

Canadian Government removes tax barriers for startup VC - faramarz
http://techcrunch.com/2010/03/08/canada-now-somewhat-less-anti-startup/

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faramarz
More take on this from the GlobeAndMail
[http://www.theglobeandmail.com/report-on-business/venture-
ca...](http://www.theglobeandmail.com/report-on-business/venture-capital-
changes-offer-leg-up/article1491872/)

Onerous hurdles that have kept foreign venture capital funds from investing in
Canada have been lifted, providing access to billions of dollars that were out
of reach for promising startups desperate for cash to fund their development.

Thursday's federal budget struck down a rule that said foreign investors had
to pay a 25-per-cent tax on any capital gains made when a Canadian investment
was sold, unless they filled out paperwork to receive an exemption. Each
individual investor in a fund – there could be thousands in each – had to
personally fill out the forms, and then wait months for a reply. Once they
received an exemption, they had to file a return with Canadian tax authorities
informing them of the exception.

“All of the complications made investors perceive Canada as not being
conducive to capital,” said John Ruffolo, the leader of Deloitte's technology
practice in Canada.

“U.S. venture capitalists just said ‘Forget it, I'll give my money to Israel
or India where it's actually wanted.'“ Deloitte did a study in 2007 and found
American investors considered Canada the worst place to invest in the
developed world “by an overwhelming and massive margin” because of the rules.
While the changes won't automatically lead to a flood of investment, any help
is welcome in an industry that has seen sharp declines.

“There aren't 20 deals just sitting there waiting to be had,” Mr. Ruffolo
said. “But what happens now is the large funds in Boston and Silicon Valley
will once again take a look at Canada.”

The Canadian Venture Capital Association (CVCA) said 2009 was the sector's
worst year in more than a decade, as investments slipped by 27 per cent to
$1-billion.

The amount invested per firm was 40-per-cent lower than obtained by U.S.
counterparts, the widest gap in Canada-U.S financings since 2005.

“The barriers we had in place left Canadian companies undercapitalized,” said
CVCA president Gregory Smith, who has been lobbying for the change for seven
years. “This hasn't just been an issue about an economic crisis. Other
countries have been more aggressive in supporting the ecosystems where venture
capitalists operate.”

Carol Leaman has seen the effects firsthand. As chief executive officer of
PostRank, a Waterloo, Ont.-based social media analytics company, she had a
slew of U.S. suitors “kicking the tires” when she sought financing in 2008.
Their message was the same – we're interested, but it's too complicated to
bother.

“I can't tell you the number of times we heard that they'd like to invest but
the paperwork was just too much,” she said. “There were just too many hoops,
it made it virtually impossible. So you rely on local VCs, and there aren't
that many.”

While many say the changes were needed, Canadian venture capitalist Mark
McQueen cautioned that it's just one piece of a larger solution to the
industry's problems. Pension funds have stepped away from early-stage
financing, and governments haven't stepped in to fund companies at their
earliest stages of development.

He said a more meaningful move would be for the government to set aside
$300-million and create 10 funds, to become self-funding as investments become
commercialized.

“The industry needs to be restocked with capital,” said Mr. McQueen, CEO of
Wellington Financial. “Show me one U.S.-funded deal [in Canada] that did not
have Canadians in earlier. Without money early, you won't bring in the bigger
investors.”

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strebler
That's great, a few months ago I saw a US VC overview of "investing in
Canada"...it was scary. A common route is to use a whole whack of sibling
companies (like 3 or 4) to transfer the money, it was a mess.

Their conclusion: just move to the US, it's easier.

~~~
smokinn
Really? Investing in Canada must be really bad then because moving to the US
is not easy. (At least not if you aren't sponsored by BigCo whose large legal
department will take care of the insane paperwork for you)

~~~
mock
If you have a degree and a job offer, as a Canadian you can apply for a NAFTA
visa at the border - it's not a sure thing, but it usually isn't that much
hassle.

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liamk
It seems Arrington enjoys writing inflammatory articles to foment comments
from his readership. Based on his responses to comments it seems he's not
really interested in feedback, debate or facts.

~~~
mock
He just seems kind of ignorant really. My experience is certainly limited to
the west coast, but I've been around for a while both as a founder and early
stage employee in plenty of startups, and I've yet to see one that didn't
eventually take US based investment. Our biggest problems is that there aren't
enough local angels and the local VCs aren't all that great - which is why
everyone past a certain stage goes south to raise funds.

And this is great news, as it will make pitching those investors easier.

