Labour-Sponsored VCs Lose Their Edge
Just like that, the Ontario government has decided to eliminate the 15% tax credit given to investors who participate in labour-sponsored funds. The decision, which takes effect before the end of the year, was made because the government believes the venture capital market is healthy and there is no longer any need for tax incentives. This will be a huge blow to VCs such as VenGrowth and GrowthWorks that have used tax credits as a key selling point. At the same time, traditional VCs such as Ventures West, Jefferson Partners and J.L. Albright will toast the fact the playing field just a lot more level. If the Ontario government is looking for new ways to encourage investment in technology, particularly start-ups, it should look into providing investors with larger capital gains limits. This might direct more money into the hands of fledgling entrepreneurs, who are desperately looking for growth capital.
August 29th, 2005 at 7:54 pm
This was actually hinted at in the 2004 Ontario budget, so it shouldn't ahve been a huge surprise. Also note that carrots were dropped in to assuage the “hurting” LSIFs (easier to merge smaller pools with larger ones etc.). Now what is REALLY interesting is if the feds decide that their 15% of the credit is worth doing anymore. After Crocus in Manitoba and the continuing train wreck of early stage investing in Quebec (worst “exit” performance of any province), will the feds kill it too? Probably not with a surplus and a minority government, but perhaps they give the BDC a bigger role in their plans and kill the tax credits… stranger things have happened (oh, and don't get me started on the BDC…)