This project specifically focused on saving time from the client perspective.  We want small businesses and investors to spend less time dealing with the administration of the venture capital programs and more time on what’s really important – making their businesses successful and contributing to the economic prosperity of all British Columbians, in every region of the province. 

We have:

• eliminated administrative formalities that are no longer needed,

• streamlined and simplified those that are, and

• reduced the amount of documentation you are required to submit.

It is important to note that there are no changes to the Small Business Venture Capital Act and we have not introduced any additional forms or processes.  We have looked critically at each existing element of this program from a client perspective. 

We hope to have eliminated all obsolete, redundant, or non-essential procedures, reporting requirements and other types of costly “red tape”.

Questions & Answers

  What has changed?

  I am waiting for a reply to an Investment Approval Application, Additional Equity Application, Tax Credit Application or other form that I previously submitted.  Do I need to re-submit my application using the new forms?

  Which forms or processes have changed?

  Which forms have been eliminated?

  What are the most significant changes?

  What are the features of the new approach to managing the tax credit budget?

  Why did you change the way the tax credit budget is managed?

  What are the benefits of this new approach?

  How does the equity authorization process work?

• For Eligible Business Corporations

• For Venture Capital Corporations 

  What are the 3 tax credit budgets? 

  How are the tax credit budgets monitored?

  If the budget I am assigned to sells out, can I access other budgets? 

  How will Venture Capital Corporations be assigned to a tax credit budget? 

  How has the Investment Protection Account release process changed? 

  What are the benefits of the new IPA Release Application and Investment Report? 

  Why has the Investment Protection Account release process changed?  

  Why are Eligible Small Business Rulings being phased out? 

What has changed? 

To achieve these regulatory reductions, we have changed the way we record your information and monitor your compliance with the Small Business Venture Capital Act.  Going forward, the basic principle is that you only need to submit information that is necessary for us to provide the service you are requesting. 

Whether you need an equity authorization, an Investment Protection Account release or tax credits for your investors, you will save time by submitting less paper, less often.  As always, you are required to keep records related to your investments and compliance with the Small Business Venture Capital Act.  If we need additional details, we will request them from you. 

I am waiting for a reply to an Investment Approval Application, Additional Equity Application, Tax Credit Application or other form that I previously submitted.  Do I need to re-submit my application using the new forms?

You are not required to take any action if you have already submitted one of our old forms. You can expect to receive a response to your request within the time frames you are currently accustomed to. We would ask that all of our clients begin using the new forms on a go forward basis from January 22, 2007.

Which forms or processes have changed? 

You will notice that all of the processes and forms you are familiar with have been simplified or eliminated.

Which forms have been eliminated?

You are no longer required to submit the following 8 forms and associated documentation:

1. Part 2 of the VCC Annual Return (small business information)

2. Eligible Small Business Ruling Application

3. EBC Use of Funds Report

4. Small Business Use of Funds Report

5. VCC Funds Report

6. EBC Share Issue Report

7. Notice of Directors and Officers

8. Offering Document Insert

Eliminating these forms will save you from preparing and submitting hundreds of pages of documents each year.

What are the most significant changes?      

• We have adopted a new way of managing the tax credit budget so requests can be evaluated at any time of year – no more deadlines, wait-lists, or reallocations.

• Your company will be assigned to one of three tax credit budgets – you, and your investors, will have up-to-date information about the status of your authorization throughout the year.

• VCC investments no longer need to be reviewed and approved by the Administrator – request an Investment Protection Account Release and let us know about your investments on your schedule.

• Small Business Rulings will be phased out - as these are now redundant.

What are the features of the new approach to managing the tax credit budget?

The Ministry has taken steps to improve how it manages the tax credit budget under the Small Business Venture Capital Act.  Our goal was to create an open and transparent mechanism where applicants could apply at any time of year. 

In response to concerns about rationing tax credits during periods of excess demand, your equity authorization will be based on your assessment of how much capital you need to raise. 

