Investor Tax Credit Programs for Startup Small Businesses in Canada

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INVESTOR TAX CREDIT PROGRAMS FOR STARTUP SMALL BUSINESSES IN CANADA 1

Affiliated Institution

ExecutiveSummary

Saskatchewan is a boreal and prairie province of western-centralCanada. The Saskatchewan government has over the past decades put inlots of effort to create a highly competitive business environment.Some of the contributing factors to Saskatchewan’s success includeincentive programs, corporate tax rates and a stable economy. Thereare more than 149,500 business enterprises in Saskatchewan, and 98.8%of these businesses are startups and small businesses. In 2015, thesesmall businesses contributed 31% of the province’s GDP. Smallbusiness contributes significantly towards creation of employment,provision of innovative products and services, and overall wellbeingof the society. While Saskatchewan is doing its best to keep at parwith other provinces and to become entrepreneurial hub, there isstill a lot that need to be done to help boost business in theprovince. Saskatchewan does not have the investment tax creditincentives in place to help the local entrepreneurs grow. Theprovince also lacks a strong foundation for the Angel Investors topromote the local business and entrepreneurs to fully exploit theirpotential. Other Canadian provinces have an established andsuccessful tax credit incentive programs. A comparative analysis ofthe investment credit tax will form a basis for making suitablerecommendations for Saskatchewan.

TABLEOF CONTENTS

EXECUTIVE SUMMARY 2

TABLE OF CONTENTS 3

CHAPTER 1 INTRODUCTION 5

1.1 Definition of Terms 5

1.2 History of Investment Tax Credit for Startups in Canada 5

1.2.1 Canadian Investor Tax Credit Programs 5

1.2.2 Saskatchewan Province Economic Statistics 6

1.2.3 Angel Investor/ Venture Capital 11

1.2.4 Angel Investor in Saskatchewan 13

1.3 Problem Statement 14

1.4 Scope and Objectives of the Project 14

CHAPTER 2 INVESTOR TAX CREDIT PROGRAMS 16

2.1 Nova Scotia Investor Tax Credit for Small Businesses 16

2.2 New Brunswick Investor Tax Credit for Small Businesses 19

2.3 Table 19

CHAPTER 3 ANGEL INVESTORS IN QUEBEC AND ONTARIO 21

3.1 Angel Investors in Ontario (ON) and Quebec (QC) 21

3.2 Why there are more Angel Investors in Quebec and Ontario than other Canadian Provinces 25

3.2.1 Deal Structure 25

3.2.2 Deal Size 26

3.2.3 Investment Patterns: Distance 26

3.2.4 Company Size 26

CHAPTER 4 SASKATCHEWAN ANGEL INVESTING AND RECOMMENDATIONS 27

4.1 Angel Organizations in Saskatchewan 27

4.1.1 Saskatchewan Capital Network 27

4.1.2 Angel Networks are Key to a Growing Entrepreneurial Community 28

4.2 Recommendations to Saskatchewan 29

4.2.1 Innovation Place and its Contributions to Small Startups 30

REFERENCES 32

  1. INTRODUCTION
    1. Definition of Terms

Startup new small businesses: A startup is a newcompany that is in its initial stages of operation. The companies areusually financially supported by their respective entrepreneurialfounders as they try to bring to the market a new service or productwhich they think will have a great demand in the market.

Investor tax credit for startups: Atax credit is an amount of money that is legally allowed for thetaxpayer&nbspto remove fromthe total amount of taxes that the taxpayer owes the government.Every kind of business and locations have their unique tax creditsfor different businesses.

Venture capital: this is the loan capital,equity capital or startup that is offered to the business person by aprivate investor. It is also called risk capital.

Angel investor: This is a person who invests hisor her money in a business venture giving money for expansion or astartup. Angel investors are people who have extra money and arealways in search of investment opportunities that would give themhigher returns.

Equity Financing:This is the process where a business raises capital by selling partof their shares. Equity finance is selling ownership interest toraise funds to do business.

    1. History of Investment Tax Credit for Startups in Canada
      1. Canadian Investor Tax Credit Programs

The Canadian businesses have historically suffered the challenge ofobtaining capital to grow. Historically, the investor funds in Canadahave always been channeled towards the Silicon Valley businesses(Gilles, 2014). Canadian startups have to look for the capital fromother avenues, like raising funds from family, and financialinstitutions which either disappoints them or is very expensive inthe long-run in-case they acquire the funds. Canadian governmentshave however made a number of efforts in improving the business taxsystem. This has specifically led to enhanced tax neutrality over allthe industries in Canada, and specifically for the bigger and wellestablished companies by reducing and unifying the rates of incometax, harmonizing sales tax, totally removing capital tax, andproperly matching the capital cost allowance (Innovacorp, 2017) NACO.

One such reform was introduced by the Technical Committee on BusinessTaxation (Mintz Committee). They identified that most of the taxes bythe governments meant for the startups and small businesses are veryfriendly, yet the corporate taxes are heavily punishing. Theytherefore suggested a reduction in the general corporate tax rate.For the last decade, the provincial and federal governments havedoubled the income threshold for startups and small businesses from$200,000 to $500,000. Additionally, a number of provinces have alsominimized tax rate for startups more than they have reduced thecorporate tax rate (Gilles, 2014). New Nouveau Brunswick Canada(2016) found that the New Brunswick is an Investor Tax Credit meantfor the small businesses. It gives 50% return for investments createdbefore April 2015. It is a non-refundable personal income tax creditgiven to qualified individual investors for small businesses,association or community projects (New Nouveau Brunswick Canada,2016).

Saskatchewan Province Economic Statistics

Between the years 1996 and 2006, Saskatchewan lost more than 1% ofits population. Young people were basically leaving to otherprovinces and states to find for themselves better opportunities.However, for the last 6 years, the province has experienced anaverage growth rate of 6.7% to pass the level it was at in 1986 (Brad2014). This growth has been attributed mainly to Canadians relocatingto Saskatchewan from other provinces.

Saskatchewan has risen again from the bad days, with the Real GDP onthe rise since 2007. The province reported a 4.8% real GDP in 2010,which was much higher compared to the Canadian average of 2.6% duringthat time. In 2012, the province experienced growth in employment bymore than 20,003 to the highest rate of 550,000 (Brad, 2014). Brad(2014) also anticipated that the province will experience the bestgrowth rate in Canada during the period 2013 and 2014. The strongeconomic growth in Saskatchewan has been attributed to hugepopulation growth ever experienced since 1921. Strong economic growthhas especially spurred the province economic growth.

Today, strong population growth is contributing to the largestpopulation increases the province has experienced since 1921.Saskatchewan real GDP has grown from a paltry $37.6 billion in theyear 2007 to a high of $41.2 billion in the year 2011. This was a9.6% growth rate, double that of either B.C and Alberta (Brad, 2014).

The Saskatchewan private capital investment grew from $9.9 billion to$16billion between 2007 and 2011. During the same period, thepublic-sector capital investment also increased from $1.8 to $3.3billion (Brad, 2014).

The Saskatchewan export value grew from $16.4 billion to $29.6billion from 2006 to 2011 (Brad, 2014).

Saskatchewan employment also grew from 504,400 to 525,900 from theyear 2007 to 2011, representing a yearly growth rate of 4.3% (Brad,2014). This growth was higher than Canadian average and lower thanAlberta average growth.

Saskatchewan average wages increased from $749 to $878 between theyears 2007 and 2011, representing a 4.1% yearly growth rate. This wasthe third highest of all the Canadian provinces rates. The growth wasalso higher than the Canadian average rate of growth of 2.6% duringthe period (Brad, 2014).

