Transcript Small Business Venture Capital Act: Proposed Amendments

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

How to Get Started
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.
How do these amendments respond to the demand for change?
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
$
Eligible Business Corp.
(EBC)
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.
The Eligible Business Corporation:
 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 media
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, options and, on a
temporary basis, convertible debt to VCC
How does this investment model work?
The ‘Venture Capital Corporation’ Model – Portfolio Investing
Investors
$
Venture Capital Corp.
(VCC)
B.C. Investors
$
Eligible Small Business
(ESB)
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 years.
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
Research & Development of
technology
Community Diversification or,
Development of digital new media
‘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:
o educates, informs or entertains using at least 2 of the mediums
of text, sound or visual images, and
o Is not developed for internal corporate promotion
How does a small business & investors get started?
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.
Note:
Program capital is required to remain invested for 5 years.
Failure to do so may lead to the repayment of tax credits.
Interested in leaning more about the programs?
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: [email protected]