B.C. tax credits help startups and angels

Half a billion dollars in equity capital raised since venture capital program expanded to Eligible Business Corporations

Kevin Hull, Emergent Waste Solutions CEO: “I don’t think I’ve ever seen a better example of client service anywhere”

Ever since the provincial government opened up its small-business venture capital program to Eligible Business Corporations in 2003, the project has been a magnet for startups.

Richmond-based Emergent Waste Solutions is looking to its new status in the program to spur investment.

“The Eligible Business Corporation is probably our best tool for attracting the money to get in the door,” said Emergent CEO Kevin Hull.

Emergent holds Canadian rights to a pyrolysis technology that uses heat to convert carbon-based waste such as rubber tires, wood chips, livestock effluent and recycled plastic into valuable byproducts such as activated carbon used in water filters.

The government recently added $3 million to its $30 million tax-credit program for 2012, 2013 and 2014 under the Ministry of Jobs, Tourism and Innovation.

Angel investors in an eligible business can receive a 30% tax credit up to $60,000 a year. So if they invest $200,000, the amount they’re risking is reduced to $140,000.

The extra $3 million allows for up to $10 million more equity capital for businesses that qualify.

“If you look at all of the work that has gone on since the program was introduced back in 2003,” Jobs Minister Pat Bell told Business in Vancouver, “about half a billion dollars has been raised by small business. Well over 500 businesses out there are utilizing the program.”

Companies applying must be less than two years old, have fewer than 100 employees, and devote more than half of their work to a qualifying activity: clean technology, interactive digital media, export manufacturing, destination tourism, regional community diversification or development of proprietary technology.

Hull called the phone number on the ministry website and got portfolio manager Rick Manifold.

“Rick was unbelievable,” Hull said. “I don’t think I’ve ever seen a better example of client service anywhere.”

Emergent’s application was approved in five days October 17. If only attracting investors were as easy and swift.

“Therein lies the challenge,” said Hull, who describes a “classic catch-22” – Emergent has the technology and needs money to build a plant, but investors want to see a plant before buying in.

Emergent was not eligible for the other stream in the program, which is to become a Venture Capital Corporation. One of the newest is GreenAngel Technology Ventures (VCC) Corp., a clean-tech angel fund managed by Vancouver’s GreenAngel Energy Corp. (TSX-V: GAE).

“I think the program has been incredibly effective,” said GreenAngel CEO Bob de Wit. “It has been very important to early-stage companies that are looking for capital because it gives investors a much greater motivation to get involved.”

He said that because the investments can be held in an RRSP, the cost of a $10,000 investment for someone in the highest tax bracket is reduced to about $2,700.

De Wit thinks the government can go further with tax credits. Instead of $33 million, he said, “Why not have it be $103 million, or no limit at all? New ventures create jobs. The money gets back into the economy quickly.”

Bell told Business in Vancouver that he and Finance Minister Kevin Falcon lean toward significant expansion but needed to be fiscally responsible.

“We would have liked to have done more but we thought the $3 million bump would at least provide some additional incentive and create some space in the program,” Bell said. “If we have the level of success that we’re hoping for, then we’ll revisit that decision as we move through the year.”

Bell said that in addition to helping startups, he’s looking at larger operations. “Because of the scope of this fund it makes it difficult for people to raise bigger money. I think that the application though of venture capital funds into bigger resource-based projects that allow First Nations communities to participate in a meaningful way is something that’s interesting.”

Todd Tessier, executive director of the ministry’s Competitiveness and Innovation Division, said 807 Eligible Business Corporations have been registered and $152,398,696 in tax credits issued since 2003.

In 2011, the program issued $25.2 million of the $27 million available to the businesses, and $1.8 million went to retail-based, prospectus-registered venture funds.

Tessier said about 50% of the credits go to IT companies, about 25% to clean-tech firms and the balance to life sciences and traditional industries. •