HoC Finance Committee appearance: good news/bad news

Well, I have good news and bad news following our trip to Ottawa last week for the Pre-Budget Consultations (see prior post “House of Commons Finance Committee demain” Oct. 5-10). The good news is that one of the political parties represented on the House of Commons Standing Committee on Finance voiced strong support for the CVCA’s “5 Point Plan” (see prior post “CVCA letters to Messers Flaherty, Clement and Ignatief” Dec 26-08). The bad news is that it wasn’t the folks who are currently in power.

There were ten different interest groups before the Commitee, with five lined up shoulder-to-shoulder per each 90 minute slot. CVCA Exec Director Richard Remillard and I were first up, and had the standard five minutes to give our presentation. The deck was a simple overview of the state of the start-up and VC ecosystem. Nothing newsworthy to anyone who might have stopped by this space even a few times over the past four plus years.

We were joined by representatives from the Aerospace Industry, the Association of Canadian Engineering Companies, the Fire Chiefs of Canada, and the Canadian Electrical Association. These people were all professionals, even those who weren’t GR people by trade. The setting was the historic Railway Committee Room in Centre Block; somewhere I likely first stepped foot in when I was about five years of age. It has aged better than I.

Committee Chair James Rajotte, M.P. ran a fabulous hearing, and was gracious throughout. All of the five presenters left feeling as though they’d been treated royally; not easy to do when the clock is running. Thanks goes to him for that.

The Hon. Scott Brison, P.C., M.P. kicked things off once our presentation was finished. Mr. Brison has a long affinity for start-up companies, and it was great to see him lead the charge for the Liberal members. He started things off by saying that he agreed with the recommendations in our five point plan, which was a fabulous way to launch the topic. Mr. Brison asked about the “Israel Experience”, and what Canada could learn from that ecosystem’s successes. Fortunately, Richard had a May 2010 review prepared for the CVCA by Gilles Durufle on the very subject. To sum it up, Mr. Brison said the drop in VC dollars deployed “was staggering”, and that we weren’t asking for enough.

I replied that we had tabled what we thought was “achievable”, not what we thought would be “perfect”, given the fiscal climate.

Conservative M.P. Mike Wallace asked about our $300MM Fund of Fund idea, and wondered aloud if the government should be putting money into funds…that would in turn invest in VC funds. I pointed out that the Feds were already doing this via the Business Development Bank of Canada, to the tune of about $58 million, but that our recommendation was for a “private-sector” managed vehicle: as has been done in Ontario and Quebec, for example. Mr. Wallace also asked how one could get more retail investors into the asset class, and we touched on two avenues: enhancing the Labour sponsored tax credit (which is one of the CVCA’s 5 points), or the extension of flow-through shares to tech and biotech companies — mirroring the tax treatment given to exploration companies in the mining or oil and gas sectors.

Naturally, I’d wished I had had the folks who run/ran Biox, CELLutions, eVault, Excel-tech, Ipico, Natrix, Radient, Shoplogix and Vrand on hand to spread the word about the jobs that are created in Oakville by venture capital firms. Fortunately, I think Mr. Wallace is well-attuned to the issues at play.

I had a bit of trouble with Liberal Massimo Pacetti, the Vice-Chair of the Committee. He was worried that our SRED enhancement idea ($1 of R&D spend gets you $1.50 of refundable tax credits) would mean guys would make money by starting tech companies. I assured him we were capping the size of the company that could access this facet of the CVCA’s Commercialization Support Program, and that the SRED couldn’t be a source of earnings for the company in any event.

Things got worse with BQ Daniel Paillé, also a Vice-Chair of the Committee. He thought we had our numbers wrong, in that there’d been a 38% drop in the number VC-financed companies between 2005 and 2009, but a 35% drop in capital deployed during the same period: according to the Parliamentary translator, he said “we needed more rigour in our figures”. What could I say? The concepts are different? It turned out this was just a preamble, but I’m not sure we won him over. Clearly an opportunity for follow-up, since Mr. Paillé represents the Montreal riding of Hochelaga, and 150 different Montreal-based companies have accessed VC capital over the past five years — down from 433 firms in the 2000-2005 period.

Neither Bernard Généreux (BQ) nor Thomas Mulcair (NDP) were as supportive as Mr. Brison and the Liberals, but that’s a “next step”, I suppose. They peppered the Aerospace rep regarding industrial offsets for the proposed CF-35 jet, however, who was proud to say that 50% of Canada’s aviation and aerospace industry is based in Quebec – music to the ears of Messers Généreux and Mulcair, for obvious reasons.

Like everything in politics, it’s about the ground game. Fortunately, the CVCA had the distinct opportunity to spread the good word to the very people who can help influence Finance Minister Jim Flaherty and his colleagues in Cabinet. Baby steps, but on the heels of our meeting with Prime Minister Harper in May, this is the definition of progress when it comes to interfacing with government.

MRM
(this post reflects a personal opinion, and may or may not reflect the views of the CVCA and/or its members)