Ministry of Competition, Science & Enterprise Investment Capital Branch – April 2003

1. Small Business Venture Capital Act:2003 Legislative AmendmentsAccelerating Access to Venture Capital Ministry of Competition, Science & Enterprise Investment Capital Branch – April 2003

2. Small Business Venture Capital Act Amendments:Presentation Outline • Overview of venture capital programs • Eligible Business Corporation amendments – thedirect investment model • Eligible Business Corporation illustration– how does it work? • Venture Capital Corporation amendments – portfolio investing • Venture Capital Corporation illustration – how does it work? • ‘New Media’ Sector Tax credits – 2003 budget announcement • How to Get Started

3. Small Business Venture Capital Act Amendments: Program Overview • Program History & Background: • Provides a 30% fully refundable tax credit to resident investors who invest in small businesses through a holding company • Since 1985, raised over $400M for investment in 575 small businesses throughout British Columbia including: A.L.I. Technologies Inc. (Richmond) The Wickininnish Inn Ltd., (Tofino) and Blue Mountain Vineyards Ltd. (Oliver) • Annual program capital investment: up to $67M per year Problems with existing legislation: • An un-level playing field with Labour-Sponsored Funds for raising and investing capital • Too much program red tape for raising seed capital (<$1M) related to incorporation costs and program filings. How do these amendments respond to the demand for change?

4. Eligible Business Corporation Amendments : Direct investment - More seed capital…..less red tape • For investors this means: • Can invest and earn tax credits in a small business without setting up a holding company • Can invest directly through an RSP and obtain prior year tax credits for investments made during RSP season • For small businesses this means: • Fewer corporate and program filings and cost savings from not having to incorporate a holding company. • A viable alternative to raising seed capital in the $0M to $1M range • The ability to offer voting or non-voting common or preferred shares to investors (debt is not permitted) How does this new model work?

5. The ‘Eligible Business Corporation’ Model - Direct Investment Province of B.C. Investors 30% Tax Credit $ • The Investors: • Arms-length from the owners of the Eligible Business Corporation • Shares may not be transferred, redeemed, acquired or cancelled for 5 years. The Eligible Business Corporation: • Less than 100 employees • Pays at least 50% of wages to BC residents • Engaged in one of the following: • Manufacturing & Processing • Destination tourism • Research & Development of technology • Community Diversification or, • Development of digital new media Shares Eligible Business Corp. (EBC)

6. Venture Capital Corporations - Legislative ChangesLeveling the playing field for venture capital in B.C. • For Venture Capital Corporation investors this means: • Tax credit for direct RSP investment and prior year tax credits when purchases are made during RSP season • More choices for investment in professionally managed funds For managers of Venture Capital Corporations this means: • No capital raising limits (subject to annual tax credit budget) • Investments can now be made through Limited Partnerships and holdcos (much more flexibility) • Program discretion that no longer forces business divestment For small businesses this means: • Can now receive up to $5M in program capital (up from $3M) • May issue voting or non-voting shares, warrants, options and, on a temporary basis, convertible debt to VCC How does this investment model work?

7. The ‘Venture Capital Corporation’ Model – Portfolio Investing Province of B.C. Investors 30% Tax Credit $ • The Venture Capital Corporation: • Common shares (multiple classes) • Shares Redeemable after holding ESB investments for at least 5 years. The Eligible Small Business: • Less than 100 employees • Pays at least 50% of wages to BC residents • Engaged in one of the following: • Manufacturing & Processing • Destination tourism • Research & Development of technology • Community Diversification or, • Development of digital new media Shares Venture Capital Corp. (VCC) B.C. Investors $ Shares Eligible Small Business (ESB)

8. ‘New Media’ Sector Tax Credits: 2003 Budget Announcement • Summary • Reserves $5M of tax credits for the thriving new media sector (up to $17M in capital annually available for investment) • Small businesses in this sector have the choice of using either investment model (VCC or EBC) • More competitive than expenditure credits in other jurisdictions in that the tax credit is fully refundable and capital is provided up front from investors • To qualify, a small business must be substantially engaged in the development of interactive digital media product that: • educates, informs or entertains using at least 2 of the mediums of text, sound or visual images, and • Is not developed for internal corporate promotion How does a small business & investors get started?

9. Venture Capital Programs: How to Get Started • 3 Step Process: • Determine what type of investment model suits your business plan ( Direct Investment or Venture Capital Corporation) • Download registration forms from branch website and submit: • A copy of your most recent business plan; • Copies of your most recent financial statements; and • Incorporation documents and share capital registers. • Within three weeks an eligibility ruling and registration certificate will be issued that will allow your business to: • Raise capital from investors; • Issue tax credits certificates; and • Grow your business with patient capital. Note: Program capital is required to remain invested for 5 years. Failure to do so may lead to the repayment of tax credits. Interested in leaning more about the programs?

10. Venture Capital Programs Contact Information Direct enquiries to: Todd Tessier, Portfolio Manger Investment Capital Branch PO Box 9800, Stn Prov Govt 7th floor, 1810 Blanshard Street Victoria, British Columbia V8W 9W1 Phone: (800) 665-6597 Internet: http://www.equitycapital.gov.bc.ca Email: ecp@gems3.gov.bc.ca