$270M for VC Financing among Canada Budget Initiatives

Increased financial support for start-up companies and the research sector has the attention of Canadian Minister of Finance Ralph Goodale. In the Minister's 2004 budget report, released last month, venture capital (VC) initiatives totaling $270 million (CAN) are targeted for investment. Combined with private sector investments, total VC funding is expected to amount to $1 billion.

Canada is uniquely positioned to benefit from the current global economic recovery, the budget report states. The VC funding, which is reserved for the Business Development Bank of Canada (BDC) and the Farm Credit Corporation, would be directed into four areas:

• $100 million for direct investments in new technologies;
• $100 million to support the creation of specialized funds that will leverage additional private equity investment in cutting-edge technologies;
• $50 million to invest directly in innovative start-up and early-stage companies to further support the commercialization of enabling technologies; and,
• $20 million over two years for agriculture and agri-food companies.

Venture capital financing in Canada dropped 40 percent last year, the lowest level in seven years, according to MacDonald & Associates, Ltd. In Alberta, 38 percent of tech firms are considering leaving the province unless their ability to raise venture capital is improved, a recent Ernst & Young report found.

To further support start-up companies and entrepreneurship, Minister Goodale introduced numerous tax measures, including: 1.) increasing the small business deduction limit from $200,000 to $300,000; 2.) enabling businesses full access to the 35 percent refundable scientific research and experimental development investment tax credit; 3.) extending non-capital loss carry forward period to 10 years; and 4.) implementing a system to provide fair, equal and less expensive access to all businesses applying for government procurement opportunities.

Canada's universities, hospitals and research facilities also would receive increased support under the 2004 budget. A total of $80 million is set aside for these institutions in an effort to improve their capacity for commercialization of research. The total includes $25 million over the next five years to support proposals by federal science-based departments and agencies and $5 million for the Industrial Research Assistance Program, which promotes regional innovation initiatives.

The BDC, which would authorize the bulk of the VC investments, is expected to establish advisory committees consisting of scientists, engineers and financers to help target these investments. Canada's 2004 budget report is available at: http://www.fin.gc.ca/access/budinfoe.html