What do Canadian SMB owners really want from their investors?

Private markets have been attracting a lot of attention from investors seeking alternative routes to returns, and direct investment in private companies is a common method.

But for those interested in direct investment in Canada’s small and medium sized businesses, what do the owners of those businesses want, beyond simply gaining growth capital?

A new report from KPMG in Canada shines a light on growth prospects for SMBs including the part that investment – and investors – play in their future in the medium and long term with almost nine in ten respondents considering major expenditure to boost efficiency and productivity.

To help them achieve this, eight in ten SMB owners revealed that they want investors with patient capital that can back them for at least a decade, but also who can help them identify the skills and competencies that can help their business grow.

"SMB leaders are seeking partners to provide sustainable funding and sound advice on ways to expand their business," says Johanna Gerrie, partner, National M&A Tax Leader.

While technology is a key focus, SMB owners also want to find ways to improve margins.

The report also found that six in ten business owners plan to retire in the next ten years and will be considering whether to sell or transition the business and this is attracting private capital.

Positive outlook

For investors considering investing in a Canadian SMB, the good news is that those business owners who took part in the survey are optimistic about the future with 92% optimistic about their firm’s growth prospects over the next three years.

Helping with this growth will be technology, especially automation and adopting new technologies like traditional and generative AI to improve efficiencies and address labour market shifts. There will also be investment in equipment, machinery, new facilities, and upskilling employees.

"After a period of severe disruption, Canada's SMB leaders have learned valuable lessons in resiliency and agility, making them more confident in their ability to steer through uncertainty and shield their business from future risks," says Mary Jo Fedy, National Lead Partner, KPMG Private Enterprise, and CFO at KPMG. "Four years ago, many firms were just starting to adopt a digital mindset, and today they see generative AI as the most important strategy to deliver on growth. Given Canada's historic underinvestment in tech and growing productivity challenge, it is encouraging to see that business leaders are committed to investing in gen AI."

But there are challenges ahead with the report highlighting new tax measures, such as the capital gains rate hike, which respondents say are having a chilling impact on the Canadian business community and stifling growth. One third feel strongly that Canada's current tax system is bad for success and may see wealth and jobs leave the country.

"Our survey revealed an undercurrent of frustration over the impact of new taxes on Canadian business owners and entrepreneurs, who want to see Canadian tax policy become more competitive, relative to our major trading partners," says Dino Infanti, National Private Enterprise Tax Leader, KPMG in Canada. "As calls for broad tax reform continue, many business leaders feel that the current tax system is deepening Canada's productivity problem and increasing the risk of wealth and jobs leaving the country."