Archive for March, 2012

CVCA APPLAUDS FEDERAL GOVERNMENT FOR ITS SUPPORT OF INNOVATION IN BUDGET 2012


CVCA – Canada’s Venture Capital and Private Equity Association today congratulated the federal government for its support of the innovation ecosystem in its 2012 budget.

“In particular, we were pleased to see that the federal government has taken decisive action to address the acute shortage of venture capital by committing $500 million to the industry.” said Gregory Smith, President of the CVCA and Managing Partner of Brookfield Financial, “We look forward to working with the federal government in determining how best to structure its support in the months ahead.” added Mr. Smith.

In a broader sense, the CVCA also noted other aspects of the budget that will help grow the leading-edge technology sectors of the economy, including:

  • The Western Innovation Program
  • The Canadian Innovation Commercialization Program
  • The Forest Innovation Program
  • The doubling of IRAP’s allocated capital
  • The College-Industry Innovation Fund.

Finally, the CVCA noted with deep interest the proposed changes to the SR & ED tax credit program. “We are pleased that the federal government has opted to keep the structure of the SR & ED program largely intact. We do support making the program more effective and will be examining the proposed modifications closely.” said Mr. Smith.

Gregory Smith, President of the CVCA and Managing Partner, Brookfield Financial

You are invited

LINK TO CONFERENCE WEB SITE

Dear friends,

The CVCA annual conference is the premiere gathering for relationship-building and insight into the current state of Canada’s venture capital and private equity industry. With over 600 limited partners, fund managers, and industry influencers from across Canada, the U.S. and around the world in attendance – the CVCA Annual Conference is one of the largest gatherings of the private capital industry in North America.

The CVCA Annual Conference sells out in advance every year – register early to guarantee your participation.

LINK TO ON LINE REGISTRATION

The Theme

This year’s theme is “Venture Capital & Private Equity: Outperforming the Markets”. Since the beginning of time, investors have focused on stocks and bonds, shifting their allocations between these traditional asset classes with the times. Alternative assets like private equity and venture capital were rarely considered and poorly understood, since the traditional assets were considered safe and reliable. But the world has changed: major equity markets have traded sideways with growing volatility through the past several years, and fixed income investments are near zero real returns. The traditional model is broken as investors rethink the risk/reward equation and look for alternatives.

Private equity and venture capital can provide exactly what investors are looking for today: strong returns and companies that will take a leadership position in an increasingly competitive global economy. This is the opportunity to create new companies and transform existing ones. Active management by highly skilled private investors is the secret sauce. These investors jump right into their portfolio companies, working alongside management to truly transform these businesses. How do they do it? The 2012 CVCA Annual Conference will show you! How do they do it? The 2012 CVCA Annual Conference will show you!

The Agenda explores the timely topics that are central to driving forward in Canada’s venture and private equity industry.  Plenary sessions, and dedicated break-out PE and VC sessions, will dive into the challenges, changes, and opportunities in the current fundraising, investing, and exit environments.

Networking is important to you.  Our conference offers abundant networking opportunities beginning with a welcome cocktail event our first evening, a Networking Lounge throughout the conference to meet up with your industry colleagues, plus the conference mobile app makes connecting with other attendees and speakers easy. Thursday’s programme will conclude with a Gala dinner featuring CVCA’s “Entrepreneur of the Year” Award presentation, followed by our popular scotch-tasting event.

Attendees return year after year for the invaluable benefits of networking with key industry leaders and for the topical issues presented and discussed. Participants and sponsors at this prestigious event include the following: Private Equity Investors ● Venture Capitalists ● Limited Partners ● Institutional & Corporate Investors ● Investment Bankers/Intermediaries ● Placement Agents ● Security Exchanges ● Government & Academic Institutions ● Specialized Service Providers: Legal, Accounting, Financial, Insurance & Executive Search Advisors.

REGISTER TODAY! LINK TO CONFERENCE WEB SITE

I hope you will join us in Montreal!