The growth experienced by Saskatchewan in the wage rates, populationand economic growth contributed towards a stronger consumer demand,which in overall led to economic growth of the province. TheSaskatchewan retail trade value jumped from $11.6 billion to $16.2billion between the years 2006 to 2011 (Brad, 2014). Despite thepromising economic state, small business investor tax credit has nothelp the small businesses. SK can do better by lowering corporatetax, exempting small business from import duty and offeringinvestment allowance. Investor tax credit will generally reducechances of tax evasion by companies through pricing transfer profitsto other provinces. Investor tax credit will also spur economicgrowth as many investors will generate maximum profits to advance theeconomic agenda of the province. It also creates a competitiveadvantage to new entrants into the market this will attractindustries with heavy capital investments, and still the market willfavor smaller investors.

      1. Angel Investor/ Venture Capital

The MDB report gives very important comparisons regarding theincentives and program structures amongst the different Canadianprovinces including Manitoba, Nova Scotia, Saskatchewan, Newfoundlandand Labrador, and New Brunswick.

Figure: Nova Scotia Jobs Fund Disbursements,2009-2013 (Traves, 2014)

Figure: NSBI Disbursements, 2009-2013 (Traves,2014)

Figure: Innovacorp Disbursements, 2009-2013 (Traves,2014)

The table below gives a summary of some of the Economic DevelopmentFunding and Support Programs (ERDT) offered in different Canadianprovinces

FUND INITIATIVE

DESCRIPTION

Community Economic Development Investment Fund

(CEDIF)

Individual investors are given 35% of Personal Income Tax credit

Aboriginal Community Development Fund

This involves numerous funding streams, and the provincial commitment depends on the project size

Social Enterprise Fund

Interested in organizations dealing with economic, environment and social problems. It is a multiple funding stream

Productivity Investment Program (PIP)

Gives 20% up to a maximum of one million every year geared toward cost of technology and or equipment

Strategic Cooperation Education Incentive (SCEI)

This is incentives for employers to give co-op terms to the learners/ students undertaking recognized co-operative education program

Graduate Placement Program

The program reimburses 50% to the students after three months, up to a maximum of $7,500

Export Ability Program

The qualifying costs include workshop or course registration, exam fees and the course materials

      1. Saskatchewan Capital Network (2017): Angel Investor in Saskatchewan

Saskatchewan Capital Network (2017a) found that MDB report provided areport regarding incentives and program structure among five Canadianprovinces including Saskatchewan. Nova Scotia was the most favored ofthe five-reporting availability of more incentive tools (Nova 2017a).Saskatchewan most recently reviewed its offerings and do not giveloan guarantees, venture capital investments, community grants, andpayroll rebates.

Table: The Incentive tools use in NB, NS, Manitoba,Saskatchewan, and Newfoundland (Traves, 2014)

    1. Problem Statement

Saskatchewan province economy is one of the best performing in theregion, attracting a significant number of investors to the region.However, it is the well-established businesses that benefits fromthese investors. There are several investment tax credit programs inthe province, but again these are not for the small businesses. Thisstudy looks to examine some of the most successful tax creditincentive programs from other Canadian province and make suitablerecommendations for Saskatchewan.

    1. Scope and Objectives of the Project

SinceCanadian economy is centrally planned, and tax incentive schemes varyacross provinces, it is prudent to carry out a comparative analysisof AngelInvestors in Ontario (ON), Quebec (QC) and SaskatchewanSC. The study will focus on the role of smallbusiness investor tax in the three provinces.As at the time this study is initiated, there is no any publishedresearch paper that has undertaken to investigate the condition andposition of investor tax credit for small businesses in Saskatchewanprovince. The province of Saskatchewan has put in place a number ofvery useful investor tax credit programs to fund and provide thenecessary tools for large investors. However, despitecontributing towards the region’seconomic growth, the small businesses in the region are not cateredfor prompting the need for this project.

Businesses play a critical role in economic development. Whenbusinesses do not perform well, then it means that the government maynot be in a position to get the taxes required to perform basicroles. The small businesses directly contribute towards the GDP ofthe country they operate in, and specifically, small businessescontribute 30% towards SK economy (Saskatchewan Capital Network,2017). This research is important because it will evaluate andprovide a real data analysis about different investor tax creditprograms for small businesses in other provinces and then based onthat provide a suggestion for a potential program in Saskatchewan.

  1. INVESTOR TAX CREDIT PROGRAMS
    1. Nova Scotia Investor Tax Credit for Small Businesses

Equity Tax Credit Program:

The Equity Tax Credit program, abbreviated as ETC, was firstintroduced in 1994 to help the Small Businesses in Scotia Nova,community economic development and co-operative initiatives ingaining access to venture capital/ equity funding. The ETC achievesthis by giving income tax credits for businesses investing in NovaScotia and the CEDIF (Community Economic Development InvestmentFunds). ETC is a personal income tax credit, non-refundable, andavailable to Nova Scotia residents aged 19 and above and who partaketo invest in a company that has been certified by the ETC program.

The tax credit is equal to 30% of the invested sum and cannot be morethan $9,000 in any single year. It is mandatory that companies makeapplication through the Department of Finance to be certified beforeshares issuance. The qualified investors who buys the shares in theperiod specified will be given the credit. The credit amounts thathave not been utilized by the individual can be forwarded seven andthree years back.

Entrepreneurship plays an integral role in the growth and developmentof any economy, and venture capital plays a critical role in thisdevelopment process. This is because venture capitalist isresponsible for providing the required funds for entrepreneurs tohire workers, innovate and generate wealth in the financial system.The venture capitalist tax program has also been an integral part ofthe economy due to its support for innovation. Its support forinnovation originates from its ability to turn basic science andideas into services and products which are the foundation for newbusinesses which generates jobs and economic activity.

Also, the companies that benefit from the venture capital tax systemhave been able to grow faster and come out as a business,laboratories, and research centers. The enterprises that benefit fromthe program also become more global and more rapid to reach aninitial public offer (IPO). These companies` returns on performancealso post an initial public offer that is much higher in comparisonto those that do not benefit from the venture capital tax program.Lastly, firms that benefit from the tax system are mostly exportoriented and likely to participate in the international economy(Markey, Halseth &amp Manson,2012).

Employment Evaluation

The Canadian private sector employed over 11.6 million people in2015. As indicated in the figure below most of the employees workedin small business, making up 8.2 million that is 19.8 percentemployed in the private sector.

Figure 1: Private employment total by market size, 2015

Source: SME Research and Statistics, 2017

In comparison, 2.3 million, which is 19.8 percent are employed bymedium – sized businesses while 1.1 million, which is 9.7 percentare employed in large firms of the private sector labor force.

Chart 1: Employment

Source: The Daily — Labour Force Survey, January 2017

The tax investor system made it possible to establish small andmedium entrepreneurship thereby increasing the number of jobs. Fromthe above chart, it’s evident that the rate of employment has beensteadily increasing since 2012.

Participation

Since ETC was initiated in 1994 till March 1997, 2,164 investors and197 firms have taken part in Equity Tax Credit program. Theparticipants have received more than $6.7 million in investments andhave made more than $23 million dollars in investments (Nova ScotiaDepartment of Finance, 2000):

Tax Year

# of Companies

# of Investors

Total Credits ($)

Total Investments ($)

1994

9

73

104,181

414,723

1995

26

176

484,616

1,633,515

1996

34

462

1,671,987

5,583,475

1,997

63

895

2,374,153

8,131,342

1,998

65

558

1,939,492

6,712,492

Totals

197

2,167

6,574,429

22,475,547

Source: Nova Scotia Department of Finance, 2000

Economic Impact Analysis

A study probed the economic impact of ETC using NSIO on the ECTcertified firms’ investment expenditure during the period 1994 to1997. The study also considered the yearly operations related to theETC investment of the firms. It is these continual impacts on thecreated companies that will give a payback to the provincialtreasury, which is over a long-term. The payback analysis from theprogram determined that the ETC program investments between theperiod 1994 to 1997 will create a positive ash flow by 2000 to theprovincial treasury.

