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Loving local capital

When you invest, your money doesn’t have to go to Bay Street—exploring local investing options

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Writer’s note: Just so you know, this isn’t a how-to that’ll point out the quickest, easiest route to investing success. This is an article on how to invest in Nova Scotia. We’re going to talk about returns, but it’s not the focus. We’re going to mention big banks, but only to show that they have no interest in supporting local business, at least according to what their spokespeople say.

 

A few years ago, restaurateur Lil MacPherson started moving all her investments back into Nova Scotia. Her returns were OK, but she was frustrated with the fact that, for the most part, she had no idea where her money actually was.

“Half the people don’t know what they’re investing in—they’re just hoping that someone does,” says MacPherson, who owns Halifax’s Wooden Monkey restaurant—a decidedly local food spot. “They don’t have a clue where their investments are, and it’s done in five minutes. There can be so much more depth to what you’re doing, and why you’re doing it—your investments mean more to you.”

So she’s started to shift all her investments closer to home. She now has $11,000 invested a CEDIF (Community Economic Development Fund—more on CEDIFs later) in Watts Wind Energy near Watts Section, more in two other wind projects, and plans to invest in FarmWorks, a Nova Scotia-based agricultural loan CEDIF with what’s left of her traditional investments.

“I don’t know why we find it so hard to invest in ourselves. If we put our own money back into our problems, we’d become a stronger province, and we’ll be richer for it,” she says. “It’s time we realized we’ve got some pretty good talent at home, and pretty smart people and great business owners.”

And through her investments, MacPherson will see multiple benefits: regardless of any returns, CEDIFs pay up to 65 per cent of their value in provincial tax deductions (35 per cent upon purchase, 20 per cent after 5 years, 10 per cent after 10), and are eligible for any RRSP tax deductions as well.

Chris Payne, the CEDIF program’s administrator in the provincial department of Economic and Rural Development and Tourism, says it’s hard to calculate the value of shares held in CEDIFs, but of the 50 that have launched since 2000, “there’s only four that have failed.“ Ten of the CEDIFs currently pay out dividends—a yearly share of the company’s profits—and one—JustUs Coffee, has gone from a basement operation in Wolfville to a 70-employee operation with $5 million to $6 million in revenue a year, and beans and chocolate available at cafes and grocery stores around the province.

There’s a risk that shares in a CEDIF might be hard to sell, come retirement time—there’s no open market for selling them—though they can be sold to other investors in the same CEDIF. But Payne says “in most cases, what happens is the fund will retain some of its earnings during that period, so when shareholders want to get out, [the CEDIF] can repurchase the shares.”

But for something that sells a little easier (and could go much bigger), First Angel Network—a group of investors co-founded and headed by Ross Finlay and Brian Lowe—could be your local bet.

“Where we play, and angels typically play, is very early stage—ahead of venture capital, and long before a company would go public,” says Lowe. Typically, companies angels invest in are worth less than $2 million dollars, and “they need $200,000 to $500,000 to get themselves to the next level,” adds Finlay.

Membership in First Angel is $975 a year, and that gives an investor with a little more money to play with the opportunity to get in at the ground floor with some of Atlantic Canada’s most promising businesses. They typically stay away from investments in resource-based companies, preferring “high-potential, global-scalability” startups in the Information and Communications Technology or clean tech sectors.

Both angels agree Nova Scotians need to have a little faith in their province. Not only do the strong defence, government and education sectors keep the province’s economy relatively stable, that combination also contributes to technological innovation.

“We see a lot of great technologies coming out of our universities, and we have a strong university system here in Atlantic Canada,” says Lowe, who is also Dalhousie’s entrepreneur-in-residence, and a member of an 18-university consortium that helps to commercialize some of the new technologies the schools develop.

Some of First Angel’s recent investments include TitanFile, a secure data company that already serves two law firms in Halifax—McInnes Cooper and Stewart McKelvey. Another, Unique Solutions Design Ltd, provides scan kiosks that examine the human body—and then prepare a report on what clothes will fit the customer. Solace Power, based in Newfoundland, is working on technology to wirelessly charge electronics like phones and laptops without cables or chargers.

Is a good old fashioned bank the place smart money goes to invest locally? The bank’s responses might give one some doubts. Spokespeople from RBC and Scotiabank (both founded in Halifax in the mid-1800s) suggested they had no local options they’d like to talk about, while TD Bank, though adding three stories and 100,000 square feet to its 18-storey tower on Barrington Street, didn’t return requests for interviews.

But Mike Leonard, president and CEO of Atlantic Central, the trade association that serves Atlantic Canada’s credit unions, says every penny invested in a local credit union is lent out to businesses in that community. “The whole philosophy around credit unions is that when you’re a member of that community, you’re building that community that you’re a member of,” he says.

He suggests investing in an RRSP in the local credit unions, the same way you would in a conventional bank, with comparable rates. And it’s simpler and safer than buying stocks or investing in mutual funds, he adds. “This idea of the credit union is much more applicable to the average person who has money to invest, but isn’t a specialist in investing, or they’re not a real seasoned market player,“ says Leonard.

Darlene Young, at the Halifax’s Credit Union Atlantic, was plugging her branch’s Rate Riser GICs (guaranteed interest certificates), which are currently paying from 1.1 to 4.55 per cent interest, depending on the term and amount. But she says she wouldn’t plug it if customers didn’t want it.

“That’s one of the advantages a credit union has over other institutions,” says Young. “We can develop products for what our members want, and what our economy needs, so it gives us a little bit of a foot up above everybody else.”

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