Alberta venture tax policy (v2) jan 2016

January 12, 2016 Trent Johnsen

Enhanced Opportunity and Quality of life for all Albertans with Venture Tax Policy

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jan 12 2016agenda

introduction the Problem Solution Conclusions

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Trent Johnsenpresenting

introduction

● Economist by education; University of Calgary

● Currently Founder, Chair and CEO of Hookflash, global leader in real-time communications software working with Microsoft, Google, Cisco and others on new voice and video technology

Hookflash is a Distributed Team of 10 developer/engineers: – Canada, U.S., Serbia, UK

● Founded, built and sold three previous technology companies ■ Alberta based paging, mobile and Call Centre provider■ National Voice over IP (VoIP) Telco serving small medium business in 6 cities■ International Data Backup and Internet Storage provider

○ sold for $62 Million

● Board Member of Innovate Calgary (Joint Venture of University of Calgary, Calgary Chamber of Commerce and City of Calgary)

● A100 Member - A100 members expand networks, connect people and share experiences to help the next generation of entrepreneurs thrive in Alberta

Trent Johnsen

the Problem

You guys have a big Problem . . . “a crisis”

And I’m here to tell you about another one

Alberta Missed the Bus to the 21st Century

We’re as much as a Decade behind in the “Internet economy”- where all the growth will be for the next decade.

● World’s largest taxi company owns no taxis (Uber)

● Largest accommodation provider owns no real estate (Airbnb)

● Largest phone companies own no telco infrastructure (Skype, WeChat)

● World’s most valuable retailer has no inventory (Alibaba)

● Most popular media owner creates no content (Facebook)

Alberta (& Canada) are being left behind . . .Digital Disruption has Already Happened(“Software is Eating the World”)

● World’s largest movie provider owns no theatres (Netflix)

● Largest software vendors don’t write the Apps ( Apple and Google)

The economic impact of the Internet is getting bigger—just about everywhere— and it already has an enormous base. In the U.K., for example, the Internet’s contribution to 2010 GDP is more than that of construction and education.

In the U.S., it exceeds the federal government’s percentage of GDP.

BOSTON CONSULTING GROUPTHE INTERNET ECONOMY IN THE G20

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The Internet economy in the developed markets of the G-20 will grow at an annual rate of 8 percent over the next five years, far outpacing just about every traditional economic sector, producing both wealth and jobs.

Alberta GDP Growth is forecast at less than 1%

BOSTON CONSULTING GROUPTHE INTERNET ECONOMY IN THE G20

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Market Cap - Company Value in $ Billions - January 10, 2015

Wealth Creation and employment in the 21st Century is driven by innovation - Not Extraction

*Uber is 6 years old with a higher valuation than Alberta’s largest energy companies. Uber was founded by Garrett Camp of Calgary, now living in San Francisco, CA

“never let a good crisis go to waste.”

Winston Churchill

Entrepreneurism is the key to Alberta’s economic revival . . . one never knows where another Silicon Valley will spring up.

PREMIER RACHEL NOTLEYNOVEMBER 5, 2015

“Leadership recognizes this:

Executives from two of Alberta’s largest and most entrenched industries – oil production and power generation – will sit on a new economic advisory panel charged with finding strategies to diversify the province’s economy.

GEOFFREY MORGANNATIONAL POST, OCTOBER 2015

“But is at risk of making the same

mistake as previous governments . . .

At least 3 previous government Blue Ribbon panels have recommended technology tax credits including the most recent - May 2007: Final Report to Minister Doug Horner from it’s own“Task Force on Value Added and Technology Commercialization” led by David Martin, founder of Smart Technologies:

“Action must be taken in order to build a broad‐based economy and to overcome current reliance on commodity resources. Albertans must be in control of their own destiny.”

Alberta government implemented recommendation #1 in September 2009

January 2016: still no Venture Tax Credit

What’s so great about a Venture Tax Credit? Let’s look at the BC experience

Solution

What is a Venture Tax Credit?

