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Leveraging First Nations Equity - Michael Bonshor
- 1. Links to Learning December 2013 Leveraging First Nations Equity Michael Bonshor, CMA Leader, BC Aboriginal Consulting
- 2. We acknowledge the traditional Coast Salish Territory
- 3. Discussion Topics • • • • About MNP Issues and Overview Equity Spectrum: Approaches Case Study
- 4. Founded in1945, MNP is now the 7th largest chartered accountancy and business advisory firm in Canada MNP has 50 offices and 2,600 team members across Canada In BC, MNP has more than 450 staff located in 15 offices across the province We serve more Aboriginal clients in Canada than any other CA and advisory firm
- 5. Strategic Focus People, Process, and Structure Our Working Lens MNP Aboriginal Consulting
- 7. Inherent Rights Driven • Treaty • Accommodation – IBA’s • Business and Economic Opportunities
- 8. Increase in (Proposed) Economic Activity • • • • Oil & Gas: Northern BC Forestry Hydro Shipbuilding
- 9. Economic Self-Sufficiency • Balancing growing community needs with decreasing funding from Fed/Prov . sources • Increased need for Own Source Revenues
- 10. Community Needs • Young, growing population – Soon to reach working age • Community Services • Housing and Infrastructure • Health
- 11. Increased Need for Financing Older... • AANDC • First Citizens Fund • Revenue Sharing Agreements • Taxation • Land Leases Newer… • FN Finance Authority • First Nations Equity Fund • Coast Opportunity Fund • Cape Fund • Impact Benefit Agreements – Equity
- 12. Cape Fund • $50 million private sector investment fund • Created to address economic disparity between Aboriginal communities and mainstream society • Funds available to mid-market opportunities with strong Aboriginal involvement
- 13. First Nation Finance Authority • • • • Planning bond issue 2014 Will sell $100 - $150 Million of 10-year bonds Were assigned an A3 issuer rating Raising money to lend to First Nations for capital projects • Rates similar to those given to municipalities
- 14. Navajo Nation • • • • First Bond issuing in 2012 $120 million offering Given an A rating Will use funds to finance 50 projects – – – – – Convenience stores Fast-food restaurants Shopping centres Offices and industrial complexes Tourist centre
- 15. Equity Spectrum Money Bankable Personal Personal Assets/ Cash Flow Private Equity Venture Capital $100k to $1MM Angel Investors $10MM Friends & Family $20MM Assets/ Cash Flow Time
- 16. Equity Spectrum Scale $ $10MM $100k to $1MM Bankable Friends & Family $20MM Personal New Start Ups Self Financed ‘House’ Security $100k to $1MM Range Nominal Share Value ($0.01)
- 17. Scale $ Equity Spectrum – First Nation Perspective $10MM $100k to $1MM Bankable Friends & Family $20MM Personal Money Issue! Security Issue
- 18. Angel Investors Scale $ $100k to $1MM Bankable Personal Angel Investors $10MM Friends & Family $20MM Personal Est. $0.10 Share Range ‘Angels’ looking to seed a number of Co’s Generally targeting to grow Co. From $1MM to $2MM range Target High Growth Potential Opportunities
- 19. Scale $ Angel Investors – First Nation Perspective $100k to $1MM Bankable Personal Angels Investors $10MM Friends & Family $20MM Personal -Initial Barriers a factor -FN Focus on Resource Sector -Ideas! ... not just trees... Assets & Personal Assets/ Cash Flow Assets/ Cash Flow
- 20. Venture Capital Scale $ Bankable Venture Capital – $100k to $1MM Angels Investors $10MM Friends & Family $20MM Assets & Personal - Venture Capital Funds: E.g. Ventures West, Cape Fund - Fund Size $60MM to $100MM -$1MM - $5MM Range per Investment -Generally limit to 10% of fund per investment -Seeking High Growth Opportunities -Anticipate failures to offset
- 21. Scale $ Venture Capital – First Nation Perspective Bankable Venture Capital $100k to $1MM Angel Investors $10MM Friends & Family $20MM Assets & Personal -Initial Barriers exist -VC expected returns and growth potential = 10 times invested -Access to high growth sector vs. resource based opportunities -VC’s need to understand risk level ; many FN opportunities have uncertain risk
- 22. Investor Expectations • Management Team: leadership, track record • Market Opportunity: Opps in large markets with room for growth • Growth Potential: Profit/Value Growth • Technology: preference for first-of-a-kind new ideas rather than common products • Exit Strategy: within 7-10 years; 10X investment