Table: 1994-2000 ETC Impact, Nova Scotia Equity Tax CreditPayback and, Cost-Benefit Analysis for the Credits Received betweenthe period 1994-1997. Source: Nova Scotia Department ofFinance, 2000

The incremental assumption is very important for the economicanalysis of the Nova Scotian ETC program. The ETC program impact andinfluences are assumed to be incremental, but over the long term. Astudy by the Nova Scotia Department of Finance revealed that over 75%of the companies that took part in the ET program confessed that theywould not have expanded their operations or stared their businesseswithout the credit (Nova Scotia Department of Finance, 2000). This isa perfect proof that the ETC program is critical to the developmentof the Nov Scotian economy.

Potential investors are entitled to a personal tax credit equivalentto 35% of their investment as long as they active in business andhave less than $25 million in revenues (Nova Scotia Department ofFinance, 2000). This was meant to help Novia Scotia small businessesand community in general to develop economic ventures by obtainingequity financing that comes in form of income tax credit forinvestors. The programs considers investments done before the January1, 2010 and after December 31, 2009 calculated at 30% and 35%respectively (Nova Scotia Department of Finance, 2000).

    1. New Brunswick Investor Tax Credit for Small Businesses

The New Brunswick Small Business Investor Tax Credit gives a fiftypercent non-refundable personal income tax credit (for theinvestments created after 1st April 2015) for up to$125,000 annually to the qualified CECD (or community economicdevelopment corporations) and or to qualified small businesses or tothe associations in New Brunswick province.

Beginning 1st April 2014, the Small Business Investor TaxCredit permits the corporations in New Brunswick and trusts to bequalified for a fifteen percent non-refundable corporate income taxcredit for the qualified investments of up to $500,000. This impliesthat the New Brunswick trusts and corporations become eligible fortax credit of $75,000 in case they invest in small businesses andstartups in New Brunswick province (New Nouveau Brunswick Canada,2016). In an investor is not in a position to utilize all the amountallotted by the Small Business Investor Tax Credit in a given year,then the tax credit can be forwarded 7 years ahead of time or back 3years (New Nouveau Brunswick Canada, 2016).

New Brunswick credits up to 50% personal tax income credit forinvestments that come after April 1, 2015, $125000 per year.Corporations and trust eligible investors get 15% non-refundablecorporate income tax credit. Nova Scotia has largely enacted equitytax credit as a tool to support intensive mobilization of capital.The program promotes community development programs to elevate theplight of small businesses and address the issue of marginalization.Equity tax credit has largely stimulated co-operatives. Anotherimportant factor is the fact that the programs promote locally drivenjoint ventures.

    1. Table –
    2. Table:

Name of program

Maximum amount of credit

investment amount

Investors eligibility

Companies eligibility

Number of employees

Restrictions

Nova Scotia – Equity Tax Credit Program

tax credit is equal to 30% of the invested sum and cannot be more than $9,000 in any single year

Any amount – open

Make application through the Department of Finance to be certified

Nova Scotia

Open

Nova Scotia residents aged 19 and above

New Brunswick Investor Tax Credit

fifty percent non-refundable personal income tax credit (for the investments created after 1st April 2015) for up to $125,000 annually

Open

the applicants have to make an application for a Certificate Registration, then they finally apply for a Tax Credit Certificate.

Open

New Brunswick resident

New Nouveau Brunswick Canada (2016)

Effectiveness of the investor tax credit policies

From the reviewed literature it is clear that investor tax creditpolicy has been successful at both the federal and province level. Atthe federal level companies are also required to have obtained lessthan a given amount of external financing or to have a substantiallysmall number of employees and revenue, invest to some degree indevelopment and research and to be in strategic industries (Cormick,2017). This is shown by the figure of taxes larger than thetax credit, hence a growth in the economy (Tax Foundation, 2013). Theincrease in the number of new startup businesses is almost allprovinces are also a happy story of the tax credit system. With thegrowth of businesses, there has been an increase of employmentopportunities at all levels thereby reducing unemployment rate (Sachs&amp Pan, 2015

Appendix

Angel Tax Credits (ATC)

Angel Tax Credit Programs that areavailable in BC with the aim of encouraging investors in makingcapital investment into the BC small businesses and contribution tobuilding a healthy economy.

Angel Funds

Angel VCC

EBC

Investor type

Large angels and angel funds

Friends and families. Angel Venture Capital firms

Tax credit

30% provisional

30% provisional

Holding requirement

5 years after completion of each tranche

5 years

Claim Date

As soon as possible

As soon as possible

Allocation criteria

First come First serve basis

First come First serve basis

Source: Venture Capital Programs – Province of British Columbia.

Program

B.C. Investment Tax Credit Program

Tax Credit Rate

30%

Annual Credit Limit

$200,000

Individual limit

$60,000

Provincial Budget

$30 million

Eligible Corporations

Small business

Administration:

Operated by the Investment Capital Branch of the Small Business Ministry

Source: B.C. Investment Tax Credit Program by Mike Volker – Vancouver`s Green Angel and Tech Innovator.

  1. ANGEL INVESTORS IN QUEBEC AND ONTARIO
    1. Angel Investors in Ontario (ON) and Quebec (QC)

The National Angel Capital Organization, abbreviated as NACO, is theCanadian industry association that commitments itself o championingthe Angel investors and their various investments across Canada. NACOrepresents more than 2100 investors who help the Canadian businessesacross different provinces and industry to meet their businessobjectives and to fairly compete on the global platform (NACO, 2017).The NACO members provides corporations with risk capital,professional network and expert advice where the traditionalinstitutions cannot.

Every year, NACO publishes a report “Report on Angel InvestingActivity in Canada.&quot In the 2015 report, in a survey databroken down in regards to different Canadian regions (Easter, Centraland Western), the Central Canada (Quebec and Ontario) performed bestcompared to other provinces, accounting for 70% of the investments.This has been the trend for the last few years (NACO, 2015).

Source: NACO,2015

The most active angel groups show the huge investments occurring inthe Central Canada (Quebec and Ontario). Groups in Ontario representsfour out of five most active groups in regards to the amount ofdollars invested and the number of investments done for both “YoungGroups” and “All Groups.” This can be observed in table below.Young Angel Groups are categorized as those that were created inunder five years.

Table: Most Active Canadian Angel Groups

Source: NACO,2015

Source: NACO,2015

From figure above, Panel A revealsthe median investment amount put in per investment by the AngelGroups across Canada for the last 4 years. Panel B on the other handindicates the mean investment size for every Angel Group. The figuresends a message that the overall size of investment in the Westernregion of Canada together with the investments from the CentralCanada does perfectly well. Eastern Canada has been stabling until2015 when the levels of investments there dropped (NACO, 2015).

Figure 19: Angel Group Investment Amounts by Region:2012-2015

Panel A: Angel Group Medians (per Investment)

Panel B: Angel Group Averages (per Investment). Source:NACO, 2015

Source: NACO,2015

    1. Why there are more Angel Investors in Quebec and Ontario than other Canadian Provinces

One would be interested in understanding why the two Central Canadianprovinces, Quebec and Ontario are doing better in terms of attractingAngel Investors yet the provinces does not have the government taxcredit incentives. Here are some of the characteristics and trendsthat hint on why most Angel Investors prefer Quebec and Ontario toother Canadian provinces as choices for investment regions (NACO,2015):

      1. Deal Structure

Less than half of the provinces provided details about theirinvestment structures. Equity investment was the key, with more than96%. Common shares were the most used instrument, followed byconvertible debentures and then presented shares. Co-investment,where more than one investor from a similar Angel group takes part inthe same portfolio of investment. In 2015, 64% of all the investmentsconstituted co-investments, and this has been the trend for the last4 years (NACO, 2015).