Sincerely,

Chris Arsenault                                                                   Pascal Tremblay
Managing Partner, iNovia Capital                                Managing Partner, Novacap
Co-Chair, CVCA 2012                                                       Co-Chair, CVCA 2012
CVCA – Canada’s Venture Capital & Private Equity Association
416-487-0519 (tel)
416-487-5899 (fax)
[email protected]
www.cvca.ca
@CVCAcanada

Vous êtes invités

Cher collègues,

Nous sommes heureux de vous informer que vous avez le privilège de profiter du taux des membres de CVCA pour le colloque annuel 2012 de CVCA qui aura lieu à Montréal du 23 au 25 mai 2012.

LIEN VERS LE SITE DU COLLOQUE

Le colloque annuel de CVCA constitue une réunion de première importance pour renforcer les liens dans l’industrie du capital de risque et du capital-investissement, ainsi qu’être au courant de ses plus récents développements. Rassemblant plus de 600 bailleurs de fonds, gestionnaires de fonds et personnes influentes dans l’industrie de partout au Canada, des États-Unis et de partout au monde, le colloque annuel de CVCA est l’une des plus grandes réunions de l’industrie de l’investissement en Amérique du Nord.

Chaque année, le colloque annuel de CVCA fait salle comble : réservez tôt pour vous assurer de pouvoir participer.

LIEN VERS L’INSCRIPTION EN LIGNE

Thème du colloque

Cette année, le colloque a pour thème « Le capital de risque et le capital-investissement : plus performants que le marché ». Depuis toujours, les investisseurs ont mis l’accent sur le capital-actions et les obligations, variant la répartition de leurs investissements entre ces catégories traditionnelles d’actifs selon le moment. On tenait peu compte des autres actifs, comme le capital de risque et le capital-investissement, qui étaient peu compris, puisqu’on croyait les actifs traditionnels sécuritaires et fiables. Le monde a changé depuis : au cours des dernières années, les principaux marchés boursiers n’ont pas montré de réelle tendance si ce n’est une volatilité accrue, et les investissements à revenu fixe ont offert des rendements s’approchant de zéro. Le modèle traditionnel est brisé, et les investisseurs réévaluent l’équation entre le risque et le rendement en cherchant des solutions de rechange.

Le capital-investissement et le capital de risque peuvent offrir précisément ce que cherchent les investisseurs aujourd’hui : des rendements solides et des entreprises qui deviendront des meneuses dans une économie mondiale de plus en plus concurrentielle. C’est là l’occasion de créer de nouvelles entreprises et de transformer celles qui existent. Le secret repose dans une gestion dynamique par des investisseurs privés hautement qualifiés. Ces investisseurs jouent immédiatement un rôle actif au sein des entreprises de leur portefeuille : ils collaborent avec les équipes de direction pour véritablement transformer les sociétés. Comment le font-ils ? Vous le verrez lors du colloque annuel 2012 de CVCA !

Le programme explore les sujets qui sont aujourd’hui au cœur de la force motrice de l’industrie canadienne du capital-investissement et du capital de risque. Lors de séances plénières et de séances dédiées au capital-investissement et au capital de risque, nous explorerons les défis, les évolutions et les occasions des environnements actuels du financement, de l’investissement et des sorties.

Le réseautage est crucial pour vous. Notre colloque offrira de nombreuses occasions de réseautage : après le cocktail de bienvenue de la première soirée, un salon de réseautage sera à votre disposition pour rencontrer vos collègues tout au long du colloque. L’application mobile du colloque facilitera les rencontres avec les autres participants et les conférenciers. Le programme du jeudi se terminera par un dîner de gala lors duquel sera décerné le prix de « L’entrepreneur de l’année » CVCA, qui sera lui-même suivi de notre populaire événement de dégustation de Scotch.

Les participants reviennent d’année en année pour profiter des avantages précieux du réseautage avec les meneurs de l’industrie ainsi que pour les sujets présentés qui font ensuite l’objet de discussions. Les participants et les commanditaires de cet événement prestigieux comprennent : des investisseurs de capital-investissement ● des investisseurs de capital de risque ● des commanditaires ● des investisseurs institutionnels et d’entreprise ● des banquiers d’investissement ● des agents de placement ● des représentants des bourses ● des institutions gouvernementales et d’enseignements ● des fournisseurs de services spécialisés : services juridiques, comptables, financiers, d’assurance et conseillers en recrutement.

