Equity 25^3
What problem is the fund solving?
The fund was set up to bridge capital gaps faced by fast-growing and diverse-led/owned enterprises that are seeking scaling-up/growth capital, networks, partnerships and wider support. It is the largest Canadian fund ever created to target companies that leverage diversity and inclusion as a vector of development and expansion.
The JEDI lens
Focused on diverse founders and leaders, defined as women, visible minorities, and Indigenous peoples, all of whom are relevant in the Canadian and wider North American context.
The intent is to enhance equality in underrepresented groups, bringing the proportion of investees in line with population/demographic patterns.
Baseline and targets include representation of at least 25% diversity in the: i) Board of Directors, ii) management team, iii) ownership structure AND achieving this objective within five years of confirmed financing.
In some cases, portfolio/investee companies have ESG and diversity policies in place; others are starting from a lower baseline. All are supported to develop a plan post-investment to keep them on track for 25^3 targets.
Not sector-specific, with a focus on both tech and other growth stage enterprises. Their analysis addresses diversity at the enterprise level, under the assumption that diversity at this level trickles down to customers, supply chains, etc.
Challenges to Date
Translating the vision of diversity and inclusion into viable investment criteria and firming up the thesis;
Proving the diversity and inclusion dividend to investors - focus on proving outperformance vs simply no downside, and the value of leveraging the diversity mindset (that diversity attracts diversity)
Building a financing ecosystem for diverse entrepreneurs from early stage to post-IPO financing
Key Learnings
At the time of investment, if there isn't already a diversity touchpoint, the investee company is required to form a D&I Committee that reports directly to the board that includes a CDPQ representative and senior leadership of the investee company, all with the goal of ensuring diversity targets are reached within 5 years;.
Collaborating with different groups within CDPQ, underpinned by deep support of management;
Being agile and making sure internal investment procedures are not too heavy to implement;
Using the side letter of the investment agreement to include diversity targets, the action plan, and right to terminate if no action ensues. Clauses around the right to intervene are in there for good measure, but the approach is collaborating closely with the enterprise to support them.
Portfolio Company example
ApplyBoard, a Waterloo, Ontario-based platform that matches diverse international students who want to study abroad with appropriate programmes globally, with a fee-based model funded by the universities, not the students. "Diversity and inclusion are at the heart of ApplyBoard’s way of doing business, both of which are aimed at sustaining value creation for the long term’, says Wils Theagene, Senior Director, Québec, CDPQ and representative of the fund. “They are reflected in the company’s quality management team and workforce, and through its mission to democratise education by allowing international students to access academic institutions around the world."
Snapshot
Name: Equity 25^3 Fund
Type: $250M PE/VC Fund not looking for co-investors at this point
Focus: Growth stage, $5-million to $50-million cheque size
Location: Canada
“We bumped into an untapped market. It exists, it’s there. And the more we look for [diverse entrepreneurs], the more we find them”