      1. Deal Size

The amount of money invested by the Angel groups have been on therise between the years 2012 and 2015, but slightly dropped in 2015.However, the medium deal sizes have been variable. The average andmedium deal sizes were $1.054 and $795,000, which was not muchdifferent (NACO, 2015). The biggest deals involved the government andthe venture capital funds. This is implying that the deals that werebeing done in the Central provinces were quite substantial in size(NACO, 2015).

      1. Investment Patterns: Distance

It can be observed that a bigger percentage of the Angel investorsare local. Two factors can be attributed to this information spreadfaster and effectively locally implying that the first investor toobtain the information and the closest investor is likely to takeaction faster compared to an investor who is located several milesaway (NACO, 2015). Secondly, investors find it easy to make an impacton businesses with which they share same geographical proximity. Infact, at the screening sage, most investors use the geography todetermine their best bet. This implies that most of the AngelInvestors investing in Ontario and Quebec are from the local market.

      1. Company Size

The Angel Groups are typically interested in the startups and smallbusinesses. From the NACO 2015 data, it is consistent that 70% of theinvestments were done on businesses with 10 or below workers. Almosthalf of the participating businesses had between one to five workers.This has been the trend for the last three years (NACO, 2015).

  1. SASKATCHEWAN ANGEL INVESTING AND RECOMMENDATIONS

The Saskatchewan entrepreneurs have what it takes to uplift theprovince to even greater heights by contributing bigger amounts ofGDP, and creating employment. From the current state of the economy,there is need for attraction of Angel Investors to Saskatchewanprovince, to help in identifying the entrepreneurs, provide them withthe funding and promote the greater vision of the province to becomeone of the leading investments hub in the region. AngelOrganizations in Saskatchewan

Today, Saskatchewan does not have a stable, sufficient number ofAngel Investors to help promote the startups and to boost thedevelopment of the local economy. One of the main Angel Investors inSaskatchewan is the Saskatchewan Capital Network.

      1. Saskatchewan Capital Network

SCN Inc. was incorporated in 2011. Since the company was firstlaunched, more than 32 firms have presented their business proposalsand opportunities to the potential investors. More than tencorporations have received $1.7 million of investment funds from theinvestor members of Saskatchewan Capital Network (SaskatchewanCapital Networks, 2017). The Saskatchewan Capital Network is anon-profit organization, and a member based organization ofSaskatchewan angel investors. SCN currently boasts of more than 32investor members with vested interest in identifying good investmentopportunities in growth focused entrepreneurs and startups,specifically those based in Saskatchewan province (SaskatchewanCapital Networks, 2017).

Through networking events and presentation, the SCN organizationfacilitates the introduction of investment plans to eligiblecompanies. Such events are held in Regna and Saskatoon, every two tothree months based on deal flow (Saskatchewan Capital Networks,2017). The Saskatchewan Capital Network investor members areparticularly interested in funding the technology-based companies,service firms or proprietary products. They are also interested incompanies that have great [potential for growth and are already ontheir path to success.

SCN does not take on management of the pool funds instead themembers make their own decisions in regards to their individualinvestments. The objective of the organization is to encourage andpromote the Saskatchewan entrepreneurs take on the opportunity andbuild sustainable and successful businesses.

      1. Angel Networks are Key to a Growing Entrepreneurial Community

Generally, entrepreneurs spend several hours in search for financialcapital from the potential investors to pitch their ideas. This timeshould be spent on commercializing their great ideas and products orservices. SCN Inc. was created with the aim of giving support to theentrepreneurs with a reliable way to access capital and also to helpthe investors get to meet the right business opportunities to investin Saskatchewan.

SCN Inc. works very closely with institutions and organizations thatprovide technology advice to businesses, financial support and alsoprovide support to the entrepreneurial ideas to become investmentready. The organization also encourages the members to refer thepromising startups and small businesses.

    1. Recommendations to Saskatchewan
  1. Optimize the Value of Saskatchewan’s Incubation Facilities

Saskatchewan does not have appropriate incubation facilities toenhance entrepreneurship and to equip the startups with the necessaryempowerment and to bring out their potential as required. There arevery interesting incubation projects with very innovative ideasregarding how to promote entrepreneurship and how to raise acommunity that is business oriented and ready to build their economy.For example, Innovacorp has over the years continued to incubate itsclients’ trough the Innovacorp Enterprise Centre at the DalhouseUniversity campus. Other incubation facilities by Innovacorp includeInnovacorp Demonstration Center and Technology Innovation Centre(Innovacorp, 2011). Saskatchewan can copy such models and replicatethem in different parts of the province to help raise anentrepreneurial culture and community.

  1. Enhance Saskatchewan’s Start-Up Community

Entrepreneurship and innovation are very critical for Saskatchewanprovince`s future economic success. While it is the entrepreneurs whohave to take up the lead in building the start-up community, AngelInvestor organizations and Tax Credit programs play a critical rolein helping to develop a mature start-up community and culture whileat the same time expanding the offerings to the less served parts ofthe province. Here are some tips that the province of Saskatchewanneeds to implement to help enhance a start-up community:

  • Put more focus and investment in entrepreneurship and technology ideas driving the local economy. In SK, technology has the edge to quickly give returns and impact on the farming community in a bigger way over a short term. Most investment opportunities consider technological tools as a key competitive tool and since SK rely on farming this will support creation of further opportunities.

  • Create [partnership with the already established and conglomerate firms, not only from Canada but from other established countries like the United States. Collaboration with similar businesses elsewhere facilities exchange of knowhow and technologies to meet the needs of citizens in SK.

  • It is important to create a regular or monthly investment and entrepreneurship meetings where the entrepreneurs share on different and important ideas regarding investments and innovation. Members of the community need to interact regularly and it is such forums that policy guidelines on tax credit will be updated to suite their interests. For instance special preference should be given to youths since they are underrepresented in business.

      1. Innovation Place and its Contributions to Small Startups

Gilles Duruflé (2014) indicated that InnovationPlace was created back in 2000. It is located in Regina andUniversity of Saskatchewan and it is one of the science andtechnology parks in Canada. It is also a very successfulUniversity-related science and technology centers in North America.It is located opposite University of Regina. Innovation Place Reginais reported to have created more than 3,873 jobs in the province andanother 3,368 jobs in the city.

Innovation Place was established topromote innovation and creativity by providing the amenities,services, and facilities with the intention of creating newopportunities for startups in the science and technology domain. Thecenter helps in ensuring efficient delivery of government servicesthrough the internet technologies and helps in creating better waysthrough which the government conducts its business.

Innovation Place is also tenant toabout 35 corporations which employs thousands of people. InnovationPlace houses organizations like Information Services Corporation,eHealth Saskatchewan and Information Technology Office. Other tenantsinclude Science Application International Corporation, FujitsuCanada, and ISM Canada.

The mega projects like Aquistoreare leading revolution in Southern Saskatchewan energy andenvironment sector. The deepest well in Saskatchewan has been drilledby PTRC, going 3.4km deep. The captured CO2 from the project will beinjected by Aquistore into a sandstone and brine formation which issafe and will help in minimizing greenhouse effect. There are severalstartups that have also successfully started their businesses atInnovation Place, including Communities of Tomorrow and GB InternetSolutions, which already are growing very fast.

References

New Nouveau Brunswick Canada. (2016). Finance: Small BusinessInvestor Tax Credit.

