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CVCA Releases Quarterly Report, Urges More Tax Support For R And D

by Mike Godfrey, Tax-News.com, Washington

04 December 2008

Figures recently released by Canada's Venture Capital and Private Equity Association have served to reiterate the Association's warnings with regard to the state of the sector, and to underline the need for increased tax support for research and development activity.

Last month, the CVCA revealed that activity in Canada’s venture capital market continued at the slower pace in Q3 2008 that had been apparent since the first half of the year.

It explained that:

"Nationally, a total of CAD372m (USD295m) was invested between July and September, lagging by 26% the CAD501m invested at the same time in 2007. The number of Canadian-based firms securing venture capital was also reduced on a year-over-year basis."

"The number of companies financed totaled 123 during the third quarter, or 12% fewer than the 140 companies financed one year ago. Year-to-date numbers confirm the extent of the market downturn currently taking place in Canada."

"As at September 30 just over CAD1.0bn has been deployed to 296 companies, which is 33% below the CAD1.5bn that went to 336 companies during the same nine-month period in 2007."

“These investment numbers, which ultimately reflect the availability of capital in the venture capital industry, are worrisome in that they further confirm Canada’s ongoing weakness in driving innovation,” observed Gregory Smith, President of the CVCA and President of Macquarie Capital Funds Canada Ltd.

He continued: “The CVCA has developed a four-point commercialization support program to help address these VC industry trends and to increase the availability of venture capital for high-growth small businesses.”

The program, first unveiled in October of this year, called on the government to:

  • Improve the Scientific Research and Experimental Development program (SR&ED) tax credit program, which would effectively stimulate the growth of small companies;
  • Set up a third-party managed fund of funds similar to those funds recently established in Alberta, British Columbia and Ontario to help fuel the growth of vibrant, leading-edge companies;
  • Enable greater use of government procurement/offsets to encourage domestic as well as foreign multinational investment in Canadian venture capital funds; and
  • Create an incentive for large Canadian corporations to invest in Canadian VC funds, where an investment in a VC fund would receive the same tax treatment that is currently available for in-house research and development.

Commenting on the proposed initiatives at the time, the CVCA boss stated that:

“We call on all parties to recognize the pivotal role that emerging companies play in Canada’s economic renewal. Helping these companies to successfully commercialize Canadian research is essential to our national productivity and to enhancing Canada’s place within the global economy. We look forward to working together on prudent measures that will ensure a vibrant venture capital industry and new investment in innovation.”

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