In addition, your authorization is guaranteed to be valid from January 15 until the day the tax credit budget runs out.  Fundamentally, everyone receiving a single-year authorization will have an equal opportunity to attract investors.  As long as there are tax credits available, applications will be processed throughout the year. 

Going forward, these changes will provide certainty for venture capital corporations and small businesses raising capital early in the year and allow investors to determine which opportunities represent the highest quality investments. 

Why did you change the way the tax credit budget is managed? 

We have received an overwhelming number of requests to have the allocation mechanism reviewed and changed.  In 2005, the University of British Columbia reviewed the equity capital program and undertook an extensive consultation with private equity leaders, small businesses and venture capital corporations. 

We reviewed these concerns within the context of the existing legislation and believe that this new approach to issuing equity authorizations will allow investors to allocate their capital without being unduly restricted by the program administration. 

What are the benefits of this new approach?

• Greater transparency – your authorization will be based on your assessment of the market for your shares.

• New registrants can apply mid-year and receive an authorization – there is no waitlist as long as tax credits are available.

• Eligible Business Corporations are not restricted to raising the amount determined by the branch – if you find more investors than expected, you can keep selling shares up to the $5 million program limit as long as tax credits are available.

• Your authorization to raise capital during a program year is guaranteed until your tax credit budget runs out – there will be no re-allocation process.

• Fund raising is market driven – investors will determine how much funding each registrant receives.

• Authorizations are available in January to enable fund raising early in the year.

• To provide greater certainty to your investors, you will receive your authorization to raise capital early in the year.

How does the equity authorization process work?

You may request an authorization at any time.  We would encourage anyone interested in the program to apply now to gain the longest window of fund-raising.  Many registrants applied for 2007 equity authorizations in late 2006.  These registrants will be offering their shares and 2007 tax credits for sale in January. 

Applicants are encouraged to request an amount that reflects their financing needs and their ability to raise money from investors.  All authorizations are guaranteed to be valid from January 1 until the day the tax credit budget runs out.  Once all of the available tax credits are gone, your authorization expires and you are encouraged to apply again next year. 

For Eligible Business Corporations: 

The maximum equity capital that an Eligible Business Corporation can raise under this program is $5 million.  When you initially apply to the program and register as an Eligible Business Corporation, you will receive an authorization to raise up to $5 million.  You will also be assigned to one of three tax credit budgets based on your primary business activity.   

If you do not raise the entire $5 million in the first year, your authorization will expire the day your tax credit budget runs out.  In subsequent years, you may apply and receive additional equity authorization of $5 million, less amounts previously raised. 

On your Additional Equity Application we ask you to estimate the amount you intend to raise.  We collect this information for statistical purposes and to assist us in monitoring demand for the program.  If you exceed your estimate, you are not required to apply for a new authorization mid-year. 

It is important to report and submit your Share Purchase Report to lock in your tax credits. 

The maximum you can raise from eligible investors under the program is $5 million.  Once you've reached this limit you will not receive any equity authorizations in subsequent years.

For Venture Capital Corporations: 

For 2007, the Administrator of the Small Business Venture Capital Act will continue to issue equity allocations to Venture Capital Corporations.  Each Venture Capital Corporation’s assessment of the market for their shares as indicated in their Request for Additional Equity Capital will serve as the basis for issuing equity allocations this year.   

Venture Capital Corporations play a critical role in the early stage equity eco-system in British Columbia.  Ensuring the appropriate balance of angel investors and professionally managed investment pools will remain a priority for the Administrator.  Going forward we anticipate consultation regarding this balance and the criteria for allocating tax credits to ensure access to capital for early stage companies in future years. 

In 2007, Venture Capital Corporations may sell shares up to the amount of their initial 2007 equity allocation and additional requests for 2007 tax credits will not be available.   

When Venture Capital Corporations receive their allocation, they will also be assigned to one of the three tax credit budgets.  We anticipate that most Venture Capital Corporations will be assigned to the general Equity Capital Budget.  Consistent with past practice, once the tax credit budget sells out, all outstanding equity allocations will expire. 

What are the 3 tax credit budgets? 

