Seth Leon

Research Officer Paul Cabaj Director of Cooperative Development

Agenda •What is an Opportunity Development Co-op (ODC)?

•Where did the model come from?

•What are some successes stories?

•How can it be used to build the future?

•What is the process? – 6 Modules from the “Unleashing Local Capital Guide for Community Leaders”

•Exploration of some potential investment targets

Why are new investment models needed? • Standard venture capitalists have less interest in smaller rural

SMEs

• Venture capitalists place the same value on other returns from local investment such as jobs created and regional economic sustainability.

• It is too costly to raise capital via standard public offerings for the small investment typically required for smaller businesses (in the range of $100, 000 to $3 million).

• Difficulty for young entrepreneurs to access debt financing

• Centralization of economic infrastructure/investment decisions

• Every year around $5 billion leaves Alberta in the form of RRSPs/$3.5 Billion in TFSAs

The Successful Business in Alberta

Battle River Railway

Adaptation from Community Economic Development Investment Funds in Nova Scotia

•More than 70 active CEDIFs in Nova Scotia •More than $70 million raised since 2001

•More than 6,500 individual investors

•3 funds dissolved since then

•Investments ranging from bricks and mortar to genomics/engineering

•Some communities have surpassed 15% of annual RRSPs being invested locally

Sangudo Opportunity Development Co-op (SODC)

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Unleashing Local Capital

Cooperative Shops, Pubs and Football Clubs

This is what this community

wants to “be” Peter Couchman

What is Unleashing? Local Leadership

+

Community-Based Financing

=

Opportunity Development Co-op

(ODC)

How does it work? The program helps you: •Gather a group of friends •Incorporate your Opportunity Development Co-op (ODC) •Find a business opportunity •Find an entrepreneur(s) to run it •Collect local money (incl. RRSPs) •Invest in the business opportunity •ROI to member-investors

Module 1 – Identify the Needs

• What are some of the business development opportunities in your community that people talk about but don’t don anything about?

• What are people bi….ng about?

• What are the common themes that come up in your communities economic development plans?

• What business owners may be getting close to retirement?

• What is the vision of your community in the future and what kinds of new businesses could help your community reach that vision?

Module 2 – Assemble the Champions

•What are the Soft Skills and Technical Skills required?

•How can you get the “right” leaders together and build excitement?

•Do they have experience in the business you are considering investing in?

•How can you engage them be accountable?

•How are you going to deal with nay-sayers and dissent?

•How and when are you going to celebrate?

The. Cavalry. Isn’t. Coming.

Module 3 – Incorporate your ODC ODC Venture Capital Firms Discount Brokers

Investment

Decisions

Member elected board of

directors who assess local

business opportunities and

are required to

Investment experts Financial Planners and

consultants selling a series

of products.

Commission Commissions are not

allowed to be paid to agents

selling shares

Earns a commission based

on the success of the

investments.

Earned based on number of

clients the planner or

consultant works with

Location of

investment

Local business within a

defined community or

region

All over the world in a variety of industries, financial

markets, currency, and all elements of the

Investment Profile Slow patient and friendly.

Often to the success of local

business.

High risk/high rate of return Varies based on investor

profile

Investment

objectives

Create financial return to

the ODC and its members,

AND community benefits,

Create profit Create profit

Module 3 – Incorporating Your Coop

• Purpose of your ODC - To support and facilitate the development of businesses and undertakings which, in the opinion of the Cooperative, will enhance the social and/or economic well-being of Capitaltown and/or neighbouring communities in accordance with the principles set out in the Bylaws of the Cooperative.

• What does one member one vote mean?

• What are the positive and negative aspects of this key feature of coops.

Module 4 – Choosing the Right Local Investment

• Why do you think it is solid investment?

• What do you know about the management?

• What do you know about the market the business is in?

• Will you own physical assets or not?

• What is the size of the investment?

• What are the terms for the investment – total capital needed/dividend/interest/5 year term or more ?

• How will the ODC support the entrepreneur?

• Why kind of contracts need to be in place – e.g. real estate purchase, lease agreements, loan/investment agreements

Module 4 – Choosing the Right Local Investment

Why do we need to invest in succession?

•Baby boomers are getting old!

•1,200,000 businesses in Canada – ½ are owned by Baby Boomers

•Boomers are hitting retirement age and need to transition out

•Continued centralization/urbanization of business services

•Market demand for buyers, financing

•Near Crisis situation in small rural communities

ESOP

Opportunity Development Cooperative

Current Business Owner

Transition of Assets

ODCs and Renewables R

even

ues

Sale to Grid

Direct to Consumer

Power Purchase Agreements

Green Attributes

ODC invests with Joint Venture Partners,

Municipalities, Utilities, etc.

Module 5 – The Investment Process

•How will you get the word out?

•Securities Commission – there to protect investors - how will you do the same?

•How will you determine the number and cost of Membership Shares?

•How will you determine the number and cost of Investment Shares?

•How will you actually sell the shares?

•How will you deal with the delay in getting RRSPs in?

Why the Coop Model?

Number of cases of investment fraud using a corporate shareholder model in Canada/US –

• THOUSANDS

Number of cases of investment fraud using the cooperative model (across Canada and the US)

0 • Jurisdictional Comparison – complete

exemptions from securities regulation for cooperatives in Wisconsin/Minnesota.

• UK increased exemption to $200, 000/individual investor

Module 6 – After Care

•What’s important to ensure long-term success?

•What nifty ideas can you use to keep members informed and engaged?

•Co-operative principle 6 (co-operation among co-ops) & 7 (concern for community)

•What happens at the end of the “term of contract” with the business?

•Transition of leadership in your ODC?

•How and when are you going to celebrate?????

Ongoing Improvements

•Now eligible for Tax Free Savings Accounts

•Expand model to BC and Sask and adapt to local conditions/regulations

• Linkages into crowdfunding including equity crowdfunding

•Establish Securities Dealer to enable larger deals, potentially cross provincial.

•Develop Succession/ESOP model for smaller businesses

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Unleashing Outcomes •Reduced transaction costs 75%

• From ~$100,000 to $5,000 - $25,000 • Offering cost from 8-11% to 2-3%

•Simplified process and built capacity • Legal templates, accounting practices • Coordinated RRSP registration with CWCF

•Completed online ULC Guide for Community Leaders

•Expansion of Model to Saskatchewan/BC

Current Unleashing Communities • Crowsnest Pass - Historic building

• Smoky River - 55+ Housing

• Vegreville - Withdrew

• Athabasca - blind pool

• Black Diamond – withdrew

• Didsbury - Café/Bakery

• Drumheller - Renewable Energy

• Three Hills - Medical Clinic

• Vulcan - Renewable Energy

• Thorhild – Mechanics Shop

• Elnora – Housing Development

• Killam – Adult Housing

• Calgary – Seniors Housing/Renewable Energy

• Edmonton – Green Housing/Renewable Energy

Why would you want to do this? • Spark economic development

• Stimulate autonomy

• Create jobs

• Aid in business succession

• Support young entrepreneurs

• ROI to local investors

• Active/Engaged investing

• Sense of economic well-being

• Adds another tool to your ec dev toolkit

More information

www.acca.coop /unleashing Paul Cabaj Director of Cooperative Development www.acca.coop 780-716-4475 pcabaj@acca.coop

Seth Leon

Co-op Research Officer

403-336-0468 sleon@acca.coop