The Government of Saskatchewan has doubled the annual cap for its early-stage tech investor tax credit.
The Saskatchewan Technology Startup Incentive (STSI) offers a 45 percent tax credit to individuals who invest in eligible tech startups in the province. Previously capped at $3.5 million, as of April 1 of this year, the program’s annual disbursement cap is now $7 million.
“I think 2024 is poised to be hopefully a pretty exciting year here for Saskatchewan tech, and this is a great way to kick things off.”
Jordan McFarlen, director of Conexus Venture Capital
Saskatchewan tech ecosystem leaders lauded the province’s decision to double the program cap, with Jordan McFarlen, director of Conexus Venture Capital, telling BetaKit this decision “signals that the government believes in the tech sector.”
“[The STSI] has helped a significant number of founders close rounds and raise additional capital based on being able to get some investors who might not previously have been active prior to the STSI,” McFarlen said.
“We’re a huge fan of what Innovation Saskatchewan and the government have created. It’s provided such a great boost to the ecosystem,” he added.
The STSI was first launched in 2018 as part of the Saskatchewan government’s budget to encourage investment in early-stage technology startups that bring new products to market and create jobs in the province.
In 2021, the government extended the STSI for an additional five years. At that time, the government said the program had attracted $22 million in investment, supported the creation of 144 new jobs at 62 companies, and increased the size of the province’s investor pool.
Under the STSI, eligible businesses can raise a maximum of $2 million, and investors can earn up to $225,000 in tax credits per annual investment, and claim a maximum of $140,000 each year. The program funding is allocated to investors on a first-come, first-serve basis.
According to Tim Lynn, co-founder of Startup TNT—which drives investment into startups across the Canadian Prairies, including Saskatchewan—the previous cap of $3.5 million introduced “friction” regarding the amount investors should commit and the timing for receiving their tax credit.
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“The program was previously over-utilized, meaning there was a lineup for the approved credit each year, and that lineup was getting longer,” Lynn told BetaKit. He said raising the annual program cap will “provide certainty in the market, and certainty in investing means an ability to invest more money, all else being equal.”
Sean O’Connor is no longer based in Saskatchewan (he joined British Columbia’s 4AG Robotics as CEO in October 2023), but saw the benefit of the STSI while he served as managing director of Regina-based Conexus Venture Capital and AgTech fund Emmertech.
O’Connor praised the work of the province and Innovation Saskatchewan in raising the cap on the STSI. “It really is a compelling narrative, particularly for angel investors, when you have that immediate turnaround on value that they can receive. That goes a long way in helping build conviction,” O’Connor said.
In addition to raising the program limit, the province also expanded the STSI to include cleantech startups as eligible businesses. Innovation Saskatchewan defines cleantech as innovations that increase energy efficiency or conservation, reduce greenhouse gas emissions, or reduce the net environmental impacts of existing industrial processes.
“Saskatchewan for a long time was food, fuel and fertilizer, and then we built this exciting technology ecosystem,” O’Connor said, adding that by bringing these sectors together and incentivizing investment, he expects it will lead to positive effects on the environment and the tech sector.
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Startup TNT has engaged over 400 angel investors to invest over $12 million into more than 90 Prairie-based startups. Lynn said while he is pleased that the province wants to support the development of the next generation of companies, he said the provincial focus stifles connections to other economies and disincentivizes companies from raising out-of-province capital.
“Often the connectors in a startup community are the investors, and if the investors are isolated to investing only in Saskatchewan, those bridges aren’t being built,” Lynn added.
Lynn said one way to solve this problem is for the startup itself to receive the credit as matching dollars. For example, if a company is raising $1 million, it would only have to raise $550,000 to then get the other 45 percent of the round.
“That’s a far more effective program, from an impact and also an administrative perspective, and removes the strange investment perversions that occur as a result of tax modifications,” Lynn added.
McFarlen has previously noted that Saskatchewan is considered a “flyover province” when it comes to tech investment. He said the ecosystem has worked hard through its accelerators and incubators to build a pipeline of strong companies, and he believes programs like STSI will ensure the continued growth of those companies.
“I think 2024 is poised to be hopefully a pretty exciting year here for Saskatchewan tech, and this is a great way to kick things off,” he added.
Feature image courtesy Wikimedia Commons.