Solving the Start-up & VC malaise part 2
Over the past few weeks the folks at the CVCA have been knocking on plenty of political doors. The goal has been to spread the word about the troubling trends in the start-up and venture capital industry. For myself, I think there’s a growing comfort within our ranks to refer to this as a crisis, something that proud investors might not have been prepared to do in years past.
Whether it be at the federal or provincial levels, meetings aren’t enough of course. You need ideas. And this is where our network of start-up, boot camp, Angel and venture capital folks comes in. If the government is going to tweak some levers in an effort to stimulate our part of the market, we need to give them a hand. New thinking. Or at least old thinking with a new twist.
Just watch what the auto sector has done in the past few weeks. Having been turned down by Ottawa for direct grants to re-open plants that make engines and what not, Ford et al come up with a brilliant idea: why not let us tap into the existing Scientific Research and Experimental Development (SR&ED) tax credit program?
What a minute. That’s for small, privately held, Canadian controlled companies, isn’t it? How does Ford, with US$18 billion of EBITDA, fit that profile?
According to the Canadian Chamber of Commerce, the SR&ED program costs the government about $3 billion in foregone tax revenue. Allowing the auto (and other) folks into the pool might increase that amount by another billion dolars annually. At the start, all Ford was asking for was $30 million of government assistance to get the Essex engine plant open and save 1,500 jobs. “Don’t have $30 million for us? How about a billion?”
The remarkable thing isn’t that this idea is resonating with the federal finance department, what is remarkable is that the geniuses behind Canada’s technological innovation have been outflanked by some old economy players (that’s not to say that some of us dimmer bulbs haven’t been trying; see prior post “Ontario politicians asked to address deteriorating VC climate“, October 1-07). Who is hurting more than Canadian software designers as a result of the appreciation of Canada’s currency? If the tech and biotech industry wants to survive and thrive, it needs to get as constructively aggressive as the auto industry.
To start the process off, we’ll be holding a summit over the next couple of months. The plan is to invite a few dozen people representing various stakeholders in the ecosystem. One provincial government department has already agreed to participate, and I don’t doubt others will. They’re as hungry for solutions as the rest of us.
Solutions start with ideas. I have a few (see prior post “Solving the Start-up & VC malaise“, January 18-08), and some of them may be unworkable. We’ll need plenty more. Thomas, Heri, Rick, Alpha, AT, Suzi…over to you. Comments and emails welcome (politely demanded).
MRM
I have limited experience on the small/venture scale of lending, so I will ask a question instead of giving an answer.
In areas or countries that are proven centres for innovation, what do they have that we lack? I’m thinking of VC/tech meccas like Boston-Cambridge, Silicon Valley, Sweden, Norway, et al.
With the way things are going in Waterloo I’m thinking the VCs should start sponsoring under-25 poker players from UW. If 3 in 10 win big you’ll still get the RoC to keep your investors happy, no?
Since it was so politely demanded…
Most of this isn’t rocket science (unless you are invested in Gary Snoman’s latest fund YouTube – Gary Snoman 2007), but it is pretty darn close. Most new technologies are very hard to develop. It take a lot of smart people, deep pocketed investors who can stomach the risk, and a supportive government and regulatory environment. Anything that helps one of these three categories is a good idea in my books.
I would also say that there is a fundamental accounting problem for start-up companies. Your largest expense is by far your people… but they are also your greatest asset. Accounting doesn’t really have a method of capturing this. If 20 engineers work for an entire year, are paid, say $2M, they most have created something valuable? If it is worth $1 or $100M, it is worth something… but, most of the time, there is no asset recorded on the balance sheet.
In our current knowledge based economy, I think the sophisticated folks at Wellington Financial have figured this out, and are more than happy to support companies with this type of IP.