Published: Monday, 09/16/2013 12:00 am EDT
Re: “One of biggest hurdles to innovation is access to capital: Rickford,” (The Hill Times online, Sept. 9).
The largest problem with innovation is not access to venture capital—the problems start far before someone is ready to write a seven-figure cheque for equity in your business.
Venture capital is leaving Canada because there are not enough early or mid-stage businesses worth investing in to justify holding a Canadian office. Like any ecosystem, there is a food chain and venture capital at the base—friends, family, and angel investors (‘dragons’ if you prefer) is where the idea-to-reality money always comes from.
Why aren’t these people investing in start-ups and early, new ventures? Why would they when investing in bluechip TSE and NYSE stocks are safer and thanks to RRSP, RESP, and TFSA vehicles enjoy tax benefits far beyond anything Cleaver Charlie and Savvy Suzie next door can offer?
Here is where $100-million would be explosive.
Consider my and the Green Party’s position in the last general federal election of rolling over capital gains on small business investment. Mom and Dad invest $50,000 into their child’s business to get them off the ground, if that investment matures into $500,000 by the time a venture capital has noticed they would have $450,000 of capital gains to pay taxes on. Unless, in this case, they reinvest that profit into another small business: they would not pay a dime.
Over the years, Mom and Dad would have learned a lot from this sort of investment and become serial angel investors and their monies would circulate continuously through entrepreneurs in their field. Only after they make their final exit of small business investing would they pay capital gains on the net profit.
This mechanism would not eliminate risk of investment in small businesses (no preventing that) but it would provide enough of an after-tax profit on the other end to compete with stuffing it away in the usual humdrum tax shelters.
Where is the next hot Research In Motion if Mom and Pop can’t see the profit in investing in early stage business? Until the penalties of investing in small businesses are removed, VCs will not have enough small firms to invest and grow with to become tomorrow’s stock market IPOs. And that will eventually hurt everyone’s RRSPs.
Green Party candidate