CVCA injects some fresh ideas into the federal election campaign
A few hours ago, the Canadian Venture Capital & Private Equity Association announced some modest and practical suggestions for our elected officials to consider as they make the final push towards the October 14th federal vote. Over the past four months, a subcommittee of the CVCA reviewed a variety of ideas and initiatives that could directly stimulate the ongoing crisis in the Canadian venture capital and start-up community. You’ve read about it here for months (see prior posts, ending with “Solving the Start-up & VC malaise part 2” February 6-08).
We took the best ideas, and approved them at the CVCA board of directors last month. There were other worthy concepts, but we didn’t want to approach the federal political parties with a list on unmanageable concepts. The key problems were are trying to solve are: one, the lack of early stage capital for emerging growth companies; and two, the paucity of potential institutional investors for the funds that make or break these new technology and lifescience firms.
Here are the four key recommendations:
1. Enhance the existing SR&ED program for private companies. Rather than get $1 back for every $1 of allowable R&D, companies would get $1.50. What better way to get money into the coffers of emerging companies that are trying to commercialize and sell their technologies, life science, biotech or clean tech discoveries.
2. Launch a $300 million fund of fund program, to be managed by a third party. You’ve read about these initiatives by the provincial governments of Alberta, British Columbia and Ontario. It’s time that the federal government got into the game. And (speaking for myself) not in the way that the Business Development Bank is trying to do with the $75 million that was earmarked in the last federal budget. This program needs a legitimate 3rd party to manage the program, and 100% of the funds should go into seed stage and venture capital-type funds, unlike the Ontario MRI Fund which might see up to 60% of that capital go into private equity mandates (see prior post “MRI Fund rumors come true” June 11-08).
3. Encourage large corporations to become limited partners in seed-stage and venture capital funds. Too few firms have taken the path that Research In Motion and Royal Bank did with the BlackBerry Partners Fund, for example (see prior post “BlackBerry Partners Fund a coup for JLA and RBC” May 12-08). Allow them to deduct for income tax purposes whatever they invest in a V.C. fund, just as they can currently deduct their own internal R&D spend.
4. Allow domestic and foreign multinationals to count their limited partnership commitments to a seed-stage or V.C. fund as an IRB (Industrial Regional Benefit). Right now, a large aerospace firm needs to scour the nation in the hopes of finding someone to make rivets or noise-dampening material. What better way to turn us from a nation of wood hewers to software developers than to treat the two on the same playing field?
A special thanks to everyone on the CVCA for rallying together to get this out the door at a crucial time. Between 2002-2007, early stage V.C. funding dropped 42% in Canada, and overall V.C. investment is down 30%. Ontario’s dramatic drop in attracting venture capital dollars mirrors the decline in money invested by the local labour-sponsored fund industry. Since Ontario Finance Minister Dwight Duncan has firmly resisted re-opening the 2005 decision to kill that industry, it is time to find new tools to avert the crisis that is currently underway.
Here are four ideas for the federal government to take to heart.
(disclosure – I’m on the Board of the CVCA)