INSCRIVEZ-VOUS DÈS AUJOURD’HUI ! LIEN VERS LE SITE DU COLLOQUE

Au plaisir de vous voir à Montréal !

Cordialement,

Chris Arsenault                                                               Pascal Tremblay
Associé directeur, iNovia Capital                                Associé directeur, Novacap
Co-président, CVCA 2012                                            Co-président, CVCA 2012

CVCA – Association canadienne du capital de risque et d’investissement
Tél. : 416 487-0519
Téléc. : 416 487-5899
[email protected]
www.cvca.ca
@CVCAcanada

Canada is back, and it needs to stay back in a big way!

On the eve of CVCA’s annual conference, the ‘rebirth’ of the country’s PE and VC markets draws attention from around the globe

First published on the nextMontreal blog and in the Spring 2012 Private Capital Privé magazine

In October 2010, the CVCA released a report entitled “Think Canada (Again).” It is obvious that the PE and VC markets were paying attention, and have spent the past 18 months heeding the call. Call it a reawakening, rebirth or revolution – call it whatever you want, but the story is simple: Canada is back, and back in a big way.

In the world of venture capital, the most noticeable sign of change has been the influx of U.S. investors seeking out early stage opportunities and backing Canadian category leaders in pursuing aggressive growth strategies. The launch of organizations such as the C100 kick-started this trend, helping secure over $400 million in cross-border venture capital since inception. These Canadian deals included industry titans such as Sequoia Capital, Kleiner Perkins Caufield & Byers, Andreessen Horowitz, Accel Partners, Greylock Partners, Bessemer Venture Partners, and Union Square Ventures (amongst others), all of whom made significant investments in Canadian start-ups in 2011.

In fact, over 30 high profile Canadian companies capitalized on this trend in the past year, numbers not approached since the heady days of the dotcom boom years. Montreal-based Beyond the Rack, Toronto-based Fixmo and Ottawa-based Shopify made the largest splashes at the end of 2011 by raising almost $80 million between them (post). However, unlike some of their turn of the century counterparts, these companies raised capital on the basis of quickly rising revenue growth curves and extremely profitable business models. There are no signs of this foreign interest abating, as strong Canadian companies looking to accelerate their path to market leadership continue to attract the attention of investors eager to back the best and brightest entrepreneurial teams, regardless of location.

” For more insights, don’t miss hearing about what the main actors have to say at the CVCA Annual Conference in Montreal, May 23 to 25.”

Early bets
Of course, it’s not just U.S. VCs who are taking advantage of the dynamic growth of the Canadian startup ecosystem. Early bets on talented entrepreneurs by CVCA members have provided the bulk of early stage financing for Canadian companies raising follow-on capital from foreign funds. Local funds have profited handsomely from this renaissance in Canadian tech startups that saw nearly $2 billion in early-stage exits in 2011 alone.
A whole new generation of talented founders is now being mentored by experienced advisors and investors through incubator/accelerators such as Vancouver’s GrowLab, Montreal’s FounderFuel and Toronto’s Extreme Startups. Events such as the Canadian Innovation Exchange (CIX) and the GROW Conference are cementing the bonds between the Canadian entrepreneurial and investment communities, as well as providing a showcase for the talented and experienced leaders who are at the forefront of each. The foundations are now in place for an explosion of value creation over the coming few years, the rewards of which will flow back into supporting the growth of future Canadian success stories.

Canadian private equity funds have also been hard at work, reasserting their standing amongst the world’s best investors and operators in the buyout industry. Canadian firms were buoyed in 2011 by the rebound of the broader M&A market. According to data compiled by PwC’s Deals Team, Canadian deals represented 10 per cent of the global M&A market in 2011, up from seven per cent at the 2007 market peak. The overall value of Canadian acquisitions into the U.S. outpaced the value of U.S.-led deals in Canada in for the first time ever. Domestic funds were still very active in Canada, with involvement in 215 deals worth $52 billion. This represented 28 per cent of all Canadian M&A activity, measured by value, up from market share in each of the three years prior. Unlike their foreign counterparts, Canadian PE buys outpaced sales by $7 billion, signalling a robust appetite for continued growth.