- 23. Private Equity $20MM $10MM $100k to $1MM Bankable Funds in excess of $100 MM E.g.. Tri-Corp Fund: $600MM Would invest $50MM-$60MM per investment Looking for 33% returns range Lower risk opportunities Focus on business capacity and cash flow Private Equity Scale $ Assets/ Cash Flow
- 24. $20MM $10MM $100k to $1MM Bankable Best fit for First Nations : return expectations Requires Strong Corporate Governance Strong business model Collective FN Opportunity?? Forestry or Fisheries? Private Equity Scale $ Private Equity – First Nation Perspective Assets/ Cash Flow
- 25. Equity Summary • • • • • • • Challenges at FN Level: barriers to entry Ideas, not just trees Good governance the key Need to create a healthy ‘Risk’ Model Trust Focus on building on strengths Community Assets, Traditional Territory
- 26. Case Study Kwantlen First Nation – Seyem Qwantlen Business Group Assertion of Aboriginal Rights/Title for Economic Development
- 27. Kwantlen First Nation • Kwantlen First Nation -Community Adoption -Leadership Assertion -Communication Plan -Industry -Governments -First Nations
- 28. Glover Property
- 29. Property Details • Acquired through negotiation with BC • Located within City of Langley (off-reserve) • Initially not zoned, but commercial development permitted • 3.815 acres • 2010 assessed value: $5.06 Million
- 30. Project Background With community input and feedback, Council established development objectives: • Don’t sell the property; seek long term benefits • Establish Kwantlen business presence in Langley • Create employment and training opportunities
- 31. Moving Forward
- 32. Dilawri – Seyem Qwantlen Lease Key Terms: - 20 year term (SQLD option to renew for 10 years) - 40,000 sq. foot building at market rates - Lease payment based on value of land and buildings
- 33. Project Financing Highlights • Started with Traditional Territory and assertion of Aboriginal title • Created a good business governance model • Sound Risk Model – Partners understood risks • Strong Equity Position • Balance Debt Financed
- 34. Thank you for your time! Michael Bonshor Leader, BC Aboriginal Consulting MNP Michael.Bonshor@mnp.ca 778.374.2128
Notas del editor
- FN’s increasing linkage between managing Title and Rights issues with Economic Development OpportunitiesNew Afton Mine: Tk’emlups Indian Band with Skeetchestn Indian Band and New Gold. Forest Kerr Hydro Electric Project: Tahltan Nation with Alta Gas
- BLB info from EA process
- Aboriginal Representative Organizations – funding cut (AFN, Regional AFN) Aggregate reduction of $11.2 million (16.3%) between 2012 and 2015 Tribal Council Funding cut – in some cases significantly Tiered formula for April 1st, 2014 Total nationwide funding cuts to TC’s estimated at $21.2 million between 2011 and 2015 (43% reduction overall) Feds providing “incentives to encourage (i) aggregation in the size of populations served by TC’s and (ii) in the range of major AANDC programs they deliver” Some Tribal Councils have seen modest increases; some TC’s have seen drastic reductionsOpportunity to become efficient and leverage other funding pots (i.e. NDIT, Coast Funds, AANDC project funding) as well as partner funding pots (i.e. Adjacent municipalities)
- CAPE Fund will invest as a partner in its investee businesses through a selection of equity and quasi equity instruments. These may take the form of:Common sharesRetractable preferred shares, dividend and non dividend bearing, with current or cumulative dividendDebentures, interest bearing (either current or cumulative) which may be convertible into equity (at the option of CAPE) or which may have warrants to purchase equity attached to them.Selection of investments:One Earth Farms Corp.One Earth Farms, with planned operations in Alberta, Saskatchewan and Manitoba, intends to become Canada’s largest, most efficient operating farm through partnerships with First Nations and other key strategic agricultural companies. The company’s strong capitalization, professional management and access to large tracts of world-class farmland position it well to achieve higher rates of profitability than smaller farms, while benefiting from global trends impacting food supplies and driving international farming investment demand. To further strengthen its relationship with First Nations, One Earth Farms plans to initiate job training programs to help teach sustainable farming practices to future generations of First Nations persons. In