The electric and intelligent transport (TEI) sector needs private investors with the expertise to take on the risk when new businesses are starting up.
Propulsion Québec, the organization that represents the industrial cluster of the TEI, proposes the creation of a private fund of $ 100 million whose primary mission would be to support the two initial phases for which funding is the most difficult to find, namely the initiation and start-up of businesses.
An in-depth study of the financing chain carried out for Propulsion Québec shows that the capital needs of companies in the sector will amount, in Quebec alone, to some 2.6 billion by 2026 and that there will be a shortfall. 1.4 billion of this total.
Priming and starting, the weak links
How can a fund of just $ 100 million have an impact if the shortfall is literally 14 times greater? This is because, of the four phases of development identified – initiation, initiation, growth and maturity – the first two are also those that require the least amount of money. However, these are also those for which private financing is the most difficult to find, explains Simon Pillarella, director of financing and manpower at Propulsion Québec.
“These are stages that are considered risky for investors. There are those who understand this “game” well, who are going to be ready to put in the money at this point, but they are not easy to find. ”
He adds that beyond risk aversion, investors do not have the patience required to set up a business in an emerging sector.
“What is often difficult to obtain financing is the profitability which is not there, which is negative, which is low and which is demanded too hastily by investors. ”
Although Quebec has no shortage of large private or institutional investors, they prefer to put their marbles where the bases are already established, explains the president and CEO of Propulsion Quebec, Sarah Houde.
“They’re not there in the seed and start-up phases, which are the riskiest phases,” she says. They come later and also, they are not specialized in our sector. They are multisectoral, broader, so their detailed knowledge of our sector is less. ”
Lack of expertise
And this is where the creation of a private fund comes in to act upstream and whose management must be entrusted to an investor or companies ready to invest, beyond the pennies, in learning the sector. .
“Investors don’t know our industry well enough yet,” says Simon Pillarella. Institutional investors want expertise. They want a private sector to take the lead. ”
Sarah Houde seems confident to see investors raise their hands to set up such a seed fund.
“A capacity is being developed, a knowledge among us with investors to be able to move from the phase that is more secure, the growth phase, and go into the phase which is more risky, where you really have to you have a view on the validity of the technology, she said. You really have to know that to say: “ok, I’m putting money into that because there really is potential”. ”
For Simon Pillarella, this is the little boost that is missing for the electric and intelligent transport sector to reach cruising speed.
There is an advantage in developing this investment expertise that supports the early stages because that is what will make the wheel start to turn, that there will be more money for companies. .
Simon Pillarella, Director of Financing and Workforce at Propulsion Québec
According to Mme Houde, this seed fund should create a ripple effect. “If our own investors here encourage our businesses here, it sends a message to American and foreign investors that is different from when our companies are forced to go to them to beg,” she said.
“Money attracts money and if the local investors are there, the foreigners are going to be there too”, adds Mr. Pillarella.
The state cannot do it all
However, it is common knowledge in Quebec that governments are also an important source of funding, but they cannot replace the private sector, he specifies. “There are a lot of subsidies available to help businesses, they are well supported, but at the private level, when we talk about the early phases of investment, there is not a lot of money and the State has limits to what he can do. ”
In addition, if there is no private money at the start-up stage, it is much more difficult to find it to move on to the growth stage and this passage cannot depend solely on public funds. , explains Mme Houde. “When you want to take your prototype and release several units to meet multi-million dollar contracts, you need private funding. You can’t do this just with public money, it’s impossible. ”
Public aid: a warning
Moreover, the study issues a warning that directly targets public aid and which is a warning to governments not to insist on feeding the duck too long if it is lame, notes Mr. Pillarella.
“There are companies that will only surf on grants, research and development tax credits, but these companies do not reach levels of growth which, in the end, will make them great champions. At some point you have to ask yourself: is this a good return on the investment? “He wonders, while reaffirming that there is still” much more positive than negative with public aid, it is undeniable “.
“There is money in Quebec”
Simon Pillarella believes, ultimately, that the study will fill an important gap in the development of TEI.
“We didn’t have a clear photo. There, we have it and we know where we need money to help our sector to develop. There is money in Quebec. We don’t want the message to be: there is no money. It’s just that you need more at the start of the funding chain, ”he says.
“We have every chance of success in this sector,” concludes Sarah Houde. We have the assets. We have so many strategic assets that have a positive effect on each other ”, to the point where the other 1.3 billion that is missing should not be so difficult to fill, according to her.
“The 1.3 billion, there is more money in the other phases. We think that the market will gain the upper hand on this side and that is what is happening. ”