>Crossing the valley of death – that perilous period between building a business and scaling it up – is an unfortunate rite of passage for Canadian entrepreneurs.
>Startup founders in other countries don’t suffer in quite the same way. But the dubious distinction that has held our businesses back for decades is finally being addressed.
>The funding gap facing fast-growing companies in this country, infamously known as the “valley of death,” is treacherous. Companies say there are options for smaller financings or investments up to a few million dollars, and many more choices in the tens of millions of dollars.
>But there is a desolate space between roughly $5-million and $25-million full of startups struggling to secure money to help them scale. It’s the point where many do not survive.
>And those that do are often left permanently disadvantaged, with scant resources relative to their international peers, dragging down economic growth and exacerbating Canada’s productivity crisis.
really neato article on canadian venture capital thats pretty applicable to a lot of other countries. american investors just *love* gambling on small-mid sized enterprises in a way no other nation’s investors do, and canadian investment is so centralized in big institutional funds it really suffers from it.
>Among the more novel proposals involves a plan to open the seemingly bottomless pockets of Canada’s world-leading pension funds to SMB lending. The challenge, industry experts say, is that no matter how much attention Canadian pension funds pay to domestic investments, they are simply too large to give SMBs the time of day.
>“These organizations are of such a scale, they need to deploy $200-million to $300-million per relationship,” Dino DeLuca, chief operating officer of Calgary-based private equity firm TriWest Capital Partners, told the Senate. “They don’t have the staff to devote all the research and the diligence to make an investment of $15-million, $20-million or $30-million. It’s $200-million plus.”
>Miwako Nitani, a University of Ottawa professor whose research relates to the financing of entrepreneurial firms, submitted analysis to the Senate that showed the average interest rate spread for bank loans between large and small business across other OECD countries is 1.05 per cent. In Canada, the spread is 2.26 per cent.
really this is a major concern i have with carney’s economic policy so far, despite it being more deregulatory (good) it still focuses way too much on large projects and enterprises instead of creating a good environment for SMBs
>In the meantime, changes to federal tax rules could incentivize more investment in SMBs much more quickly.
The National Angel Capital Organization, an industry group that represents more than 4,000 early stage investors across Canada, gave the Senate several recommendations to consider. NACO proposes defining a new category of business that it calls the Canadian Sovereign Scalable Company, or CSSC.
>To qualify as a CSSC, a business must have either received at least $150,000 in angel or venture capital from a NACO member or a qualified VC fund within the previous 24 months, or be Canadian-headquartered, knowledge-based, with IP-intensive and high growth potential.
>NACO would like Ottawa to introduce a 30 per cent refundable tax credit for investments made in CSSCs.
>The national credit would be stackable on top of existing provincial incentives – B.C., Manitoba, Nova Scotia and New Brunswick already offer credits to early stage and small business investors ranging from 30 to 50 per cent – with a combined cap of 50 per cent, roughly in line with the Seed Enterprise Investment Scheme in the U.K.
>NACO also recommends allowing investors to defer capital gains on profits from CSSC investments, as long as those proceeds are reinvested into another CSSC within 12 months. That would encourage what NACO calls “capital recycling.”
>Another idea that both Mr. Arabzadeh and NACO recommended is a domestic version of the U.S. Qualified Small Business Stock framework. The QSBS deduction exempts all capital gains (up to either US$10-million or ten times the initial investment, whichever is greater) made on investments in businesses with up to US$50-million in assets from federal taxes.
not enough industrial policy is focused on encouraging investors to gamble more – an actually incredibly important thing in a capitalist economy!
1 Comment
>Crossing the valley of death – that perilous period between building a business and scaling it up – is an unfortunate rite of passage for Canadian entrepreneurs.
>Startup founders in other countries don’t suffer in quite the same way. But the dubious distinction that has held our businesses back for decades is finally being addressed.
>The funding gap facing fast-growing companies in this country, infamously known as the “valley of death,” is treacherous. Companies say there are options for smaller financings or investments up to a few million dollars, and many more choices in the tens of millions of dollars.
>But there is a desolate space between roughly $5-million and $25-million full of startups struggling to secure money to help them scale. It’s the point where many do not survive.
>And those that do are often left permanently disadvantaged, with scant resources relative to their international peers, dragging down economic growth and exacerbating Canada’s productivity crisis.
really neato article on canadian venture capital thats pretty applicable to a lot of other countries. american investors just *love* gambling on small-mid sized enterprises in a way no other nation’s investors do, and canadian investment is so centralized in big institutional funds it really suffers from it.
>Among the more novel proposals involves a plan to open the seemingly bottomless pockets of Canada’s world-leading pension funds to SMB lending. The challenge, industry experts say, is that no matter how much attention Canadian pension funds pay to domestic investments, they are simply too large to give SMBs the time of day.
>“These organizations are of such a scale, they need to deploy $200-million to $300-million per relationship,” Dino DeLuca, chief operating officer of Calgary-based private equity firm TriWest Capital Partners, told the Senate. “They don’t have the staff to devote all the research and the diligence to make an investment of $15-million, $20-million or $30-million. It’s $200-million plus.”
>Miwako Nitani, a University of Ottawa professor whose research relates to the financing of entrepreneurial firms, submitted analysis to the Senate that showed the average interest rate spread for bank loans between large and small business across other OECD countries is 1.05 per cent. In Canada, the spread is 2.26 per cent.
really this is a major concern i have with carney’s economic policy so far, despite it being more deregulatory (good) it still focuses way too much on large projects and enterprises instead of creating a good environment for SMBs
>In the meantime, changes to federal tax rules could incentivize more investment in SMBs much more quickly.
The National Angel Capital Organization, an industry group that represents more than 4,000 early stage investors across Canada, gave the Senate several recommendations to consider. NACO proposes defining a new category of business that it calls the Canadian Sovereign Scalable Company, or CSSC.
>To qualify as a CSSC, a business must have either received at least $150,000 in angel or venture capital from a NACO member or a qualified VC fund within the previous 24 months, or be Canadian-headquartered, knowledge-based, with IP-intensive and high growth potential.
>NACO would like Ottawa to introduce a 30 per cent refundable tax credit for investments made in CSSCs.
>The national credit would be stackable on top of existing provincial incentives – B.C., Manitoba, Nova Scotia and New Brunswick already offer credits to early stage and small business investors ranging from 30 to 50 per cent – with a combined cap of 50 per cent, roughly in line with the Seed Enterprise Investment Scheme in the U.K.
>NACO also recommends allowing investors to defer capital gains on profits from CSSC investments, as long as those proceeds are reinvested into another CSSC within 12 months. That would encourage what NACO calls “capital recycling.”
>Another idea that both Mr. Arabzadeh and NACO recommended is a domestic version of the U.S. Qualified Small Business Stock framework. The QSBS deduction exempts all capital gains (up to either US$10-million or ten times the initial investment, whichever is greater) made on investments in businesses with up to US$50-million in assets from federal taxes.
not enough industrial policy is focused on encouraging investors to gamble more – an actually incredibly important thing in a capitalist economy!
!ping CAN