Investing without research is like playing stud poker and never looking at the cards.
Go for a business that any idiot can run - because sooner or later, any idiot probably is going to run it.
Peter Lynch
I was intrigued to see today that the Atlantic Canada Opportunities Agency (ACOA) is suing Cathexis Innovations for $4.4 million as a result of alleged loan payment defaults. The story can be found here.
It’s not the first such court case nor will it be the last. Here’s an example – ACOA suing Consilient for $7.7 million. It is intriguing to see how some people behind these failed ACOA investments parlay their ACOA-enabled“success” into great careers. This is how Trevor Adey, former head of Consilient, is described in his Ericson bio.
While the notion of a federal agency investing in seed or growth capital is a noble gesture, there are many dirty secrets that people have discovered that allow those who know how to play the system to gain millions in funding, redirect much of it towards their own pockets and then allow the companies to go down the drain. As Sunny Marche, formerly a management professor at Dalhousie University (now deceased) once said:
They know how to write the application so that it gets some kind of positive review. They know what the right language is ... and they've cracked the code around the relationship with ACOA.
To be clear, I am not implying or inferring that Cathexis is one of those companies nor am I suggesting that ACOA is without some successes.
However, when many companies have milked the ACOA teat to the fullest extent possible and go down the drain anyway, they cite “poor market conditions” or some other excuse while those of us “in the know” shake our heads at another rip-off.
As someone who has been asked many times to explore companies who are on the ACOA teat to see if they are “real or just smoke and mirrors”, I have become very disenchanted with the government investment program as a result and I wonder if it’s more of a vote-buying engine than an investment engine.
But before I get into why I think this, some advice from my mother comes to mind:
If you can’t say something good about something then don’t say anything at all.
Hmmmmm …. good advice.
In service and servanthood,
Harry
Addendum
Some readers have asked for examples and I will provide one.
A leadership team of an ACOA client had for years spent approximately 60% of its time applying for various government investment and incentive programs. For some of the leadership, that’s all they did year round.
At one point, they had an opportunity to score a potentially large partner investment with a globally known brand that had revenue in excess of $20 billion per year.
The potential partner offered an initial sum of approximately $2.4 million in order to partner with this company and to build extensions to this company’s product offerings. This would have amounted to more money than this company earned cumulatively (i.e. non grant / investment / loan capital) in the history of the 10-year old company.
Most of us entrepreneurs see such opportunity as turning the corner on the way to success.
However, this company turned down the offer.
Why? Because they were afraid that they would fail to deliver for this important partner whereas “other sources of income” were more guaranteed and easier to get.
I was in the room when the decision was made … and have never forgotten it.
