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CVCA presentation CVCA presentation

Innovation & Job CreationInnovation & Job Creation

August 2010August 2010

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Introduction

• Canada’s Venture Capital & Private Equity Association– Founded by 6 VC funds in 1974– Now counts 130 VC and Private Equity funds as members, with

>1,800 individual industry participants– By 2008, there were 1,755 VC-backed portfolio companies

employing 150.000 people with sales of $18 billion per year

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Industry Snapshot

• VC Funds focus on active management in emerging technologies: IT, Life Sciences, Clean Tech, Alternative Energy and Biotech:

– Our Portfolio companies grow 5x faster than non VC-backed firms, and export 70% of their sales on average

• In the U.S., venture capital played a role in Microsoft, Google, Intel, etc. In Canada, VCs backed Research In Motion, Corel, Day4 Energy, Biox, Miranda Technologies. Vancouver’s Vision Critical is a good case study:

– With just $11 million of private institutional capital, Vision Critical went from 30 employees in October 2006 to 350 today; revenue up 10x

• PE funds are active capital providers to high-growth mid-sized firms with meaningful employment. Porter Airlines is the perfect case study:

– In just 5 years, Porter created 930 direct jobs, and acquired $500 million of Toronto-made Bombardier Q400 aircraft, preserving 4,500 direct manufacturing jobs during a severe recession

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Venture Capital in Crisis: Investing

• Canadian VC investment is at a 14-year low:– Canada’s $18 billion annual investment in R&D is stranded because there

is insufficient capital to commercialize that government investment– U.S. spends twice as much to commercialize their nation’s R&D

investment– U.S. VC industry invested US$18 billion domestically in 2009, versus just

$1 billion invested by Canadian VC funds– With deeper pockets, U.S. VCs invest twice as much per portfolio

company as Canadian VC funds– Most Corporates, plus all Canadian banks, have closed their VC arms

• World Economic Forum report put Canada at 9th in overall competitiveness, but 18th for “Venture Capital Availability”, and labelled this a “competitive disadvantage”

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Venture Capital in Crisis: Investing

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Venture Capital in Crisis: Fundraising

• The ability of venture capital funds to raise capital today is the key to funding entrepreneurial companies tomorrow. Without new capital to invest, the next 5 years will be even bleaker than the past 5 for hundreds of Canadian entrepreneurs looking for growth capital

– VC’s financed 331 companies in 2009, down 38% from 536 firms in 2005…hard evidence of the industry’s crisis

Public Policy

• Governments recognize the key role that venture capital serves to leverage the ongoing investments in Canada’s R&D universe

• Government has opportunity to pursue initiatives to increase Canada’s success at commercializing technologies– VC funds need to attract a solid base of domestic and international

investors if they are to capitalize our emerging technology industries

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CVCA’s 5 Point Action Plan

• Improve the IRB / OFFSET program to facilitate investments by foreign defence and security contractors in VC funds

• Enhance incentives for retail investors to return to the VC asset class by raising both the limit and the investment amount that qualifies for tax credits under the existing Federal program

• Establish a $300 million, private sector-managed VC Fund of Funds program

• Permit corporations to treat their investments in venture capital funds in the same manner they treat internal R&D expenditures – namely as a business expense

• Enhance the successful SR&ED program so that each $1 of qualifying expense leads to a $1.50 credit in order to accelerate funding for sales and marketing in qualified technology companies

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