Venture Capital Programs Spring, 2009 by znr91839


									Venture Capital Programs
Spring, 2009

presented by the

Investment Capital Branch
Ministry of Small Business, Technology and
Economic Development

    •Overview of Legislation, Programs & Tax Credits
    •Investment Models
    •Direct Investment/Portfolio Investing
    •Allocation Strategy
    •Sample Application
    •Summary Comments
Increasing Access to Equity Capital

 The government sponsored tax credit incentive programs encourage
 eligible small businesses located throughout the province.

     • Conventional financing may be difficult to obtain as lenders require
       proven cash flow to service debt obligations
                                    g    p                         y
     • Tax credits offset the shortage capital investment for use by small
       business whether in the early stage of innovation or already the
     • Equity or venture capital requires the sale of ownership where investors
       share in the potential risk and success of the business
     • Investments through provincially sponsored program can either be
       made directly into small businesses or indirectly through Venture Capital
       Corporations or Labour Sponsored Investment Funds

  Fund raising is market driven – investors are involved in due diligence process
  which may determine the amount of investment capital businesses can raise
  under the program
Tax Credit Budgets & Legislation
   Small Business Venture Capital Act
    Venture Capital Programs
               Equity Capital Program
               Community Venture Capital Program
               New Media Venture Capital Program
               CleanTech Venture Capital Program

    $30M in total SBVCA tax credits, leveraging up to $100M in capital

   Employee In estment
   Emplo ee Investment Act
    Labour Funds & Employee Ownership Programs
               Working Opportunity Fund
               Employee Share Ownership Program (ESOP)

    $8.25M in tax credits currently allocated leveraging up to $55M in LSIF capital,
    and $1M in tax credit to ESOP leverage up to $5M in annual investment capital
Investment Capital Programs

 Budgets are made available to registrants through ‘single-year’ and
 ‘multi-year’ allocations.

    Equity Capital Budget
      ($14.5M tax credits / $48.3M equity capital) – this budget is the basic
      incentive for investors.

    Clean Tech Budget
      ($7.5M tax credits / $25M equity capital – this budget is restricted to eligible
      investments for the purpose of reducing BC’s carbon footprint.

    Community Budget
       ($3M tax credits / $10M equity capital) – this budget is restricted to eligible
      investments outside of the Greater Vancouver Regional District or the
      Capital Regional District.

    New Media Budget
      ($5M tax credits / $16.7M equity capital) – this budget is restricted to
      eligible investments for the purpose of commercially exploiting interactive
      digital media.
Venture Capital Budget Allocations - 2009

                       Small Business Venture Capital Act

                             Venture Capital Programs
                        $100 M in capital ($30 M in tax credits)

Retail VCCs – 3 year allocations               Single-year VCCs & EBCs
4 funds based in Vancouver                     businesses located throughout B.C.

2009 Allocation:                               2009 Allocation:
Equity Capital              $25.0 M            Equity Capital             $23.3 M
New Media                     9.0
                            $ 90M              New Media                    7.7
                                                                          $ 77M
Cleantech                   $ 9.0 M            Community                  $10.0 M
                                               Cleantech                  $16.0 M
Total Allocation            $43.0 M
                                               Total Allocation           $57.0 M
Direct Investment Option

                  The Eligible Business Corporation (EBC)

                   •   Has less than 100 employees
                   •   Pays at least 75% of wages to BC residents
                   •   Minimum of $25,000 in equity capital
                   •   At least 50% of the assets and expenditures
                         l t to        lif i    ti it
                       relate t a qualifying activity

                  Eligible Investor

                   • Arms-length from the owners of the
                     Eligible Business Corporation
                   • Maximum of $5 million in investments
                                          transferred, redeemed,
                   • Shares may not be transferred redeemed
                     acquired or cancelled for 5 years
Venture Capital Corporation (VCC)
                        Eligible Small Business (ESB)
                          • Less than 100 employees
                          • Pays at least 75% of wages to BC
                          • Funds received must be used for
                            eligible purposes
                          • Business must be engaged in
                            eligible activities

                        Venture Capital Corporation (VCC)
                          • Must Invest 80% of the funds raised in
                            Eligible Small Businesses (ESB) for 5 years
                          • Can not hold more than 50% Voting
                            Control in the ESB

                        Eligible Investor
                          • Common shares
                          • Must be at arms-length from ESB major
                          • Max of $10 million in any given year
Eligible Business Activities

 Qualifying Activities           Non-Qualifying Activities

   • Manufactured goods
     from within the province     • Financial services
   • Research and                 • Retail
                                  • Real estate
   • Economic Diversification
     (technology)                   development
   • Community                    • Resource extraction
     Diversification (tourism)      Restaurants/service
                                  • R t       t/    i
   • Non-Traditional                oriented businesses
Prohibitions on Raising Equity Capital

   As the province is participating in the development of small
   businesses by reducing the risk to BC investors, tax credits are iissues
   b i        b    d i       h ik       Ci                 di
   with the understanding that:

       •   Eligible investors can acquire either common/preferred shares with
                   t / ti     b t  t      i    d    ti  i ht
           warrants/option but not speciall redemption rights
       •   During a valid authorization period, investments have to be for equity
           cash and not in the form of a debt instrument
       •   Shares issued to eligible investors can not be transferred or redeemed
           for five years
       •   Any dividends paid to eligible investors are done through retained
Program Activity – Venture Capital Programs
                                        British Columbia
                                      Development Regions
  •   The program has supported
           in estment
      the investment of $950
      million BC based small

  •          2003,
      Since 2003 nearly $59
                                                  8       1.   Vancouver Island/Coast
      million being placed in small                       2.   Mainland/Southwest
                                                          3.   Thompson/Okanagan
      businesses located outside                          4.   Kootenay

      the Vancouver & Capital
                                                          5.   Cariboo
                                                          6.   North Coast
      Regional Districts                 6    7

  •   Investments support                         5
      innovative small businesses,
          creation a d c eased
      job c ea o and increased
      trade within key sectors of
      the provincial economy                 1                             4
Regional Participation by Clients

      Eligible Business Corporations (2008)
              Participation by Region                    Investment activity in the Lower
                                                         Mainland represented by:
        Vancouver      Cariboo   Kootenay                 •   high-technology sectors
      Island / Coast    0.4%       0.8%
           5.8%                                           •   new media
      Thompson -                                          •   manufacturing
         6.6%                                             •   life sciences
                                                         Business activities vary in the
        North Coast
           0.0%                                          regions primarily represented by:
                                            Mainland /
                                                          • manufacturing
                                                          • software
                                                          • other sectors (processing &
Regional Participation by Capital Raised

    Percentage of Capital Raised by Region
                (2003 to 2008)
                                                          • The program has registered
                                                            over 1000 clients (both VCC’s
         Vancouver Island /
                              Cariboo                       and EBC’s) under the various
                                        Kootenay            programs
     Thompson -
                                                          • Half of the program
        7.6%                                                participation has occurred
                                                            since 2003
      0.6%                                   Mainland /
           North Coast
                                             Southwest    • Changes in legislation allowing
                                               85.0%        for the Direct Investment
                                                            Model have lead investments
                                                            in the development of new

 The Branch has taken steps to improve the management of the tax
 credit budget. This is response to concerns over the demand for the
    g              g                  g
 program continuing to exceed budget availability.

   • Eligible Business Corporations (EBCs) can raise up to $5 million
     (program limit) - there is no waitlist as long as tax credits are available.
     Authorizations are made available starting iin J
   • A th i ti               d  il bl t ti                  to   bl fund
                                                    January t enable f d
     raising early in the year
   • Registrant who receive a ‘single-year’ authorization will have an equal
     opportunity to attract investors based on tax credits budget being
   • While we have provided advisories when budgets are nearing
     capacity, clients can now obtain program update, view and record
                g                 g                   p     g y          )
     fund raising activities through our electronic reporting system eTCA)
Step #1
Registration Application - Eligible Business Corporation

• Jane Smith submits an registration
                 B siness
  as an Eligible Business Corporation
  (EBC) along with a business plan
  for Coast Designs Inc to the
  Investment Capital Branch

• The review process takes about
  two weeks, upon receipt of
  complete application

  As C     t Designs Inc meets the
• A Coast D i          I        t th
  qualifications of the program, a
  registration letter is issued outlining
  various compliance requirements
Step # 2
Fund Raising and Tax Certificate

      Online system (eTCA) for submitting
            investment information
                                            • Coast Designs Inc (the EBC)
                                              successfully attracts interest from
                                              family, friends and business

                                            • Funds raised from investors are
                                              reported through our web-based
                                              system (eTCA)

                                            • Once the review is complete, tax
                                              credit certificates are issued, early
                                              in the following year, to the EBC for
                                              distribution to investors

                                            • Investors claim the tax credit on
                                              their income tax return
Step #3
Continuing Compliance

• Within six months of its fiscal
  year end, Coast Designs Inc
  submits     Ann al Ret rn
  s bmits an Annual Return

• A Portfolio Manager reviews
  the Return to ensure
            g     p
  continuing compliance with

• Returns have to include
  financial information at a
  ‘reviewed engagement’
  ‘   i    d              t’

• After the investors have held
    e      es e s o        e
  their investments for five
  years, the EBC’s registration
  can be revoked and the tax
  credit liability can be waived
Program Budget Summary

   • The Clean Tech Budget is now available and directed towards
     small businesses that have developed technologies that are
     reducing BC’s green house gas emissions

   • Encouraging small businesses located outside the Lower Mainland
     and Capital Region to participant as the Community Budget is still

   • The Branch has been continually working to increase the amount
     of venture capital available and to support innovative small
     businesses, job creation and increased trade with key sectors.
Contact Information - Investment Capital Branch

      Investment Capital Branch
      PO Box 9800, Stn Prov Govt
      Suite #250 – 1675 Douglas Street
      Victoria, British Columbia
      V8W 9W1

         Phone: 1 800 665 6597

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