Retrieved online on 14th March 2016 fromhttp://www2.gnb.ca/content/gnb/en/departments/finance/taxes/credit.html

Brad W. (2014). Saskatchewan Plan for Growth: Vision 2020 and Beyond.Governent of

Saskatchewan. Retrieved online on 14th March 2016 fromhttp://www.gov.sk.ca/adx/aspx/adxGetMedia.aspx?mediaId=1800&ampPN=Shared

Traves T. (2014). Review of Economic Development Assistance Tools:Assessment of

Current Practices and Future Potential for Nova Scotia Prepared forthe Province of Nova Scotia Department of Economic and RuralDevelopment and Tourism. Retrieved online on 8th March2017www.0-nsleg-edeposit.gov.ns.ca.legcat.gov.ns.ca/deposit/b10669759.pdf

Gilles Duruflé, Ph.D., CFA (2014). Department of Economic and RuralDevelopment and

Tourism Government of Nova Scotia Fuelling Entrepreneurship &ampInnovation: A Review of the Nova Scotia Government’s Role inVenture Capital Provision. Final issue date: June 2014. Retrievedonline on 8th March 2017www.0-nsleg-edeposit.gov.ns.ca.legcat.gov.ns.ca/deposit/b10673532.pdf

Kim Dunn &amp Dr. Michelle Adams April (2014). Investor Motivationsand Behaviors:

Impact Implications from CBRE-based CEDIFs. Chool or Resource andEnvironmentl Studies. Retrieved online on 8th March 2017 www.peoplepowerplanet.ca/wp-content/uploads/2015/…/CEDIF-Investor-Report-Final.pdf

Innovacorp (2017). Early Stage Venture Capital. Accountability Report2014-2015. Retrieved

online on 8th March 2017

https://innovacorp.ca/sites/…/final_innovacorp_accountability_report_2015_2016.pdf

NACO (2017). Reports on Angel Activity in Canada. Retrieved online on14th March 2017

fromhttps://www.nacocanada.com/naco-academy/research/angel-activity-reports/

NACO. (2015). 2015 Angel Investing Activity in Canada: Scaling UpAngel Capital to Drive

Canadian Innovation. Retrieved online 14th March 2017 fromhttps://www.nacocanada.com/wp-content/uploads/2016/07/2015_Report_on_Angel_Investing_Report_29June16.pdf

Saskatchewan Capital Network (2017 a). Saskatchawan Capital Networkofficial wensite

Homepage. Retrieved online on 14th March 2017 fromhttp://www.saskcapitalnetwork.com

Saskatchewan Capital Network (2017). Saskatchawan Capital Networkofficial wensite

About SCN. Retrieved online on 14th March 2017 fromhttp://www.saskcapitalnetwork.com/about-scn/

Duanjie Chen and Jack Mintz (2011). SMALL BUSINESS TAXATION:Revamping

Incentives to Encourage Growth. School of Public Policy, Universityof Calgary. Volume 4 Issue 7. Retrieved online on 8thMarch 2017

https://www.policyschool.ca/wp-content/…/03/mintzchen-small-business-tax-c_0.pdf

Nova Scotia Department of Finance (April 2000). Nova Scotia TaxCredit Review Phase I

Report. Government of Saskatchewan. Saskatchewan Plan for Growth:Vision 2020 and Beyond. Retrieved online on 8th March 2017www.gov.sk.ca/adx/aspx/adxGetMedia.aspx?mediaId=1800&ampPN=Shared

Investor Tax Credit Programs for Startup Small Businesses in Canada

  • Uncategorized

INVESTOR TAX CREDIT PROGRAMS FOR STARTUP SMALL BUSINESSES IN CANADA 1

Affiliated Institution

EXECUTIVESUMMARY

Saskatchewan is a boreal and prairie province of western-centralCanada. The Saskatchewan government has over the past decades put inlots of effort to create a highly competitive business environment.Some of the contributing factors to Saskatchewan’s success includeincentive programs, corporate tax rates and a stable economy. Thereare more than 149,500 business enterprises in Saskatchewan, and 98.8%of these businesses are startups and small businesses. In 2015, thesesmall businesses contributed 31% of the province’s GDP. Smallbusiness contributes significantly towards creation of employment,provision of innovative products and services, and overall wellbeingof the society. While Saskatchewan is doing its best to keep at parwith other provinces and to become entrepreneurial hub, there isstill a lot that need to be done to help boost business in theprovince. Saskatchewan does not have the government incentives inplace to help the local entrepreneurs grow. The province also lacks astrong foundation for the Angel Investors to promote the localbusiness and entrepreneurs to fully exploit their potential. Thispaper examines some of the most successful tax credit incentiveprograms from other Canadian province and make suitablerecommendations for Saskatchewan.

TABLEOF CONTENTS

EXECUTIVE SUMMARY 2

TABLE OF CONTENTS 3

CHAPTER 1 INTRODUCTION 5

1.1 Definition of Terms 5

1.2 History of Investment Tax Credit for Startups in Canada 5

1.2.1 Canadian Investor Tax Credit Programs 5

1.2.2 Saskatchewan Province Economic Statistics 6

1.2.3 Angel Investor/ Venture Capital 11

1.2.4 Angel Investor in Saskatchewan 13

1.3 Problem Statement 14

1.4 Scope and Objectives of the Project 14

CHAPTER 2 INVESTOR TAX CREDIT PROGRAMS 16

2.1 Nova Scotia Investor Tax Credit for Small Businesses 16

2.2 New Brunswick Investor Tax Credit for Small Businesses 19

2.3 Table 19

CHAPTER 3 ANGEL INVESTORS IN QUEBEC AND ONTARIO 21

3.1 Angel Investors in Ontario (ON) and Quebec (QC) 21

3.2 Why there are more Angel Investors in Quebec and Ontario than other Canadian Provinces 25

3.2.1 Deal Structure 25

3.2.2 Deal Size 26

3.2.3 Investment Patterns: Distance 26

3.2.4 Company Size 26

CHAPTER 4 SASKATCHEWAN ANGEL INVESTING AND RECOMMENDATIONS 27

4.1 Angel Organizations in Saskatchewan 27

4.1.1 Saskatchewan Capital Network 27

4.1.2 Angel Networks are Key to a Growing Entrepreneurial Community 28

4.2 Recommendations to Saskatchewan 29

4.2.1 Innovation Place and its Contributions to Small Startups 30

REFERENCES 32

  1. INTRODUCTION
    1. Definition of Terms

Startup new small businesses: A startup is a newcompany that is in its initial stages of operation. The companies areusually financially supported by their respective entrepreneurialfounders as they try to bring to the market a new service or productwhich they think will have a great demand in the market.

Investor tax credit for startups: Atax credit is an amount of money that is legally allowed for thetaxpayer&nbspto remove fromthe total amount of taxes that the taxpayer need to pay thegovernment. Every kind of business and locations have their uniquetax credits for different businesses.

Venture capital: this is the loan capital,equity capital or startup that is offered to the business person by aprivate investor. It is also called risk capital.

Angel investor: This is a person who invests hisor her money in a business venture giving money for expansion or astartup. Angel investors are people who have extra money and arealways in search of investment opportunities that would give themhigher returns.

Equity Financing:This is the process where a business raises capital by selling partof their shares. Equity finance is selling ownership interest toraise funds to do business.

    1. History of Investment Tax Credit for Startups in Canada
      1. Canadian Investor Tax Credit Programs

The Canadian businesses have historically suffered the challenge ofobtaining capital to grow. Historically, the investor funds in Canadahave always been channeled towards the Silicon Valley businesses.This means that most of the Canadian startups have to look for thecapital from other avenues, like raising funds from family, andfinancial institutions which either disappoints them or is veryexpensive in the long-run in-case they acquire the funds. Canadiangovernments have however made a number of efforts in improving thebusiness tax system. This has specifically led to enhanced taxneutrality over all the industries in Canada, and specifically forthe bigger and well established companies by reducing and unifyingthe rates of income tax, harmonizing sales tax, totally removingcapital tax, and properly matching the capital cost allowance.

One such reforms was by the Technical Committee on Business Taxation(Mintz Committee). They identified that most of the taxes by thegovernments meant for the startups and small businesses are veryfriendly, yet the corporate taxes are heavily punishing. Theytherefore suggested a reduction in the general corporate tax rate.For the last decade, the provincial and federal governments havedoubled the income threshold for startups and small businesses from$200,000 to $500,000. Additionally, a number of provinces have alsominimized tax rate for startups more than they have reduced thecorporate tax rate.

