Mercana Insight

Peter Waugh, Managing Partner at Mercana Growth Partners-currently sits on the board of Quantius Inc.

Over the course of his highly accomplished 30+ year career, Peter has been advising businesses in the areas of leadership and organizational effectiveness, business development, corporate finance and governance across a wide range of industries. Peter currently sits on the board of Quantius Inc. and shares his perspective on growth capital financing.

Disclaimer: The views and opinions expressed in this article are those of the interviewee, Peter Waugh, and are not to be considered financial advice and should not be interpreted as such.

Q1. What would you say are the top 3 most significant changes you have seen in commercial banking and capital raising efforts for growth-stage companies today compared to when you started?

On one hand, the primary activities of commercial banking and investment banking have changed very little for decades. Companies looking to secure capital whether it is debt or equity, need to be able to clearly articulate their business strategy, outline their plans for growth, and illustrate that they understand the risks which could impact reaching their goals, plus how they plan to avoid, control, and/or mitigate those risks.

Ultimately, these decisions come down to leadership, and the funders’ level of confidence in whether the team can execute. Businesses that require ongoing external capital must become very proficient at doing this efficiently and effectively.

On the other hand, there are some things that are a bit different today.

  1. Time horizons are getting shorter. The world is moving at a faster pace, and things change more quickly. Today, investors don’t have the appetite to wait 3, 4 or 5 years for a business to mature. They want businesses to scale quickly and seize the opportunity, rather than plod along incrementally.
  2. Asset-light businesses. For the knowledge-based business, its most important asset is its people. And the right people are hard to attract, hard to retain, and not something you can pledge as security. The innovation economy is thriving with exciting emerging businesses being led by incredibly talented people, and yet access to capital remains one of their biggest challenges, as banks remain most comfortable with tangible security.
  3. Intensifying competitive pressures. The competitive dynamics of many sectors has become much more global in scope and unpredictable. Changes in technology advancement can also transform business models and force businesses to rethink and pivot their strategies to avoid becoming irrelevant or redundant.

Q2. Given that alternative lending [and private debt as an investment vehicle] is gaining greater momentum and increasing interest in Canada, what do you see as the top trends affecting this space and growth-stage companies trying to raise capital as we head into 2019?

The good news is that there is an expanding array of “alternative” choices that growth companies can now consider. Quantius is an excellent example of this, and there are many more.

For any company looking for alternative growth capital, it is essential for them to know how to approach these lenders, how to understand their lending/investing criteria, and to be properly prepared with the information they will be looking for.

Right now, we are still in a period of education and getting comfortable with these new choices. For institutional investors, it’s hard for them to know what bucket to put these loans/investments in, and they want to see how these products and asset managers perform over time. Gradually, this will come, and the strong performers will rise to the top and command a greater share of this emerging asset class.

My personal belief is that more than half the battle when it comes to raising money (debt or equity) is the quality of the team. Experience, credibility, proven performance, and a stellar reputation as highly respected business builders is what funders are looking for. Technical competence is important, but sound business acumen and proven leadership performance is critical.

Entrepreneurs need to place a higher emphasis on understanding, forecasting, and managing the cash dynamics of their business. Too often the priority is simply the income statement, driving sales, and controlling costs.

But in reality, the true picture of how a business performs is the cash flow statement – seeing not only how cash is generated/or consumed from operations, but also through financing and investing activities.

Q3. In your opinion, what do you see as significant economic trends that may influence and/or factor into shaping the Canadian economy going into 2019? [particularly with the “new NAFTA”]

We are witnessing a variety of economic trends. One can debate how significant each may be, and three which come to mind are:

  1. Interest Rates: There’s little question that the short to medium term trend for rates is up. What’s not clear is whether the economy can adjust to higher rates without causing a recession. Higher interest rates can negatively impact real estate and stock markets, both of which are significant contributors to overall consumer and business confidence. There are certainly storm clouds on the horizon which can impact businesses. As a former banker, I have always said the true test of a business is how it prevails through tough times.
  2. The Trump Effect: As we have seen, Mr. Trump is not afraid of causing turmoil and stirring the pot. While the impact on Canada from the revised NAFTA deal would appear to be rather minor, he is an unconventional President who is looking to profile how he has personally contributed to “Making America Great Again” in order to enhance his chances for re-election. His style is very apolitical, not listening to advisors, taking abrupt provocative decisions and saying/doing things to others who may stand in the way of what he wants to satisfy his personal ambitions. Mr. Trump is a huge wild card and he has the potential to significantly disrupt the geo-political landscape as has been recently demonstrated with increasing the trade tensions with China.
  3. Demographics: The bubble of the baby-boomer generation is reaching retirement age and many within this cohort have the financial capacity and personal health to pursue other ambitions beyond work. While this will provide attractive opportunities for the younger generations to replace those retiring, there are concerns that there simply will not be enough qualified workers to fill all the positions available. Consequently, businesses will need to be much more deliberate around succession plans, training, hiring strategies, and compensation policies. Migration and immigration also offer possible solutions and it is good that Canada is recognized as a leader internationally at welcoming highly skilled immigrants and embracing diversity as a cornerstone of our cultural fabric.

~ As told to Tanya Raheel, Quantius Inc.