Venture capital programs encourage investors to make equity capital investments in British Columbia small businesses that will enhance and diversify the provincial economy. The government recognizes that creating new small businesses and expanding existing ones will contribute to a healthy economy. These programs give small business continuous access to early-stage venture capital to help them develop and expand. *

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● http://www.mit.gov.bc.ca/icp/VCP/index.htm

How Does the Venture Tax Credit Work?

Individual investors are entitled to a 30 percent refundable tax credit on the value of their investment, up to an annual maximum tax credit of $60,000. Corporate investors are entitled to a 30 percent non-refundable tax credit on the value of their investment, however, there is no tax credit limit. Both individual and corporate investors can carry unused portions of tax credits forward for four years.*

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● http://www.mit.gov.bc.ca/icp/VCP/index.htm

BC implemented their Venture Tax Credit in 2001 and conducted an extensive assessment on results from 2001 thru 2008.

Highlight Conclusions from Hellmann Schure Report - 2010

“Over the period 2001-2008, investments made in 517 companies received a total of $191M provincial and $65M federal tax credits. These companies generated an estimated $379M in provincial and $368M in federal taxes.

● for every $1 of provincial tax credits issued, recipient companies generated $1.98 in provincial taxes

● for every $1 of Canadian (i.e., combined provincial and federal) tax credits issued, they generated $2.92 in Canadian taxes. In short, the BC tax multiplier was 1.98 and the Canadian tax multiplier was 2.92.

Highlight Conclusions from Hellmann Schure Report - 2010

“it should be mentioned that the benefits of the program are likely to extend to the BC economy more broadly.

One important benefit is the legacy created by successful companies in the program. Companies that are acquired typically retain some local presence, their managers frequently move on to play leading roles in new start-ups, and their investors may

reinvest part of their gains into the next generation of start-ups.

As per the previous quote from Premier Notley

“. . . one never knows where another Silicon Valley will spring up.”

And look what’s happened in Vancouver . . .

“Along with the local expansion of Microsoft, Amazon and Sony Digital Works, the tech industry is transforming British Columbia’s economic capital: The sector is estimated to occupy almost 40 per cent of downtown Vancouver commercial real estate and employed 86,800 people provincewide in 2013 – more than forestry, mining and oil and gas combined.

(welcome to the 21st century)

“The BC technology industry is reaping the benefits of past investments. An engine of growth in BC today, the technology sector is one of the strongest contributors to provincial GDP and creates jobs that pay 66 percent higher wages than the industrial average. BC’s technology sector also has a significantly higher overall economic impact than the province’s primary resource industries. By incenting private investment in the sector, the introduction of programs such as the Small Business Venture Capital tax credit, the angel tax credit, have played significant roles in driving the successes we see today.”

KPMG BRITISH COLUMBIA TECHNOLOGY REPORT CARD 2014

Most Recent Data on BC Venture Capital Tax Credit

Alberta made the Report . . . that’s us in green at the bottom with the lowest Venture Capital per capita

Conclusions

How can I put this eloquently?

clean, high-paying knowledge based jobs

- capital formation- investment knowledge

- wealth creation

innovation and growth

global market access

Venture Tax Credit Policy is not about money for tech companiesIt’s about building a better future for all Albertans by incenting capital to participate and succeed in the 21st Century “Internet” economy - “capital formation”

“When all is said and done, a lot more is usually said than done.”

Summary

● there are no “losers” with a Venture Tax Credit; everyone benefits● it’s not a mutually exclusive, single solution. It’s one lever in the ecosystem● Government doesn’t have to pick winners - it encourages investors make market

driven decisions, develops tech investment knowledge and capital formation ● based on 15 years of data from BC - government is basically getting $2 to $3 in tax

revenue for every dollar of tax credit provided ● it “de-risks” early stage tech investment for investors with a 30% credit and will

encourage traditional energy/commodity investors to diversify● it’s time to act - Albertans have talked about diversification for decades and failed to

act, now we’re in crisis

How can we get it done quickly?

thank you | Q & A

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Trent Johnsen | Calgary

[email protected]

@trentjohnsen

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Why specifically a “Technology” tax credit? - the “Innovation Driven Enterprise”

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investing in exponential growth

Innovation Driven Enterprise