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Venture Capital is a critical part of the Canadian economy because it provides the funding that enables innovative, early-stage technology companies to survive and grow.
These fast growing firms represent just 5 per cent of the companies in Canada but they have a huge impact on our ability to innovate and on our prosperity, accounting for 45 per cent of new job creation.
Designing policies to support and stimulate entrepreneurial ventures is a challenge; there is no single sector they occupy, nor do they have common business strategies. But one problem is common and acute among these unusual enterprises—almost all have difficulty finding the capital they need to realize their business plans.
Improving and growing the venture capital industry is one strategy government can pursue that could significantly benefit most fast-growing entrepreneurial firms. Such a strategy has the potential to transform Canada—to make it more innovative—by creating new businesses, technologies and jobs. It is particularly timely to consider such a strategy.
The Canadian economy is challenged by headwinds that will reduce the rate of GDP growth and job creation in the coming years. The natural resources and commodities that were so central to business investment could be facing many years of price weakness. If Canada’s traditional sources of growth are ebbing, then it needs to increase productivity and innovation in order to expand its economy into new services and technologies.
More importantly, a study by Deloitte shows that many Canadian companies are not ready for “disruptive innovation”—the huge leaps of technology that will put our traditional businesses at risk. Canada must accelerate its own innovation and develop new technologies here at home to avoid getting left behind. What can government do? Canada has already invested massively in R&D. In fact, public spending on research and development, at 0.81 per cent of GDP places Canada ahead of countries like the U.S., the U.K. and Japan (but still behind countries like Germany, Sweden and Finland.) The trouble is that Canada lags on the commercialization of products. How do we get our great ideas developed and into markets? By helping entrepreneurs to build new innovative companies.
A critical ingredient is having a vibrant, thriving venture capital industry that can provide the investment and expertise to turn ideas into innovation.
Venture capital is a form of equity financing for innovation-based early-stage technology firms. These types of start-ups are creating brand new products, so the growth potential is enormous, but the risk of failure is also very high. That is why traditional forms of funding, such as bank loans and asset-based lending, are not appropriate. Firstly, these companies have little, if any, of the tangible assets that are normally used as security in conventional financing. Most of their assets are intangible (software, R&D results, intellectual property and people). Lenders find it difficult to collateralize debt with products that have not yet demonstrated any market success. There is a high level of uncertainty linked to R&D activities and the development of unproven new technologies.
Many companies are seeking to create new needs and new products in markets where it is difficult to foresee what the demand might be. Particularly with technology companies, new solutions and business models emerge all the time and many of these might not work. There is also a high level of information asymmetry between the entrepreneur and the investor for technology start-ups. It is not enough to review the financial statements and business plan. In brand new companies where there are no revenues or profits, the investor needs a detailed understanding of what is going on inside the company to judge whether it is headed for success. Again this illustrates why conventional lenders such as chartered banks, have little incentive to target these clients.
Finally, it often takes a long time, up to seven years or more, to develop, commercialize, market and start generating revenues—the stage where companies can launch an initial public offering (IPO) or are acquired. Venture capital investors do not lend money. Instead, they buy shares of a firm, which gives them products.
The Canadian Chamber of Commerce offers a variety of proposals, supported by the Kelowna Chamber of Commerce, that we will take to government to help transform the venture capital industry in Canada.
Canadians have spoken decisively and given the
Liberals a majority that no one thought possible. (Why
do we even read polls anymore? Maybe we’d be better
off scanning the stars.)
Here’s why the pollsters got it wrong. The number of
people who voted Liberal shot up a staggering 149%,
from 2.8 million in 2011 to 6.9 million this past Election
Day. Meanwhile, the Conservative vote didn’t budge,
from 5.7 million voters last time to 5.6 million, as the
base stayed loyal. Where did all these votes come
from? Strategic voting played a small part in Mr.
Trudeau’s triumph, as the Liberal surge pulled just
under a million votes from the NDP. But mostly, the
Libs benefited from a massive increase in people
coming to the polls as 69% of Canadians voted, up
from 58%, an additional three million newbies. Mr.
Trudeau changed the landscape and will enjoy a
reasonable honeymoon owing to the size of his victory.
But what does it all mean for Canadian business?
The good news is a stable, substantial majority gives
much more predicatiblity to business. It’s certainly far
better than a shaky Liberal minority being pulled to
the left by the NDP, perhaps forced into higher
corporate taxes or against the TPP or other “barbaric
Infrastructure will also get a big boost. The Liberals
have promised to set aside a portion of their $60 billion
plan for roads, ports and gateways and they have
committed to improving Canada-U.S. border crossings
and cargo inspection. Studies show that every $1 of
infrastructure spending adds $1.70 to final GDP. Thus,
the added spending could boost Canadian economic
growth by almost 1%.
