Last week’s federal budget removed a significant barrier to foreign direct investment into Canada’s high-potential companies. Our sponsor Deloitte provided considerable detail on the changes in their news release (MS Word format) last week on this seminal development in Canada’s early-stage capital markets.
In their words,
This change puts Canada at the top of the list of places to invest globally.
By amending the definition of “taxable Canadian property” in Section 116 of the Income Tax Act, the Canadian government has opened the border to investment in general and Angel co-investment in particular. NACO and many others have long advised that Section 116, as previously written, was a significant impediment to Angel investors, Angel funds, and other such foreign investors who might otherwise consider investing in Canadian companies.
David Verrill, founder of Boston’s Hub Angels, stated that:
“Last year NACO hosted a cross-border educational session on how to structure US investment in Canadian companies. This session showed is that, although there were structures that could be created, it was a complex and costly process for anything but individual US investors. For Angel-sized investments – and in particular angel funds with nonUS investors – these structures just didn’t make sense. I congratulate the Canadian government for making this a simpler process and look forward to exploring opportunities north of the border!”
With co-investment becoming increasingly key to companies seeking to raise significant rounds of investment, this change will provide companies and their Angels a much broader pool of co-investment partners to draw from.
Throughout his career, both in Canada and the UK, Bryan J. Watson has been a champion of entrepreneurship as a vector for the commercialization of advanced technologies. Upon his return to Canada in 2004, Bryan established his venture development consulting practice to help emerging-growth companies overcome the barriers to success they face in the Canadian commercialization ecosystem. Visit Bryan’s blog and the National Angel Capital Organization.