addition to capacity building, the partnership will generate economic wealth for all participating First Nations. For additional information please visit www.oneearthfarms.ca. ManitobahManitobah is a Winnipeg, Manitoba based, Métis (aboriginal) owned manufacturer of native designed mukluks, moccasins and related fashion accessories, making major headway in the global footwear and giftware marketplaces. Combining traditional native inspired design into “Made in Canada” products of superior quality and versatility, Manitobah has been able to develop a unique story that is igniting a hugely positive response from retailers and distributors around the world. For additional information please visit www.manitobah.ca. Coastal Shellfish LPCoastal Shellfish LP (CSLP) is currently launching an integrated scallop aquaculture operation on the central and north coast of British Columbia and Haida Gwaii. Currently, the Metlakatla Firs Nation is participating through its economic development corporation in the venture, which was initiated under the auspicious of the Great Bear Initiative, an entity created to advance the economic interests of the Coastal First Nations of British Columbia. CSLP together with the local First Nation farm, related processing facilities and a state of the art hatchery will provide a vertically integrated approach to scallop aquaculture encompassing seed production, grow out, harvesting, as well as processing and marketing of the premium quality scallop product. CSLP benefits from a management team staffed by individuals with substantial experience in aquaculture in Canada and in Chile. In addition to financial return, CSLP will provide training and employment to the particiaptin First Nation community and an opportunity to build First Nations’ management capacity in its operations. Indigena Solutions LPIndigena Solutions L.P. (Indigena) is a Vancouver, British Columbia based outsourcing delivery center created in July 2012 through a business relationship between the Tsawwassen First Nation, Accenture and CAPE Fund L.P. The business is co-managed by Indigena and Accenture, leveraging the cross-industry experience, innovative solutions and industrialized assets of the world-class delivery centers within Accenture’s Global Delivery Network. Indigena will works with clients to deliver a variety of technology projects, outsourced IT and business support services. Indigena focuses specifically on application software development and maintenance, testing centre of excellence, contact centre services, IT Service Desk/Help Desk and back-office business processing services.Indigena is anchored in three pillars that are aligned with Accenture’s business priorities:• Providing low cost, high quality and onshore technology services for Canadian businesses• Enabling jobs that allow people to live and work on or close to First Nations communities• Leveraging technology to enable First Nations socioeconomic developmentFor additional information please visit www.indigenasolutions.com
- “In regards to financing, when the First Nations use banks, they face an issue of banks not really knowing how to classify the First Nations. Therefore the banks define the First Nation more as a commercial loan rather than municipal authority. FNFA came into the picture to raise project financing for the First Nations on the same terms as municipal governments.”FNFA pools First Nations’ loans and sells them into the bond market. The First Nations who want to participate in the program need to be scheduled to opt into the legislation under the First Nations Fiscal and Statistical Management Act. This process has been set up to allow the First Nation a choice whether or not they want to take advantage of this Act, or use other avenues of the Indian Act to raise financing.the communities work with the First Nations Financial Management Board (FMB) that reviews their financial information, policies and procedures. If the review passes Standards developed by the FMB a certificate is issued, and this allows that community to apply for FNFA borrowing membership. FMB Standards were developed from the international COSO (The Committee of Sponsoring Organizations), assuring financial soundness of the First Nation. However, according to Daniels, this is just one of the safeguards FNFA put in place to assure that FNFA provides a sound, well-rated (credit) investment opportunity for buyers of FNFA’s bonds.