The New Brunswick is an Investor Tax Credit meant for the smallbusinesses. It gives 50% return for investments created before April2015. It is a non-refundable personal inco0me tax credit given toqualified individual investors for small businesses, association orcommunity projects.

      1. Saskatchewan Province Economic Statistics

Between the years 1996 and 2006, Saskatchewan lost more than 1% ofits population. Young people were basically leaving to otherprovinces and states to find for themselves better opprotunities.However, for the last 6 years, the province has experienced anaverage growth rate of 6.7% to pass the level it was at in 1986 (Brad2014). This growth has been attributed mainly to Canadians relocatingto Saskatchewan from other provinces.

Saskatchewan has risen again from the bad days, with the Real GDP onthe rise since 2007. The province reported a 4.8% real GDP in 2010,which was much higher compared to the Canadian average of 2.6% duringthat time. In 2012, the province experienced growth in employment bymore than 20,003 to the highest rate of 550,000 (Brad, 2014). Theprovince was forecasted to be experiencing the best growth rate inCanada during the period 2013 and 2014.

The strong economic growth in Saskatchewan has been attributed tohuge population growth ever experienced since 1921. Strong economicgrowth has especially sparred the province economic growth.

Today, strong population growth is contributing to the largestpopulation increases the province has experienced since 1921.Saskatchewan real GDP has grown from a paltry $37.6 billion in theyear 2007 to a high of $41.2 billion in the year 2011. This was a9.6% growth rate, double that of either B.C and Alberta (Brad, 2014).

The Saskatchewan private capital investment grew from $9.9 billion to$16billion between 2007 and 2011. During the same period, thepublic-sector capital investment also increased from $1.8 to $3.3billion (Brad, 2014).

The Saskatchewan export value grew from $16.4 billion to $29.6billion from 2006 to 2011 (Brad, 2014).

Saskatchewan employment also grew from 504,400 to 525,900 from theyear 2007 to 2011, representing a yearly growth rate of 4.3% (Brad,2014). This growth was higher than Canadian average and lower thanAlberta average growth.

Saskatchewan average wages increased from $749 to $878 between theyears 2007 and 2011, representing a 4.1% yearly growth rate. This wasthe third highest of all the Canadian provinces rates. The growth wasalso higher than the Canadian average rate of growth of 2.6% duringthe period (Brad, 2014).

The growth experienced by Saskatchewan in the wage rates, populationand economic growth contributed towards a stronger consumer demand,which in overall led to economic growth of the province. TheSaskatchewan retail trade value jumped from $11.6 billion to $16.2billion between the years 2006 to 2011 (Brad, 2014).

      1. Angel Investor/ Venture Capital

The MDB report gives very important comparisons regarding theincentives and program structures amongst the different Canadianprovinces including Manitoba, Nova Scotia, Saskatchewan, Newfoundlandand Labrador, and New Brunswick.

Figure: Nova Scotia Jobs Fund Disbursements,2009-2013 (Traves, 2014)

Figure: NSBI Disbursements, 2009-2013 (Traves,2014)

Figure: Innovacorp Disbursements, 2009-2013 (Traves,2014)

The table below gives a summary of some of the Economic DevelopmentFunding and Support Programs (ERDT) offered in different Canadianprovinces

FUND INITIATIVE

DESCRIPTION

Community Economic Development Investment Fund

(CEDIF)

Individual investors are given 35% of Personal Income Tax credit

Aboriginal Community Development Fund

This involves numerous funding streams, and the provincial commitment depends on the project size

Social Enterprise Fund

Interested in organizations dealing with economic, environment and social problems. It is a multiple funding stream

Productivity Investment Program (PIP)

Gives 20% up to a maximum of one million every year geared toward cost of technology and or equipment

Strategic Cooperation Education Incentive (SCEI)

This is incentives for employers to give co-op terms to the learners/ students undertaking recognized co-operative education program

Graduate Placement Program

The program reimburses 50% to the students after three months, up to a maximum of $7,500

Export Ability Program

The qualifying costs include workshop or course registration, exam fees and the course materials

      1. Angel Investor in Saskatchewan

MDB report provided a report regarding incentives and programstructure among five Canadian provinces including Saskatchewan. NovaScotia was the most favored of the five-reporting availability ofmore incentive tools. Saskatchewan most recently reviewed itsofferings and do not give loan guarantees, venture capitalinvestments, community grants, and payroll rebates.

Table: The Incentive tools use in NB, NS, Manitoba,Saskatchewan, and Newfoundland (Traves, 2014)

    1. Problem Statement

Saskatchewan province economy is one of the best performing in theregion, attracting a significant number of investors to the region.However, it is the well-established businesses that benefits fromthese investors. There are several investment tax credit programs inthe province, but again these are not for the small businesses. Thisstudy looks to examine some of the most successful tax creditincentive programs from other Canadian province and make suitablerecommendations for Saskatchewan.

    1. Scope and Objectives of the Project

As at the time this study is initiated, there is no any publishedresearch paper that has undertaken to investigate the condition andposition of investor tax credit for small businesses in Saskatchewanprovince. The government of Saskatchewan has put in place a number ofvery useful investor tax credit programs to fund and provide thenecessary to the small businesses in the region, for instance theInvest in Saskatchewan program. Businesses play a critical role ineconomic development. When businesses do not perform well, then itmeans that the government may not be in a position to get the taxesrequired to perform basic roles. The small businesses directlycontribute towards the GDP of the country they operate in, andspecifically, small businesses contribute 30% towards SK economy.This research is important because it will identify the need forcreating a reliable and efficient tax incentive programs for smallbusinesses which will in turn grow to fund the nation’s GDP.

  1. INVESTOR TAX CREDIT PROGRAMS
    1. Nova Scotia Investor Tax Credit for Small Businesses

Equity Tax Credit Program:

The Equity Tax Credit program, abbreviated as ETC, was firstintroduced in 1994 to help the Small Businesses in Scotia Nova,community economic development and co-operative initiatives ingaining access to venture capital/ equity funding. The ETC achievesthis by giving income tax credits for businesses investing in NovaScotia and the CEDIF (Community Economic Development InvestmentFunds). ETC is a personal income tax credit, non-refundable, andavailable to Nova Scotia residents aged 19 and above and who partaketo invest in a company that has been certified by the ETC program.

The tax credit is equal to 30% of the invested sum and cannot be morethan $9,000 in any single year. It is mandatory that companies makeapplication through the Department of Finance to be certified beforeshares issuance. The qualified investors who buys the shares in theperiod specified will be given the credit. The credit amounts thathave not been utilized by the individual can be forwarded seven andthree years back.

Participation

Since ETC was initiated in 1994 till March 1997, 2,164 investors and197 firms have taken part in Equity Tax Credit program. Theparticipants have received more than $6.7 million in investments andhave made more than $23 million dollars in investments (Nova ScotiaDepartment of Finance, 2000):

Tax Year

# of Companies

# of Investors

Total Credits ($)

Total Investments ($)

1994

9

73

104,181

414,723

1995

26

176

484,616

1,633,515

1996

34

462

1,671,987

5,583,475

1,997

63

895

2,374,153

8,131,342

1,998

65

558

1,939,492

6,712,492

Totals

197

2,167

6,574,429

22,475,547

Source: Nova Scotia Department of Finance, 2000

Economic Impact Analysis

A study probed the economic impact of ETC using NSIO on the ECTcertified firms’ investment expenditure during the period 1994 to1997. The study also considered the yearly operations related to theETC investment of the firms.

On the basis of financial cost-benefit analysis, the ETC does notyield an instant positive return to the provincial treasury. Overall,it is not expected that such kind of a program can yield an incomealmost immediately. The investment is considered as a startup or aseed capital. This investment is expected to help generate acontinual economic impact in the future provided that the companysurvives. It is these continual impacts on the created companies thatwill give a payback to the provincial treasury, which is over along-term.

