
BC Startups: The Government Is Not Your Friend - kiwidrew
https://medium.com/@benjaminfox/bc-startups-the-government-is-not-your-friend-195ea432e40f
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TheMagicHorsey
Without divulging problematic details about the industry I work in, let me say
that government incentives in the US are not much better. In the industry I
work in, the government can step in and crown winners and losers with various
grants and subsidies. These grants and subsidies are so lucrative in fact,
that many businessmen in this space are really not entrepreneurs so much as
expert lobbyists.

The net result for society is actually much worse than just free market
competition, because the companies that just focus on product can actually end
up worse off than the companies with third-rate products that focused on
making friends with politicians and bureaucrats.

And yet the industry is addicted to these subsidies and contracts. Its the
only way of doing business that they are familiar with. They can't imagine the
same industry without the government's involvement. As a result, I think the
American industry is about to have an existential crisis when competitors from
abroad arrive on these shores with new products that are actually built for
novel markets, and not for a bureaucratic selection committee.

~~~
gavazzy
> that many businessmen in this space are really not entrepreneurs so much as
> expert lobbyists.

We call those "SBIR Farms". Get rewarded not on the products you create but by
the paperwork you fill out.

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jbob2000
This post puts into nice terms something I have been feeling for a while
regarding my own startup. Why spend 40 hours filling out paperwork when I
could spend 40 hours developing the product and actually making money? What
good is a tax credit if I didn't pay any taxes because I didn't make any
money?

~~~
fraserharris
SR&ED is a tax _refund_ \- cash in hand at the end of your taxable year.

~~~
maaku
"if you did not pay taxes". No income, no taxes, no refund, no cash in hand at
the end of the year.

Yes if it works anything like the US system you could probably credit that
would-be refund towards the following year, or the year after. But is that
worth the time away from product when your company needs it the most?

~~~
benjaminfox
It's actually a _refundable_ tax credit. You receive it even if you have no
income or profit (and paid no taxes).

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fraserharris
All government-run company funding programs are flawed for one simple reason:
the bureaucracy is unfit to judge early-stage companies.* The only protection
the bureaucracy has is layers of rules and lengthy application processes.
These barriers naturally increase over time as various bad actors game the
system.

* Later-stage / mature companies can be evaluated on financial statements.

~~~
cuckcuckspruce
True, but in some cases the barriers that governments erect to enter the
marketplace are barriers that I very much want. I want agribusiness to get
their food to me in a clean state. I want car companies to demonstrate that
they can produce a car that meets safety requirements before they can sell
road-worthy cars. I want pharmaceutical companies to meet the basic
requirement that their drugs do what they claim that they do. So not all
barriers increasing are due to bad actors, but sometimes due to demands of
society to have clean food, safe cars, and lead-free drugs.

~~~
fraserharris
Agreed - my comment is specifically re funding programs. Government employees
are not equipped (to put it charitably) to evaluate the likelihood of success
of startups. Their proxy metric is an onerous rules-based application process.
Perversely, this excludes the startups they are trying to select for because
those startups can raise capital elsewhere faster and on better terms.

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waterside81
The SR&ED complaint is not all the experience I've had. Received 3 successful
grants in a row now, all prepared by a 3rd party consultancy. Payment is
always fast. The first year we applied we were required to submit some extra
documentation to support our claim. This amounted to submitting our git commit
logs verbatim. They were happy with that.

You don't have to submit hour-by-hour breakdowns either. You submit what % of
an engineers time was spent on SR&ED work and what the engineer's salary is.
That's it.

I imagine it might have to do with which tax centre you're dealing with. Maybe
the ones in BC are tougher than the ones here in Toronto/Ontario?

~~~
qyv
My experience, and several others I have talked to, is completely opposite of
yours. Making the claim, even through a 3rd party consultant, was a pain in
the ass and the results were very underwhelming. We needed to submit a lot
more detail about the work done on the claim than that. Can I ask what years
you did your claims?

~~~
waterside81
2012, 2013, 2014

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mrmch
Great article by Ben -- see many comments that SR&ED isn't "that bad". The
first time, it might not be. As you scale and add more engineers, the risk of
audit starts to outweigh any benefit.

~~~
Sanddancer
As you scale and add engineers, you should be adding operations people and
documenting your system anyway. You'll be able to better determine exactly how
much time is development time, and have the benefit of not needing your most
valuable people doing firefighting work.

~~~
mrmch
It's not a strict calculation of "how much is development time". For things
like IRAP, the time spent has to be cataloged against a specific R&D project
you've received the grant for. For SR&ED, you will be laughed at for claiming
100% of an engineers time.

There's a chasm between SR&ED being "easy" with less than 5 people and when
you have enough "operations people" to make this "easy again"; I would bet
that most companies don't have the operations resources until they are well
over 50 people. At 50+ people, you're past the point where these grants can
have the most impact.

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kazinator
Just forward the article to Bill Vander Zalm; he will descend upon the scene,
_deus ex machina_ and magically fix things.

No, don't forward, on second thought. It works better if you just silently
pray.

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Plasmoid
I'm not sure I buy the SR&ED complaint. A friend of mine got some SRED credits
refunded while he worked on a tool. It didn't seem to onerous from his
perspective. Of course, that was a few years ago. Things may have gotten worse
recently.

~~~
jbob2000
It's brutal, my company does SR&ED every year and it ties up all of the
directors and our development lead for at least 3 months. The executives push
it because all they see is the tax credits, but don't see the ridiculous
amount of man hours that go into it.

~~~
francism
Similar experience here. I've seen SR&ED bring all development to a halt for
multiple months. 60 page documents per developer were not uncommon.

