CVCA Calls For Tax Credit Support To Arrest Decline

by Mike Godfrey, Tax-News.com, Washington

14 May 2009

The first quarter of 2009 saw a serious downturn in the fortunes of Canada's venture capital industry. The Canadian Venture Capital and Private Equity Association (CVCA) has worked together with research partners Thomson Reuters to generate a statistical overview and plan to revive the industry.

Funds invested in the first quarter were down to their lowest for any quarter in the last 6 years, down 25% from the same quarter of 2008 at CAD 275m compared to CAD367m. The average investment deal was CAD 2.7m, much the same as in 2008 but still perceived as too small. Fundraising activity is also shown to be in serious decline with new funding commitments a mere CAD149m, down 74% from Q1 of 2008.

The CVCA's recommended program calls on the government to:

• Establish and grow fund of fund structures;
• Make improvements to the SR&ED tax credit program;
• Improve the incentives for corporations to invest in venture capital funds; and
• Actively promote investment in Canadian venture capital funds as part of the offset agreements that are negotiated with major government contractors.

"Growing the supply of venture capital to support the growth of new and emerging companies will require all stakeholders to work together to build a solid foundation", said Gregory Smith, President of the CVCA.

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