The payback analysis from the program determined that the ETC programinvestments between the period 1994 to 1997 will create a positiveash flow by 2000 to the provincial treasury.

Table: 1994-2000 ETC Impact, Nova Scotia Equity Tax CreditPayback and, Cost-Benefit Analysis for the Credits Received betweenthe period 1994-1997. Source: Nova Scotia Department ofFinance, 2000

The incrementality assumption is very important for the economicanalysis of the Nova Scotian ETC program. The ETC program impact andinfluences are assumed to be incremental, but over the long term. Astudy by the Nova Scotia Department of Finance revealed that over 75%of the companies that took part in the ET program confessed that theywould not have expanded their operations or stared their businesseswithout the credit (Nova Scotia Department of Finance, 2000). This isa perfect proof that the ETC program is critical to the developmentof the Nov Scotian economy.

    1. New Brunswick Investor Tax Credit for Small Businesses

The New Brunswick Small Business Investor Tax Credit gives a fiftypercent non-refundable personal income tax credit (for theinvestments created after 1st April 2015) for up to$125,000 annually to the qualified CECD (or community economicdevelopment corporations) and or to qualified small businesses or tothe associations in New Brunswick province.

Beginning 1st April 2014, the Small Business Investor TaxCredit permits the corporations in New Brunswick and trusts to bequalified for a fifteen percent non-refundable corporate income taxcredit for the qualified investments of up to $500,000. This impliesthat the New Brunswick trusts and corporations become eligible fortax credit of $75,000 in case they invest in small businesses andstartups in New Brunswick province (New Nouveau Brunswick Canada,2016). In an investor is not in a position to utilize all the amountallotted by the Small Business Investor Tax Credit in a given year,then the tax credit can be forwarded 7 years ahead of time or back 3years (New Nouveau Brunswick Canada, 2016).

    1. Table

Table:

Name of program

Maximum amount of credit

investment amount

Investors eligibility

Companies eligibility

Number of employees

Restrictions

Nova Scotia – Equity Tax Credit Program

tax credit is equal to 30% of the invested sum and cannot be more than $9,000 in any single year

Any amount – open

Make application through the Department of Finance to be certified

Nova Scotia

Open

Nova Scotia residents aged 19 and above

New Brunswick Investor Tax Credit

fifty percent non-refundable personal income tax credit (for the investments created after 1st April 2015) for up to $125,000 annually

Open

the applicants have to make an application for a Certificate Registration, then they finally apply for a Tax Credit Certificate.

Open

New Brunswick resident

  1. ANGEL INVESTORS IN QUEBEC AND ONTARIO
    1. Angel Investors in Ontario (ON) and Quebec (QC)

The National Angel Capital Organization, abbreviated as NACO, is theCanadian industry association that commitments itself o championingthe Angel investors and their various investments across Canada. NACOrepresents more than 2100 investors who help the Canadian businessesacross different provinces and industry to meet their businessobjectives and to fairly compete on the global platform (NACO, 2017).The NACO members provides corporations with risk capital,professional network and expert advice where the traditionalinstitutions cannot.

Every year, NACO publishes a report “Report on Angel InvestingActivity in Canada.” In the 2015 report, in a survey databroken down in regards to different Canadian regions (Easter, Centraland Western), the Central Canada (Quebec and Ontario) performed bestcompared to other provinces, accounting for 70% of the investments.This has been the trend for the last few years (NACO, 2015).

Source: NACO,2015

The most active angel groups show the huge investments occurring inthe Central Canada (Quebec and Ontario). Groups in Ontario and Canadarepresents four out of five most active groups in regards to theamount of dollars invested and the number of investments done forboth “Young Groups” and “All Groups.” This can be observed intable below. Young Angel Groups are categorized as those that werecreated in under five years .

Table: Most Active Canadian Angel Groups

Source: NACO,2015

Source: NACO,2015

From figure above, Panel A revealsthe median investment amount put in per investment by the AngelGroups across Canada for the last 4 years. Panel B on the other handindicates the mean investment size for every Angel Group. The figuresends a message that the overall size of investment in the Westernregion of Canada together with the investments from the CentralCanada does perfectly well. Eastern Canada has been stabling until2015 when the levels of investments there dropped (NACO, 2015).

Figure 19: Angel Group Investment Amounts by Region:2012-2015

Panel A: Angel Group Medians (per Investment)

Panel B: Angel Group Averages (per Investment). Source:NACO, 2015

Source: NACO,2015

    1. Why there are more Angel Investors in Quebec and Ontario than other Canadian Provinces

One would be interested in understanding why the two Central Canadianprovinces, Quebec and Ontario are doing better in terms of attractingAngel Investors yet the provinces does not have the government taxcredit incentives. Here are some of the characteristics and trendsthat hints on why most Angel Investors prefer Quebec and Ontario toother Canadian provinces as choices for investment regions (NACO,2015):

      1. Deal Structure

Less than half of the groups provided details regarding theirinvestment structures which was done both their members. Equityinvestment was the key, with more than 96%. Common shares were themost used instrument, followed by convertible debentures and thenpresented shares. Co-investment, where more than one investor from asimilar Angel group takes part in the same portfolio of investment.In 2015, 64% of all the investments constituted co-investments, andthis has been the trend for the last 4 years (NACO, 2015).

      1. Deal Size

The amount of money invested by the Angel groups have been on therise between the years 2012 and 2015, but slightly dropped in 2015.However, the medium deal sizes have been variable. The average andmedium deal sizes were $1.054 and $795,000, which was not muchdifferent (NACO, 2015). The biggest deals involved the government andthe venture capital funds. This is implying that the deals that werebeing done in the Central provinces were quite substantial in size(NACO, 2015).

      1. Investment Patterns: Distance

It can be observed that a bigger percentage of the Angel investorsare local. Two factors can be attributed to this information spreadfaster and effectively locally implying that the first investor toobtain the information and the closest investor is likely to takeaction faster compared to an investor who is located several milesaway (NACO, 2015). Secondly, investors find it easy to make an impacton businesses with which they share same geographical proximity. Infact, at the screening sage, most investors use the geography todetermine their best bet. This implies that most of the AngelInvestors investing in Ontario and Quebec are from the local market.

      1. Company Size

The Angel Groups are typically interested in the startups and smallbusinesses. From the NACO 2015 data, it is consistent that 70% of theinvestments were done on businesses with 10 or below workers. Almosthalf of the participating businesses had between one to five workers.This has been the trend for the last three years (NACO, 2015).

  1. SASKATCHEWAN ANGEL INVESTING AND RECOMMENDATIONS

The Saskatchewan entrepreneurs have what it takes to uplift theprovince to even greater heights by contributing bigger amounts ofGDP, and creating employment. from the current sorry status of theeconomy. There is need for attraction of Angel Investors toSaskatchewan province, to help in identifying the entrepreneurs,provide them with the funding and promote the greater vision of theprovince to become one of the leading investments hub in the region.

    1. Angel Organizations in Saskatchewan

Today, Saskatchewan does not have a stable, sufficient number ofAngel Investors to help promote the startups and to boost thedevelopment of the local economy. One of the main Angel Investors inSaskatchewan is the Saskatchewan Capital Network.

      1. Saskatchewan Capital Network

SCN Inc. was incorporated in 2011. Since the company was firstlaunched, more than 32 firms have presented their business proposalsand opportunities to the potential investors. More than tencorporations have received $1.7 million of investment funds from theinvestor members of Saskatchewan Capital Network (SaskatchewanCapital Networks, 2017). The Saskatchewan Capital Network is anon-profit organization, and a member based organization ofSaskatchewan angel investors. SCN currently boasts of more than 32investor members with vested interest in identifying good investmentopportunities in growth focused entrepreneurs and startups,specifically those based in Saskatchewan province (SaskatchewanCapital Networks, 2017).