More good news is the renewed focus on trade. The
Liberals have told us they’ll continue to pursue free
trade agreements. We expect them to implement
Canada’s deal with the Europe Union as well as the
recently concluded Trans-Pacific Partnership. Trade
negotiations with India are currently stalled, but we
hope they will also be a priority.
On taxes, the Canadian Chamber was delighted when
Mr. Trudeau so eloquently explained that corporate
taxes should not be increased (a major drag on
investment and competitiveness in a globalized
The area the Canadian Chamber is watching with
concern is payroll taxes. Firstly, the Liberal
government will seek to expand the Canada Pension
Plan, a position we support, but it may be politically
tempting to push costs onto employers. CPP
contributions act as a tax that makes it more expensive
to hire staff, which can depress employment. The other
major payroll tax, employment insurance, has been
pulling in far more money than it was paying out for
many years and so it was set to decline from 1.88% to
1.47% in 2017. The Liberals have promised to tax an
extra $500 million of revenues from keeping the EI rate
at 1.65% in order to pay for additional training. The
Canadian Chamber has for a long time been
vehemently opposed to using EI premiums for
purposes other than funding the insurance it provides.
As the largest business association in Canada, we see a
lot of positives in the new government’s platform and
we share in the country’s enthusiasm. With new
ministers, new staff and a new leadership style from
the top, there is an unprecedented opportunity to work
with the government and have our voices heard.
-Hendrik Brakel, CCC
A common question posed by business owners like you to accounting professionals here in
Canada: What’s the best way for a small business owner to generate business income /
expense statements and file tax returns efficiently?
The answer? It depends: Some people are comfortable working in Excel spreadsheets and use
these to start, while others endeavor to learn some sort of desktop accounting software. As your
business grows or your financial reporting requirements change, you might find yourself
exploring other, more advanced, options or
perhaps hiring an accountant to help manage your
If you decide to make a switch in accounting software, it can be overwhelming.
several available in the Canadian marketplace, but the most popular desktop software among
small business owners in Canada is Sage 50 (which was formerly Simply Accounting) or
Some things that frustrate small business owners with these types of desktop accounting
software programs include the joys of downloading and installing it, figuring out how to create
the kinds of invoices and reports required, and attempting to manage inventory. There are also
program updates to contend with and necessary backups
to guard against technological
failures. If you do need an accountant, you have to hope that your desktop accounting software
is compatible with theirs. Desktop accounting software typically starts at a cost of about $500
with fees for adding more than two users the norm. At the end of every month small business
owners need to spend time reconciling monthend
bank statements with entries, carefully
tracking receipts in case you end up being audited. Payroll functionality with desktop accounting
software is variable.
Does this seem a bit of a clunky process in today’s online world? It is!
If you would like a better, easier, faster way to manage your business financials, move
your business forward with XERO the
world’s “beautiful accounting software” and
experience the freedoms that operating “in the cloud” will allow you to enjoy!
When you switch your business accounting to Xero, you say farewell to downloads, installs,
upgrades, and backups because you no longer need a server! If that sounds too good to be
true, just wait because there’s more: You can login to Xero from any device wherever you are in
the world and check how your business is operating so you can make timely, informed
As an accountant, CarolAnn
Brouwer spent much of her career training businesses on how to
use desktop accounting software in Canada. But when she heard about “cloud accounting”, she
did some “due diligence” to find out what it all meant for security, users, and accessibility, and “
I soon realized that this was going to be a game changer for Canadian smalland
business owners”, she says. Her favourite cloud accounting solution? Xero.
Below are a few of the many reasons she recommends making the switch:
● No more downloads, installs, or updates. Truly you will never need to do this again –
ever! Just login.
● You can access your accounting on any device from wherever you are in the world.
● No more endofthemonth
bank statement reconciliation headaches because your
bank feeds reconcile to the bank items in Xero daily – fast and simple.
● Users? How does unlimited sound? With no extra fees!
● Assign and manage various roles to your staff (who can even work from home).
foreign currency within seconds, plus have currency gains or losses
calculated for you as accounting in the cloud with Xero has you connected to
● Easily keep track of receipts; simply take a picture with your smartphone or other
device and attach it to the invoice.
● Need to invoice an entire group? Create just one version and share.
● App Integration is important to Xero and with more than 400 available if you need
more than the basics you can select a solution that’s just right for your business.
● It’s simple and easy to use – designed for the business owner.
Would you like to know more about moving from your current accounting system to
Xero ? You are invited to join us on Thursday November 5, 2015 at Kelowna Chamber of
Commerce where Xero Global Trainer and founder of Accounting Anywhere , CarolAnn
Brouwer, will speak about Cloud Accounting in Canada. She will demonstrate the highlights and
answer any questions you might have about switching to Xero. Register early as seating is