Tech investor associations urge unified capital strategy ahead of budget

With the Government of Canada set to drop its budget in two weeks, two organizations that represent Canadian technology investors are lobbying for the feds to “recognize the importance of a unified capital strategy” for innovation funding.

In a recent joint letter to finance minister François-Philippe Champagne, the National Angel Capital Organization (NACO) and Canadian Venture Capital & Private Equity Association (CVCA) argue that Canada’s innovation economy has been “constrained” by a fragmented capital landscape that often forces companies to relocate abroad or sell prematurely.

NACO and CVCA argue the feds need to make supporting Canadian tech “a national priority.”

In their letter, NACO CEO Claudio Rojas and CVCA board chair Jeannette Wiltse assert that the country needs to make supporting Canadian tech “a national priority.” They say Canada needs to implement a more focused policy strategy to ensure that innovative companies have the funding required to launch, grow, and stay here if it wants to secure its economic sovereignty.

As part of the federal government’s pre-budget consultations, NACO and CVCA have already shared some specific recommendations on how to achieve this. NACO has also elaborated on what a more unified capital strategy for Canada could look like in an associated report.

Canada’s tech financing ecosystem faces some big challenges. Pre-seed and seed activity for Canadian startups has continued to decline, and United States investors are still playing an outsized role supporting the growth of mid- and later stage Canadian firms. This comes at a time when ambitious founders are leaving the country at an accelerating rate, and a persistently cool exit market has left many venture capital (VC) firms struggling to fundraise.

NACO has already recommended that the feds incentivize greater investment at the pre-seed and seed stages by launching a $450-million early-stage matching funds program complementary to the Venture Capital Catalyst Initiative (VCCI), with a focus on national defence and tech. It also seeks a $200-million investment establishing a national infrastructure to activate private capital using existing organizations like angel networks and early-stage funds.

RELATED: CVCA calls for temporary capital gains reduction, national investment tax credit in pitch to federal parties

NACO’s pre-budget submission also asked for the Government of Canada to introduce a capital gains reinvestment deferral and a 30-percent, refundable National Investment Tax Credit for investments in Canadian-controlled VC funds or private placements.

CVCA’s own recent budget recommendations also included a call for the feds to implement a capital gains tax exemption on equity in domestic, early-stage companies that extends to limited partnership structures to help Canada compete with the Qualified Small Business Stock (QSBS) tax incentive south of the border.

Additionally, the CVCA is calling on Prime Minister Mark Carney’s new Liberal government to deliver on its predecessor’s commitments to recapitalize VCCI with $1 billion and invest $1 billion in a fund for homegrown mid-cap companies, while also adopting an evergreen model for VCCI and other venture capital incentive programs. The CVCA’s latest asks mirror the organization’s recommendations from earlier this year.

Feature image courtesy NACO.