Through networking events and presentation, the SCN organizationfacilitates the introduction of investment prepared and readycompanies to the potential investors. Such events are held in Regnaand Saskatoon, every two to three months based on deal flow(Saskatchewan Capital Networks, 2017). The Saskatchewan CapitalNetwork investor members are particularly interested in funding hetechnology-based companies, service firms or proprietary products.They are also interested in companies that have great [potential forgrowth and are already on their path to success.

SCN does not take on management of the pool funds, instead themembers make their own decisions in regards to their individualinvestments. The objective of the organization is to encourage andpromote the Saskatchewan entrepreneurs take on the opportunity andbuild sustainable and successful businesses.

      1. Angel Networks are Key to a Growing Entrepreneurial Community

Generally, entrepreneurs spend several hours in search for financialcapital from the potential investors to pitch their ideas. This timeshould be spent on commercializing their great ideas and products orservices. SCN Inc. was created with the aim of giving support to theentrepreneurs with a reliable way to access capital and also to helpthe investors get to meet the right business opportunities to investin Saskatchewan.

SCN Inc. works very closely with institutions and organizations thatprovide technology advice to businesses, financial support and alsoprovide support to the entrepreneurial ideas to become investmentready. The organization also encourages the members to refer thepromising startups and small businesses.

    1. Recommendations to Saskatchewan
  1. Optimize the Value of Saskatchewan’s Incubation Facilities

Saskatchewan do not have appropriate incubation facilities to enhanceentrepreneurship and to equip the startups with the necessaryempowerment and to bring out their potential as required. There arevery interesting incubation projects with very innovative ideasregarding how to promote entrepreneurship and how to raise acommunity that is business oriented and ready to build their economy.For example, Innovacorp has over the years continued to incubate itsclients’ trough the Innovacorp Enterprise Centre at the DalhouseUniversity campus. Other incubation facilities by Innovacorp includeInnovacorp Demonstration Center and Technology Innovation Centre(Innovacorp, 2011). Saskatchewan can copy such models and replicatethem in different parts of the province to help raise anentrepreneurial culture and community.

  1. Enhance Saskatchewan’s Start-Up Community

Entrepreneurship and innovation are very critical for Saskatchewanprovince’s future economic success. While it is the entrepreneurswho have to take up the lead in building the start-up community,Angel Investor organizations and Tac Credit programs play a criticalrole in helping to develop a mature start-up community and culturewhile at the same time expanding the offerings to the less servedparts of the province. Here are some tips that the province ofSaskatchewan needs to implement to help enhance a start-up community:

  • Put more focus and investment in entrepreneurship and technology ideas. Technology has the edge to quickly give returns and impact on a community in a bigger way over a short term.

  • Create [partnership with the already established and conglomerate firms, not only from Canada but from other established countries like the United States. Such hubs will definitely contribute a lot to ideas that will help bring a technology hub to Saskatchewan and also to impact the economy and community in a significant way.

  • It is important to create a regular or monthly investment and entrepreneurship meetings where the entrepreneurs are highlighted on different and important ideas regarding investments and innovation.

      1. Innovation Place and its Contributions to Small Startups

Innovation Place was created backin 2000. It is located in Regina and it one of the science andtechnology parks in Canada. It is also a very successfulUniversity-related science and technology centers in North America.It is located opposite University of Regina. Innovation Place Reginais reported to have created more than 3,873 jobs in the province andanother 3,368 jobs in the city.

Innovation Place was established topromote innovation and creativity by providing the amenities,services, and facilities with the intention of creating newopportunities for startups in the science and technology domain. Thecenter helps in ensuring efficient delivery of government servicesthough the internet technologies and helps in creating better waysthrough which the government conducts its business.

Innovation Place is also tenant toabout 35 corporations which employs thousands of people. InnovationPlace houses organizations like Information Services Corporation,eHealth Saskatchewan and Information Technology Office. Other tenantsinclude Science Application International corporation, FujitsuCanada, and ISM Canada.

The mega projects like Aquistoreare leading revolution in Southern Saskatchewan energy andenvironment sector. the deepest well in Saskatchewan has been drilledby PTRC, going 3.4km deep. The captured CO2 from the project will beinjected by Aquistore into a sandstone and brine formation which issafe and will help in minimizing greenhouse effect. There are severalstartups that have also successfully started their businesses atInnovation Place, including Communities of Tomorrow and GB InternetSolutions, which already are growing very fast.

REFERENCES

New Nouveau Brunswick Canada. (2016). Finance: Small BusinessInvestor Tax Credit.

Retrieved online on 14th March 2016 fromhttp://www2.gnb.ca/content/gnb/en/departments/finance/taxes/credit.html

Brad W. (2014). Saskatchewan Plan for Grwoth: Vision 2020 and Beyond.Governent of

Saskatchewan. Retrieved online on 14th March 2016 fromhttp://www.gov.sk.ca/adx/aspx/adxGetMedia.aspx?mediaId=1800&ampPN=Shared

Traves T. (2014). Review of Economic Development Assistance Tools:Assessment of

Current Practices and Future Potential for Nova Scotia Prepared forthe Province of Nova Scotia Department of Economic and RuralDevelopment and Tourism. Retrieved online on 8th March2017www.0-nsleg-edeposit.gov.ns.ca.legcat.gov.ns.ca/deposit/b10669759.pdf

Gilles Duruflé, Ph.D., CFA (2014). Department of Economic and RuralDevelopment and

Tourism Government of Nova Scotia Fuelling Entrepreneurship &ampInnovation: A Review of the Nova Scotia Government’s Role inVenture Capital Provision. Final issue date: June 2014. Retrievedonline on 8th March 2017www.0-nsleg-edeposit.gov.ns.ca.legcat.gov.ns.ca/deposit/b10673532.pdf

Kim Dunn &amp Dr. Michelle Adams April (2014). Investor Motivationsand Behaviors:

Impact Implications from CBRE-based CEDIFs. Chool or Resource andEnvironmentl Studies. Retrieved online on 8th March 2017 www.peoplepowerplanet.ca/wp-content/uploads/2015/…/CEDIF-Investor-Report-Final.pdf

Innovacorp (2017). Early Stage Venture Capital. Accountability Report2014-2015. Retrieved

online on 8th March 2017

https://innovacorp.ca/sites/…/final_innovacorp_accountability_report_2015_2016.pdf

NACO (2017). Reports on Angel Activity in Canada. Retrieved online on14th March 2017

fromhttps://www.nacocanada.com/naco-academy/research/angel-activity-reports/

NACO. (2015). 2015 Angel Investing Activity in Canada: Scaling UpAngel Capital to Drive

Canadian Innovation. Retrieved online 14th March 2017 fromhttps://www.nacocanada.com/wp-content/uploads/2016/07/2015_Report_on_Angel_Investing_Report_29June16.pdf

Saskatchewan Capital Network (2017). Saskatchawan Capital Networkofficial wensite

Homepage. Retrieved online on 14th March 2017 fromhttp://www.saskcapitalnetwork.com

Saskatchewan Capital Network (2017). Saskatchawan Capital Networkofficial wensite

About SCN. Retrieved online on 14th March 2017 fromhttp://www.saskcapitalnetwork.com/about-scn/

Duanjie Chen and Jack Mintz (2011). SMALL BUSINESS TAXATION:Revamping

Incentives to Encourage Growth. School of Public Policy, Universityof Calgary. Volume 4 Issue 7. Retrieved online on 8thMarch 2017

https://www.policyschool.ca/wp-content/…/03/mintzchen-small-business-tax-c_0.pdf

Nova Scotia Department of Finance (April 2000). Nova Scotia TaxCredit Review Phase I

Report. Government of Saskatchewan. Saskatchewan Plan for Growth:Vision 2020 and Beyond. Retrieved online on 8th March 2017www.gov.sk.ca/adx/aspx/adxGetMedia.aspx?mediaId=1800&ampPN=Shared