25):

1. Since 2020, Canada has been contributing fewer of the world’s high-potential startups.

2. Founders are increasingly starting their companies abroad.

So, yes, supporting local defence sector Start-ups will help. But the problems are so much bigger than that, and if there’s $6B of new capital to deploy...there are plenty of entrepreneurs clamouring for growth capital (see prior post “Only entrepreneurs can get Canada out of its economic funk” Jan 8- 25).

Whether BDC should lead or follow is a question of our time, but what’s not in doubt is that they should stop pretending to be saving XYZ ecosystem via vacuous media pitches. It took time, but Mr. O’Leary eventually came to admit that he was better at marketing than money management.

BDC might want to look for a different role model.

MRM

(note: this post, like all blogs, is an Opinion Piece)