Small Business Venture Capital Act:2003 Legislative AmendmentsAccelerating Access to Venture Capital

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

Small Business Venture Capital Act Amendments:Presentation Outline

Overview of venture capital programs

Eligible Business Corporation amendments –

the direct 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

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) andBlue 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?

Small Business Venture Capital Act Amendments: Program Overview

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?

Eligible Business Corporation Amendments :

Direct investment - More seed capital…..less red tape

The ‘Eligible Business Corporation’ Model - Direct Investment

Eligible Business Corp.(EBC)

$

Province of B.C.30% Tax CreditInvestorsInvestors

The Investors:Arms-length from the owners of

the Eligible Business CorporationShares may not be transferred,

redeemed, acquired or cancelled for 5 years.

The Eligible Business Corporation:Less than 100 employeesPays at least 50% of wages to BC

residentsEngaged in one of the following:

Manufacturing & ProcessingDestination tourismResearch & Development of

technologyCommunity Diversification or,Development of digital new

media

Share

s

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?

Venture Capital Corporations - Legislative Changes Leveling the playing field for venture capital in B.C.

The ‘Venture Capital Corporation’ Model – Portfolio Investing

Venture Capital Corp.(VCC)

B.C. Investors

Eligible Small Business(ESB)

$

Sh

are

s

Province of B.C.30% Tax CreditInvestorsInvestors

$S

hare

s

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 employeesPays at least 50% of wages to BC

residentsEngaged in one of the following:

Manufacturing & ProcessingDestination tourismResearch & Development of

technologyCommunity Diversification or,Development of digital new

media

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 inthe development of interactive digital media product

that:oeducates, informs or entertains using at least 2

of the mediums of text, sound or visual images, and

oIs not developed for internal corporate promotion

How does a small business & investors get started?

‘New Media’ Sector Tax Credits: 2003 Budget Announcement

3 Step Process:1. Determine what type of investment model suits your

business plan ( Direct Investment or Venture Capital Corporation)

2. 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.3. 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?

Venture Capital Programs: How to Get Started

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