Headline making deals such as CPPIB’s active participation in the $8.5-billion sale of Skype to Microsoft and OMERS Private Equity teaming up with Berkshire Partners to buy Onex Corp.’s Husky Injection Molding Systems for $2.1 billion were just a few of the transactions that propelled the Canadian PE industry to the forefront of the international stage. Low debt yields, government austerity measures, public market volatility, and a baby boomer-driven family succession wave are just a few of the factors uncovered by PwC that are expected create even more opportunities for the Canadian PE industry, proving that it indeed is a force to be reckoned with in the coming years.

CVCA 2012 Conference
And now, this spring, CVCA members and industry leaders will congregate in Montreal to focus on sustaining this momentum well into the future. We will host our  industry’s outperformers. The city provides the ideal setting for such a gathering, having long served as a symbol of Canadian excellence around the world in finance,  aerospace, transportation, entertainment, commerce, technology, pharmaceuticals, telecommunications and fashion.

With strong public and private sector commitments to both the VC and PE industries, Montreal is also in the midst of redefining itself as a global hub for  entrepreneurship and investment activities. Canada’s entrepreneurial capital is fostering an environment that is conducive to creating opportunities by leveraging  traditional industry expertise, access to capital and extended personal networks to carve out a global leadership position for both its entrepreneurs and investors.  Initiatives being held in Montreal the same week as the CVCA Annual conference, such as the Cirque du Soleil and Sid Lee sponsored C2MTL event, the  FounderFuel Demo Day and C100 AccelerateMTL events, are testament to the commitment of our local potential and recent performance.

In light of these developments, perhaps it is appropriate that instead of inviting others to “Think Canada,” we encourage ourselves to “Think Global.” We stand on the verge of an era in which Canadian entrepreneurs and investors can carry their domestic strength to the international arena, and stand as shining examples for the rest of the world. All eyes will be on Montreal from May 23 to 25, 2012 to see if CVCA members are indeed up to the challenge.

“We stand on the verge of an era in which Canadian entrepreneurs and investors can carry their domestic strength to the international arena – Chris Arsenault”

See you in Montreal in May!
Chris Arsenault is Co-chair of the CVCA 2012 Conference
and Managing Partner at iNovia Capital

CVCA Response to the National Post article: “What Venture Gap?”

March 14, 2012

Dear Editor,

I read Preston Manning and Jack Mintz’s article (“What Venture Gap?”) in the March 8 edition of the Post with great interest and some puzzlement.

From my perspective, a significant gap has emerged in the balance between the supply of, and the demand for, venture capital financing in Canada. This gap needs to be addressed for Canada to develop the world-leading high technology companies we require to improve our lackluster record in successfully commercializing the innovations that are bubbling through our incubators, research institutions and universities. In this regard, it is worth recalling that venture capital has proven itself to be the essential building block in the U.S.,Israel, Canada and elsewhere for the development of  high growth  companies across the entire spectrum of high technology industries from  information and communications to pharmaceuticals and clean tech.

On the supply side, venture capital investing volumes are a fraction of what they were over a decade ago. In 2000, the venture capital industry invested just under $6 billion while last year that number stood at just $1.5 billion. For entrepreneurs and their companies this situation means that they are only able to raise about 40% of the capital available to their U.S. counterparts. This under funding is causing many of our most talented entrepreneurs to go to where there’s greater capital availability – namely, the U.S. – and remain there, to the detriment of the Canadian economy.

Ultimately, venture capital investments are driven off the amount of capital available to venture funds themselves. Here too, worrisome trends have developed. Major funders have all but disappeared and the venture capital industry itself is in a capital drought. For instance, in 2011 not a single dollar from outside Canada found its way into our funds.

On the other hand, demand for risk capital is surging. Governments have laid the basic foundation by their huge support for R & D through a plethora of effective support programs, the most notable of which is the SR & ED one.  Importantly, there has been considerable growth of business incubators and accelerators across the country, much like the well-known MaRS Centre in Toronto, whose activities are fostering the development of a new and vibrant generation of high technology entrepreneurs.

