C Corporation Venture Capital

							Small Business Venture Capital
Act:
2003 Legislative Amendments
Accelerating Access to Venture
Capital




Ministry of Competition, Science & Enterprise
Investment Capital Branch – April 2003
Small Business Venture Capital Act
Amendments:
Presentation Outline

     Overview of venture capital programs
     Eligible Business Corporation amendments – the direct
      investment model
     Eligible Business Corporation illustration– how does it
  work?
     Venture Capital Corporation amendments – portfolio
  investing
     Venture Capital Corporation illustration – how does it
  work?
     ‘New Media’ Sector Tax credits – 2003 budget
  announcement
Small Business Venture Capital Act
Amendments:
Program Overview

Program History & Background:
 Provides a 30% fully refundable tax credit to resident
  investors who invest in small businesses through a
  holding company
 Since 1985, raised over $400M for investment in 575
  small businesses throughout British Columbia including:
       A.L.I. Technologies Inc. (Richmond)
       The Wickininnish Inn Ltd., (Tofino) and
       Blue Mountain Vineyards Ltd. (Oliver)
 Annual program capital investment: up to $67M per year
Problems with existing legislation:
 An un-level playing field with Labour-Sponsored Funds
  for raising and investing capital
 Too much program red tape for raising seed capital
  (<$1M) related to incorporation costs and program filings.
Eligible Business Corporation Amendments :
Direct investment - More seed capital…..less
red tape

For investors this means:
   Can invest and earn tax credits in a small business
     without setting up a holding company
   Can invest directly through an RSP and obtain prior
     year tax credits for investments made during RSP
     season

For small businesses this means:
   Fewer corporate and program filings and cost savings
     from not having to incorporate a holding company.
   A viable alternative to raising seed capital in the $0M
     to $1M range
   The ability to offer voting or non-voting common or
     preferred shares to investors (debt is not permitted)

                      How does this new model work?
The ‘Eligible Business Corporation’ Model - Direct
Investment


            Investors          30% Tax Credit   Province of B.C.



                                    The Investors:
        $                               Arms-length from the owners of
                                          the Eligible Business Corporation
                                        Shares may not be transferred,
                                          redeemed, acquired or cancelled
                                          for 5 years.
     Eligible Business Corp.        The Eligible Business Corporation:
              (EBC)
                                        Less than 100 employees
                                        Pays at least 50% of wages to BC
                                          residents
                                        Engaged in one of the following:
                                            Manufacturing & Processing
                                            Destination tourism
                                            Research & Development of
                                              technology
                                            Community Diversification or,
                                            Development of digital new
Venture Capital Corporations - Legislative
Changes
Leveling the playing field for venture capital
in B.C.
For Venture Capital Corporation investors this means:
   Tax credit for direct RSP investment and prior year tax
     credits when purchases are made during RSP season
   More choices for investment in professionally managed
     funds
For managers of Venture Capital Corporations this means:
   No capital raising limits (subject to annual tax credit
     budget)
   Investments can now be made through Limited
     Partnerships and holdcos (much more flexibility)
   Program discretion that no longer forces business
     divestment
For small businesses this means:
   Can now receive up to $5M in program capital (up from
     $3M)
   May issue voting or non-voting shares, warrants,
The ‘Venture Capital Corporation’ Model – Portfolio
Investing

            Investors          30% Tax Credit   Province of B.C.



                                    The Venture Capital Corporation:
            $                           Common shares (multiple classes)
                                        Shares Redeemable after holding
                                         ESB investments for at least 5
      Venture Capital Corp.              years.
             (VCC)
         B.C. Investors             The Eligible Small Business:
                                        Less than 100 employees
                                        Pays at least 50% of wages to BC
            $                            residents
                                        Engaged in one of the following:
                                            Manufacturing & Processing
                                            Destination tourism
     Eligible Small Business                Research & Development of
              (ESB)                           technology
                                            Community Diversification or,
                                            Development of digital new
‘New Media’ Sector Tax Credits:
 2003 Budget Announcement
  Summary
   Reserves $5M of tax credits for the thriving new media
    sector (up to $17M in capital annually available for
    investment)
   Small businesses in this sector have the choice of using
    either investment model (VCC or EBC)
   More competitive than expenditure credits in other
    jurisdictions in that the tax credit is fully refundable and
    capital is provided up front from investors
   To qualify, a small business must be substantially engaged
    in
     the development of interactive digital media product that:
          oeducates, informs or entertains using at least 2 of
           the mediums of text, sound or visual images, and
          oIs not developed for internal corporate promotion
Venture Capital Programs:
 How to Get Started
  3 Step Process:
  1. Determine what type of investment model suits your
      business plan ( Direct Investment or Venture Capital
      Corporation)
  2. Download registration forms from branch website and
      submit:
           A copy of your most recent business plan;
           Copies of your most recent financial statements;
              and
           Incorporation documents and share capital
              registers.
  3. Within three weeks an eligibility ruling and registration
      certificate will be issued that will allow your business to:
           Raise capital from investors;
           Issue tax credits certificates; and
           Grow your business with patient capital.
Venture Capital Programs
Contact Information


          Direct enquiries to:

            Todd Tessier, Portfolio Manger
               Investment Capital Branch
              PO Box 9800, Stn Prov Govt
            7th floor, 1810 Blanshard Street
                Victoria, British Columbia
                        V8W 9W1

          Phone:           (800) 665-6597
          Internet: http://www.equitycapital.gov.bc.ca
          Email: ecp@gems3.gov.bc.ca