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Public Policy for Entrepreneurship and Venture Capital

March 6, 2012. Turning Research into Action: Symposium of Ontario Research Chairs in Public Policy. Public Policy for Entrepreneurship and Venture Capital. Panelists: Bogdan Buduru Senior Economist, Industry Canada Douglas Cumming Professor and Ontario Research Chair

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Public Policy for Entrepreneurship and Venture Capital

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  1. March 6, 2012 Turning Research into Action: Symposium of Ontario Research Chairs in Public Policy Public Policy for Entrepreneurship and Venture Capital Panelists: BogdanBuduru Senior Economist, Industry Canada Douglas Cumming Professor and Ontario Research Chair Schulich School of Business, York University Maxx-PhillippeHollott Manager, Access to Capital Secretariat Ontario Ministry of Economic Development and Innovation Jim Pullen Partner, Concert Partners

  2. Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion GDP / Capita Venture Capital / Capita Ontario versus Peers: GDP Per Capita • US $47,482 • California $51,914 • New York $57,423 • Massachusetts $58,108 Canada $47,605 Quebec $40,394 Ontario $46,303 Alberta $70,826

  3. Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion GDP / Capita Venture Capital / Capita Ontario versus Peers: Venture Capital / GDP Investments for Funds Focused in Seed, Early Stage and Expansion Stages in Canada by Province, 2004 – 2008 This figure summarizes investments per GDP for funds focused at the seed, early and expansion stage investments relative to GDP by all types of investors for all industries in select US states and Canadian provinces, January 2004 – December 2008. Data source: Thompson Financial SDC VentureXpert.

  4. Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion GDP / Capita Venture Capital / Capita VC / GDP: Ontario versus Massachusetts • 12.8 times the amount of new capital commitments to newly established VC funds in Massachusetts on a per GDP basis than Ontario. • Required an additional $37.5 billion of new capital committed for Ontario to be at the level of VC per GDP that is comparable to Massachusetts-based VC funds.

  5. Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion R&D / GDP – Access to Capital Essential Gazelles – Access to Capital Essential R&D / GDP – Access to Capital Essential Norway Luxembourg Netherlands USA Australia Canada Slovak Republic Ireland Belgium UK France Austria Poland Portugal Spain Iceland Czech Republic Turkey Hungary Italy Correlation (Access to Venture Capital, R&D/Capita) = 0.39 Correlation (Access to Bank Capital, R&D/Capita) = 0.26

  6. Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion R&D / GDP – Access to Capital Essential Gazelles – Access to Capital Essential Canada is Behind in Share of Gazelles - Access of Capital Essential Canada ranks 24th in the World in Access to Capital Behind peers: Australia, New Zealand, US, UK, Ireland, etc

  7. Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion Legal / Regulatory / Tax Government Venture Capital Funds Innovation Centers Types of Policy Responses • Legal / Regulatory / Tax • Government Venture Capital Funds • Innovation Centers

  8. Legal / Regulatory / Tax Government Venture Capital Funds Innovation Centers • Ontario and Canada are Behind • Sources of Canadian Inefficiency • Policy Remedies • Topics for Discussion World Bank Doing Business Reports: Country Rankings

  9. Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion Legal / Regulatory / Tax Government Venture Capital Funds Innovation Centers 2. Government Venture Capital Funds LSVCCs became dominant with massive tax breaks, not performance (next slide) Sources: Cumming and MacIntosh, 2006, 2007; Cumming and Johan, 2009.

  10. Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion Legal / Regulatory / Tax Government Venture Capital Funds Innovation Centers 2. Government Venture Capital Funds LSVCC tax incentives in Ontario phased out in 2011. This figure helped push us in the right direction! Sources: Cumming and MacIntosh, 2006, 2007; Cumming and Johan, 2009.

  11. Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion Legal / Regulatory / Tax Government Venture Capital Funds Innovation Centers 3. Innovation Centers • Centers like the Investment Network of the Innovation Synergy Center, Markam (now “ventureLab”), facilitate strong entrepreneurial outcomes • $6,545,000 in financing, while the program costs were totaled at $662,360, thereby giving a ratio of financing raised per dollar of cost at only $0.10. • Empirical evidence needs to control for endogeneity and selection effects. • Cumming and Fischer (2012 Research Policy) • Causal relation between mentor hours and sales and angel capital • Correlation, not causation, between mentor hours and patents and alliances

  12. Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion Sampling of Topics for Discussion • Which polices best stimulate gazelle entrepreneurs and more R&D in Canada so that we can catch up to competing jurisdictions? • How successful should will the Ontario Venture Capital Fund (OVCF) be, as well as companion programs such as the OETF and IAF? • Should Ontario provide tax breaks to large companies to invest in venture capital funds? • Should Ontario provide tax breaks to top tier venture capital funds? • Lower tax rates overall for everyone? Or capital gains tax rates? • How to best design programs like the Investment Network at the Innovation Synergy Center, Markham (now “ventureLab”)? How much funding to allocate to early stage programs relative to others?

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