To sum up, venture capital supply and demand are incontestably out of synch.

And, we need to act.

Yours truly,

Gregory J. Smith

President, CVCA

Alarm Bells Sounding Over Rumoured SR&ED Changes

First published on March 2, 2012 on Digital Puck: Connecting the Canadian technology community.

by John Ruffolo

The Canadian Federal government announced it is releasing the next Federal Budget on March 29, 2012. There are rumours the Budget could include changes to one of the most successful and globally-recognized Innovation programs that Canada has to offer – the SR&ED tax credit. As you know, in many ways, the SR&ED program is the foundation of a future based on innovation and a strong, knowledge-based economy.

My concern largely rests on comments made by the Federal government about recommendations made in the recently-released Review Panel of Federal Support to Research and Development, otherwise known as the Jenkins Report.

The Jenkins Report has some very good suggestions on how the government could be far more efficient in delivering and administering its various innovation-related programs. I fully support those initiatives.

The following recommendation, however, is one that generates great concern:

“Reduce the amount of SR&ED tax credit assistance by introducing incentives that encourage the growth and profitability of small and medium-sized enterprises (SMEs) while decreasing the refundable portion of the credit over time. Redeploy the savings to fund new and/or enhanced support for innovation by SMEs, as proposed in the Panel’s other recommendations.”

It’s uncertain whether the Federal government will act on this recommendation.

Although it is still only a rumour at this point, the notion of altering the SR&ED program is setting off alarm bells right across the country.

Let me give you 5 reasons why I think such a recommendation is a very bad idea.

#1 The SR&ED tax credit supports, rather than detracts, from Canadian productivity

One of the arguments for altering the SR&ED tax credit is that the more we invest in it, the more our overall productivity decreases. This is a fallacious argument. I do believe we have serious issues in productivity in Canada. However our productivity problems are most closely linked to sectors requiring significant capital investment, including manufacturing, processing, distribution and retail.

Our technology companies in Canada are trying to sell their technology solutions to such companies in Canada, but most end up being far more successful selling their innovation to customers outside of Canada. Much was written about all the spending manufacturers were going to make for new innovative machinery when our dollar hit parity with the US dollar. It didn’t happen.

#2 The SR&ED tax credit is the funding lifeblood for building strong Canadian tech companies

We are all well aware that the financing ecosystem for technology companies in Canada is broken. Between 2000 and 2010, venture capital invested in Canada decreased over 80 per cent from approximately $5.9 billion to $1.1 billion, with the number of companies receiving venture capital decreasing over 64 per cent from 1,007 to only 357 during that same period. How does the technology industry survive such a devastating blow? It is the SR&ED tax credit program, and in particular, the refundable SR&ED tax credit for early stage Canadian controlled private corporations. It is their lifeblood. It is practically the only source of financing for most of these companies in Canada. The entrepreneurs use these funds to hire more people, largely engineers, to build their products so that one day, they become medium sized businesses and hopefully global businesses. Taking the refundable tax credit away from companies when they are most vulnerable makes no sense; in fact, if you take it away at this stage, I can assure you that there won’t be many medium sized companies to give the re-deployed dollars to. Furthermore, once a company has customers and is generating material revenues, their alternatives in obtaining funding open up considerably.

#3 The SR&ED tax credit program is a small business jobs program

The Finance Minister has commented that the March 29 Budget “…is a jobs and growth budget”. So, what do our early stage entrepreneurs do with the proceeds of the SR&ED tax credit you ask? Well, aside from some computers and some fancy software, the money is spent on jobs! Jobs focused on innovation – software engineers, product development engineers, etc. Jobs that pay well and have a disproportionate impact to the wealth of our nation. These jobs mean that the brilliant graduates who leave our great schools stay here in Canada and become our future leaders of tomorrow. These entrepreneurs and employees are completely mobile and they will follow the money (i.e. jobs) wherever they might be if we don’t have them available in this country. By curtailing the SR&ED program, are we adding one more reason for our talented technology entrepreneurs to seek greener pastures?

