Supply, Demand, and the Market for Money: Rays of Hope

By Bryan Watson

Capital for early-stage companies around the world has become much more scarce than it was a few years ago. To any entrepreneur looking for investment, this is absolutely no surprise and there are plenty of articles that speak of this. When investments from venture capital firms into companies in Q3 of 2009 in provinces like Ontario drop 87% to $24 million it is hard to miss the fact that the market for money for a start-up, or for growth-oriented companies, has become extremely difficult.

There is a growing ray of hope in Ontario, however. Angels. During 2009, the Angel community continued to invest. There were many investments completed by Angel groups in Ontario (E.g.: Well.ca) and even new Angel groups formed to meet the demand such as the Maple Leaf Angels – West Chapter formed in partnership with the RIC Centre.

Given that Angels represent one of the last sources of capital for start-ups and growth-oriented companies (with notable exceptions in the VC world that co-invest with Angels) another source for hope is the fact that the Office of the Leader of the Opposition (Federal) recently added the Innovation and Productivity Tax Credit (IPTC) to their platform.

The IPTC is a credit that companies would apply for. Once a company has been approved as being eligible and allocated a specific tax credit allotment, individual investors could invest up to that amount in the eligible company. Upon making their investments investors would apply for a suggested 30% refundable tax credit. (More information can be found here.)

A tax credit of this form has shown to stimulate significant Angel investment into companies in many jurisdictions such as BC, Manitoba, the UK, and others. Similar programs have also been adopted by many other countries, including, most recently, Singapore.

So, though we do not have this Tax Credit yet in Ontario, should the Federal Government adopt it Ontario-based companies can look forward to a significantly increased supply of Angel capital looking for strong opportunities in which to invest.

To learn more about and show your support for the IPTC, please click here.