Regulation 21 of the Small Business Venture Capital Act establishes 3 separate tax credit budgets for investments in EBCs and VCCs with single year equity authorizations:  

1. Equity Capital Budget ($6.8M tax credits / $22.6M equity capital) – this budget is the basic incentive for investors. 

2. Community Budget ($3M tax credits / $10M equity capital) – this budget is restricted to eligible investments outside of the Greater Vancouver Regional District or the Capital Regional District. 

3. New Media Budget ($5M tax credits / $16.7M equity capital) – this budget is restricted to eligible investments for the purpose of commercially exploiting interactive digital media.

How are the tax credit budgets monitored?

You are required to submit Share Purchase Reports for equity capital raised, on or before March 1st, June 1st, and September 1^st.  These must be sent in to the branch by the EBC/VCC and investors are encouraged to complete these as soon as possible.

Due to high program demand, both investors and the EBC/VCC are encouraged to make sure Share Purchase Reports are submitted in a timely manner.  Tax credits certificates will not be issued on investments made if we receive your Share Purchase Report after the tax credit budget runs out. 

All equity authorizations may be suspended at any time with limited notice.  Investors should be made aware that once the tax credit limit has been reach, their investment will not qualify for a tax credit. 

If the budget I am assigned to sells out, can I access other budgets? 

If you are assigned to the Equity Capital Budget, you cannot access the Community or New Media Budgets when it sells out. 

Regulation 21 reserves additional tax credits for companies whose primary business activity qualifies under the Community and New Media Budgets.  This means, if either the Community or New Media Budgets sell out first, registrants assigned to those budgets will be automatically re-assigned to the remaining Equity Capital Budget. 

Based on the history of the program, demand for the Equity Capital Budget is greatest and it will likely sell out first.  Those assigned to the Community or New Media Budgets, will have the longest window of fund-raising. 

Everyone is encouraged to monitor the tax credit budget frequently and keep up to date with fundraising.

How will Venture Capital Corporations be assigned to a tax credit budget? 

Venture Capital Corporations that invest in a general portfolio of small businesses will be assigned to the Equity Capital Budget.  Portfolio, or single purpose, VCCs who only invest in interactive digital media companies or outside of the Greater Vancouver Regional District or the Capital Regional District may be assigned to an alternative budget.  Contact your Portfolio Manager for additional information. 

How has the Investment Protection Account release process changed? 

In the past, VCCs were required to submit all documents related to an investment and wait for the Ministry to determine if the investment was eligible.  The new IPA Release Application and Investment Report allows you invest when you want and to notify us on your terms. 

What are the benefits of the new IPA Release Application and Investment Report? 

This new form provides us with notification that you have made an eligible investment.  This means:

• You are not required to ask for, or wait for, our approval before you invest.

• You are not required disclose, or mail, confidential information about proposed investments.

• Depending on your needs, you can submit the form every time you invest or you can submit multiple forms at the same time.  The choice is yours.

• The new form drastically reduces the amount of time you will spend requesting an Investment Protection Account release.

Why has the Investment Protection Account release process changed?  

Venture Capital Corporations rely on professional advice as part of their due diligence process to determine if they can invest in a small business.  The former Investment Approval Application was a cumbersome and unnecessary duplication of the VCCs due diligence. 

This new process marks a drastic reduction in time and costs for all VCCs.  VCCs are no longer required to submit investment documentation, shareholder agreements, central securities registries and other information about an investment in a business.  These savings multiply where a number of VCCs invest in the same small business.

Why are Eligible Small Business Rulings being phased out? 

Venture Capital Corporations are able to invest in any small business that meets the requirements of the Small Business Venture Capital Act – eligible Small Business Rulings are not required for a VCC to consider a business for investment. 

If you have decided that venture capital investment is right for your business, you have a number of options to get access to capital.  The first step is always to become investor ready by spending your time refining your business plan, establishing contacts in the marketplace and preparing for venture capital investment. 

VCCs are only one source of venture capital.  You may also choose to register as an Eligible Business Corporation to raise money directly from angel or corporate investors.  You may also want to contact a Labour-Sponsored Investment Fund.