#4 Do we believe that the government is more efficient than the private sector in allocating scarce resources?

This is really an argument about tax policy. If you are an economist, ideally there should be no distortions (either incentives or penalties) in the marketplace that might impact the allocation of scarce resources in a private market economy. In reality, there are a huge number of distortions that already exist in our tax code which aim to incent things that you want and disincent things you don’t want.

Let me give you an example. Why is Canada the global leader in mining and resource finance in the world? The answer – flow-through shares. The flow-through share program is largely a made in Canada invention and it has been wildly successful. It forms the foundation of the early stage junior mining industry (much like the role the SR&ED program plays in the technology industry). Do you think there is a hint of discussion of killing this program? Not a chance. I view the flow-through share program as a government supported program in which the private sector determines where to allocate the capital. The government provides a 45% rebate back to the investor (in the form of tax deductions at the highest marginal tax rate); that’s even higher than the 35% refundable SR&ED tax credit. The company raising the capital then takes the money and invests it in prescribed activities within a prescribed time frame.

The SR&ED program is very similar. The company decides what to do with the capital as long as it does so in a prescribed manner within a prescribed time frame; the difference is that the company receives the tax benefit to redeploy back into the company and create more jobs. The suggestion that the government should decrease the refundable credit and redeploy such funds to later stage companies (who have more options as noted above) at the direction of the government is a fundamental policy change. Rather than making these decisions, I believe the valuable role government can play is to provide the financial tools and the environment necessary to permit the winners and losers to emerge on their own merits in the private sector.

#5 The perceived abuses of the SR&ED tax credit system have been over-hyped

There has been a lot of talk around rampant fraud and abuse being associated with the SR&ED tax credit program. The problem is there are no facts to back this up. Whenever I ask for the facts, no one seems to have answers about how this conclusion was reached, other than some anecdotal stories.

One of the key points raised to suggest people may be manipulating the system is the use of advisory firms to help prepare SR&ED claims. I disagree with this wholeheartedly. Advisory firms are primarily used because the process is so complex. If it was simplified, along with the entire tax code, more people and companies would be able to file their SR&ED claims (and their income tax returns) on their own.

Also, the market for the assistance of such claims is dominated by a few very large reputable firms. Do you really think a large firm will risk its reputation with CRA for a few extra dollars? Not a chance. Furthermore, many of the engagements entered into with such firms backstop the defense of the claim all the way up to a challenge in court, all at the expense of the firm. Therefore, they are neither financially nor reputationally incented to prepare egregious or aggressive claims.

Now, perhaps there have been some organizations which don’t really care about their reputation with CRA and take their chances in the hope of receiving contingent fees today and playing the audit roulette tomorrow. But, if that is the real problem, then target that problem and shut it down. For example, the practice of contingency fees could be eliminated. Or, perhaps the government introduces a joint penalty of perjury attestation for both the advisor and CEO of the company supporting that the claim is in their view supportable. If there is not sufficient reasonable support to make the claim, a gross misstatement penalty could be assessed in similar fashion to the transfer pricing misstatement penalty provisions that exist in the tax code today.

Of course, there may occasionally be egregious (and possibly even fraudulent) SR&ED tax credit claims and we need to stop this. But to suggest it is a significant and widespread problem is irresponsible.

We all face challenges in a time of high deficits and constrained spending. Building a 21st century Innovation strategy need not be expensive. It isn’t about billion dollar bailouts or trying to create an industry where none exists today. We have one of the greatest Innovation programs in the world; it is envied and many countries have tried to copy it. We should look at ideas to deliver it more efficiently and eliminate any abuse, but let’s not throw out the baby with the bath water!

We live in the greatest country in the world. We have been blessed with what this country has provided us. It is now time to think about our long term future from an industrial strategy perspective. We need to allow our children and our children’s children to enjoy the same or better quality of life that we have enjoyed. We can make Canada the envy of the world. We can make Canada the Innovation Nation!

John Ruffolo

http://ca.linkedin.com/pub/john-ruffolo/0/984/138

http://twitter.com/ruffoloj