- http://www.bloomberg.com/news/2011-11-01/billionaire-navajos-rated-above-california-plan-first-bonds-muni-credit.html
- Management team: Angel investors look for teams of high-quality entrepreneurs with a track record of leadership and performance - either in the company’s specific industry or in prior entrepreneurial ventures. We also look at your team’s passion for and commitment to the new business idea, and your ability to inspire confidence among future stakeholders, including employees, potential customers, and investors. As the investors will be working with you as partners, your team’s credibility is essential. In addition, your team must be open to and comfortable with receiving input provided by angel investors.Market opportunity: Angel investors typically invest in solutions that address major problems for significantly large target markets (i.e. a $100+ million market). Your company must demonstrate a strategy to claim significant share of this market (i.e. 20%+). There are plenty of great business ideas - but not all businesses will generate returns that justify angel investor financing. Therefore, providing a solution to a problem with a large potential market is essential.Use of proceeds: Funds must be used to accelerate your company’s achievement of key milestones that increase the company’s value. Angel investors will fund activities that include research and product development, building a sales and marketing infrastructure and hiring key executives.Growth potential: Angel investors look for companies that can grow quickly and manage the scale necessary to succeed. Your company must demonstrate a plan to generate significant profits beyond the initial product idea. Do you have a strategy to achieve multiple sources of revenue? Investors also require well-conceived financial projections, based on sound assumptions, demonstrating consistent profits and cash flow growth.Competitive advantage: Your company must have some proprietary features that distinguish you from potential competitors or provide barriers to entry that prevent other companies from capturing your customers with a similar offering. Attributes that convey competitive advantage include intellectual property protection, exclusive licenses, exclusive marketing and distribution relationships, strong brands, scarce human resources (i.e. knowledge and skills), and access to scarce raw materials.Fit: Our group members - all accredited individual investors - have significant executive experience in a variety of fields. One of the benefits of working with angel investors is the active coaching and contact network that such investors can provide. As such, there must be a fit between members of our group members and your idea. Technology: Angel investors typically prefer to invest in first-of-a-kind new ideas, rather than incremental enhancements to common products and services. Is this a nice-to-have, or a need-to-have product or service? However, we approach highly complex, esoteric technologies with caution. The concept behind the technology must be proven and verifiable. Few investors support science projects therefore your project needs to demonstrate a clear path to commercialization. Any breakthrough innovation must be accompanied by a strong business plan.Exit strategy: Our members typically seek returns of at least ten times their initial investment within eight years. This level of return on investment is essential due to the high risk and likelihood of failure among early stage ventures. Thus, a clearly articulated exit strategy - how angel investors will extract such returns - is essential. For example, do you plan to sell the company to an established corporation in your industry? Or will your exit be through subsequent rounds of financing - venture capital or the public markets? Angel investors are not just interested in the strategy you select, but more importantly in the how you will achieve your stated goal and some realistic indications in your business of how you will achieve the exit.
- Ventures West: portfolio is pharma and technology
- This is the map that they started to share. Was developed through a community-based processTheir structure is a hereditary chief and two council that have an elders committee that they meet with on a monthly basis. This committee provided a lot of the backup. Also have a lands and resource committee.Communication: shared with Stalo as well as with government and industry. Asserting interests internally and externally.Stalo is 19 BandsWas difficult at first to get the referral letters to come to kwantlen rather than stalo. Province was going through restructuring at the time so they were open to changing the way things were done. Some referrals were definitely missed in the transition.Every referral that came in got a copy of the map. This included provincial and federal government. Kwantlen signed an FRO in 2005/6. This was the first time that they used the map in an agreement.