Labour-sponsored funds may be described as a financial hybrid with characteristics derived from structures in both public and private equity markets in Canada. By 1994, labour-sponsored funds had become a formidable collective force in the institutional venture capital market. “Patient” venture capital is being acknowledged as indispensable to new generations of enterprises and jobs in a changing Canadian economy. By attracting a new supply source — the savings of Canadian households — the funds have helped create large, relatively stable pools of equity capital.
The CLMPC found that, the impact of the funds has been felt chiefly in the area of supply, thus far. In particular, they have provided an important counter to the negative effects of volatile capital flows - in fact, without the shareholder recruitment efforts of labour-sponsored funds in recent years, total national venture market resources probably would have declined. As well, with greatly intensified investing by Working Ventures and British Columbia’s Working Opportunity Fund, among others (on top of the already extensive portfolio of the Fonds de solidarité), the presence of the funds as an investor type grew in 1994-95.
Finding solutions to capital availability problems is a main rationale behind government assistance of labour-sponsored funds. CLMPC research shows that firms facing barriers to sufficient, affordable capital form the client base of the funds. Along with sole financing of small and medium-sized companies, CLMPC research indicates that the role assumed by the funds in leveraging investment and syndication cannot be underestimated. In particular, the experience of the Fonds de solidarité with its specialized, regional and local funds reflects an innovative approach that combines expertise among different financial and industrial partners.
Labour-sponsored funds are taking additional steps to accommodate entrepreneurs and enterprises with special requirements, such as seedings, small dollar deals, and micro- firms. Indeed, this is apparent in the investment mandates of some new funds, such as the Canadian Medical Technologies Fund, which concentrates on early stage health sciences and technology projects.
CLMPC research has concluded that a crucial feature of the funds is the degree to which genuine control is exercised by the sponsoring union. This usually involves a labour body that is organized centrally, such as a national or provincial labour federation or union/unions. Along with officially initiating a fund, sponsor representatives must direct all major decision-making through boards of directors and related structures. Unions and union members have been found to play a constructive role in the investment process.