Canada – Driving digital innovation through venture capital investments

Canada-VC activity-georgia arialDespite many social and economic similarities to Australia, Canada’s venture capital industry is nearly four times larger on a per capita basis and cannot be simply explained by its proximity to the US. Instead, it is driven by significant local investment sources, in particular pension funds and wealthy individuals, and a thriving local innovation eco-system.

The government has also been active in funding digital innovation with a number of catalyst investments in the last few years.  The latest fund is the $300m CAD Northleaf Venture Catalyst Fund to be managed by Northleaf Capital Partners as a Fund-of-Funds. Some of the lead investors include the Government of Canada, Government of Ontario, Canada Pension Plan Investment Board, OpenText Corporation and a number of banks.  The Government hopes that this will attract an additional $1b in private investment into the market.

Government is also playing a key part in helping the digital innovation community to thrive through both direct and indirect mechanisms, such as  tax incentives. Example of this include: Two examples of this are the Scientific Research and Experimental investment tax credit and Labour Sponsored Venture Capital Corporations (LSVCCs).
Canada-fund of funds-wealthy individuals

The Scientific Research and Experimental investment tax credit

Available to any Canadian corporation performing R&D, this tax credit encompasses1:

  • Over $4bn CAD credits each year from c.18k claimants (circa 75% are SMEs)
  • Refundable tax credit equal to 20% of qualifying R&D expenditures
  • An enhanced 35% refundable tax credit available to certain Canadian-controlled private corporations (CCPCs)

This form of tax credit does not restrict the export of any intellectual property.

The Labour Sponsored Venture Capital Corporations (LSVCCs)

Aimed at encouraging Canadian retail investors to invest in LSVCCs, it offers investors a 15% tax credit on a maximum investment amount of $5,000 per year – worth up to $750. In addition, some provinces offer a further 15% tax credit on top of that. Together that can add up to $1,500 in tax breaks.

Key ingredients of the success of Kitchner-WaterlooA thriving ecosystem

Beyond capital availability Canada has fostered thriving startup communities from Toronto to Calgary and Saskatoon. This is contributing to Canada’s rising status as an international B2B startup destination.  These thriving communities display key characteristics such as enterprise champions, world class institutions, incubators / accelerators and success stories.

Kitchener-Waterloo – A vibrant startup community

Outside of Toronto, Kitchener-Waterloo is fast developing a vibrant startup community with many success stories. This region was an industrial hub in the 60s with thriving breweries, tanneries, buttons and rubber factories. The decline in the early 2000s saw a pivot into technology.2

Today, it is referred to as Silicon Valley of the North and local entrepreneurs cite its supportive culture, quality people and employee loyalty as major benefits.

Graph – Dwarfing Australia: The Globe and Mail, ‘Australia and Canada: Two resource-driven economies on divergent paths’, 6 August 2013
1 Canada Revenue Agency, ‘Support for your R&D in Canada: Overview of the Scientific Research and Experimental Development (SR&ED) Tax Incentive Program’
2 Chrome Media, ‘The anatomy of a start-up community’, 2013