1. Alberta Investor Tax Credit
Solving the Venture Capital Draught
The inaccessibility of early-stage capital investment is a major impediment to the growth and
sustainability of Alberta’s small businesses. Often lacking the resources and administrative capacity to
raise capital via debt financing, these businesses rely heavily on equity investments made by angel
investors and venture capital firms. Despite this need, Alberta is currently one of the only provinces in
Canada without an income tax credit for those who invest in local small businesses.1
The province lacks
an incentive structure aimed specifically at encouraging private sector agents to purchase equity in
local—capital starved—enterprises. Without policies that foster small business growth, the province’s
productivity, level of innovation, and overall competitiveness stand to suffer.
In their 2013 Report on Competitiveness, the Alberta Economic Development Authority identified key
competitiveness indicators, and compared the province’s performance against other jurisdictions—both
within Canada and abroad. The report found that one of the greatest obstacles to the provinces’ overall
competitiveness was a lack of access to venture capital. In the report, Alberta was ranked near last in
terms of both venture capital investment relative to GDP, and the number of venture capital deals per
100,000 people. Venture capital is vital in the development of innovative companies within the province.
This inability is intrinsically linked to Alberta’s other low scores in non-resource export growth,
employment in high-tech manufacturing, and employment in knowledge-intensive services.2
Currently, provincial programs have focused mainly on the demand-side of the business development
equation. Through the Alberta Innovation Voucher program and support in R&D funding, there has been
an attempt to spur the creation of new businesses and start-ups. These programs are important for
creating investment ready businesses,3
but more must be done in encouraging private sector investment
to help these ventures move forward. Early stage equity investment is a necessary component in
allowing small businesses to grow and become sustainable enterprises.
Alberta Enterprise Corporation (AEC) is one body which provides public funding to venture capital firms,
which is then invested in the larger community. Yet, creating a sustainable ecosystem for small business
1
http://acca.coop/wp-content/uploads/2014/02/Coop-Development-White-Paper-May-5-20111.pdf
2
http://aeda.alberta.ca/media/11184/final-abcomp-2013-may-22-2014-re-26.pdf
3
https://www.cvca.ca/files/Downloads/Government_Involvement_in_the_VC_Industry_Intl_Comparisons_May_2010.pdf

2. investment in Alberta is not possible without greater private sector involvement. The AEC’s fund-of-
funds model does an important job of providing liquidity into the marketplace, but mechanisms need to
be enacted to keep private capital within Alberta as well.
New businesses backed in large part by public venture capital tend to underperform compared to those
funded by private investors, both in terms of patent production and the likelihood of a successful market
exit via an IPO or third party acquisition.4
Also, venture capital firms one are only component of a
healthy venture capital marketplace, broader incentives needs to be created for all sources of
investment.
Econometric studies out of the University of British Columbia and Shanghai Advance Institute of Finance
have shown that the best investment mix is of majority private capital, with some early stage public
funding. Mechanisms for public funding are already in place. Therefore, the most effective policies going
forward are ones which take steps to increase the flow of private capital into these firms. One which
allows creates an incentive, yet allows the free-market to determine the most efficient allocation.
Small Business Venture Capital Tax Credit
In order to increase capital investment in small businesses, and contribute to the overall stability and
growth of the Albertan economy, the provincial government should incentivize investors through an
income tax credit. Considering Alberta is the only jurisdiction without this type of program, it stands as
an effective tool that the province should take advantage of. Other jurisdictions have successfully used
an income tax credit to spur investment in small businesses. With high pickup rates, low costs, and
general efficiency, they illustrate how such a program may be structured and potential outcomes.
Research out of the University of British Columbia, evaluated their province’s program. It found that
between 2001 and 2008, $256 million worth of tax credits helped to attract $2.3 billion of equity
investments, creating over 4,000 jobs. They also estimated that the average company participating in the
program raised a total of $2.14M of equity. In the same period, every $1 given as a tax credit generated
$2 in provincial tax revenue, making it a net benefit gain for the province.5 6
A 2010 survey of B.C investors found that 73.8 percent of respondents said they would invest less
without the tax credit and 11.9% said they would not invest at all. If this program did not exist 41.3%
said they would seek to invest more in the US, 23.8% more in Canada outside B.C.7
In Nova Scotia, a similar program has been incredibly popular, and there are strong advocates for its
expansion. Between 2002 and 2011, $115.7 million was invested using the program, in exchange for
$35.7 million in tax credits. It hit a historical peak in 2006, right before the world financial recession, with
$5million in tax credits being leverages into over $16million in investment. The success of this program,
has led some to suggest an Atlantic Canada-wide initiative to attract capital investment.8
4
http://strategy.sauder.ubc.ca/hellmann/pdfs/BranderDuHellmannOct04.pdf
5
http://www.mikevolker.com/Hellmann_Venture_Capital_Report_2010.pdf
6
http://www.initiativespg.com/wp-content/uploads/2014/06/VentureCapitalPresentation.pdf
7
strategy.sauder.ubc.ca/hellmann/pdfs/Angels%20in%20BC%20Preliminary%20Survey%20Report%20October%202010.pdf
8
http://entrevestor.com/images/uploads/Entrevestor_September_2012.pdf

3. As has been shown in British Columbia, it is possible to create a very successful program without a loss
to tax revenue and large administrative costs. This creates a more efficient outcome than direct
government participation in investment decisions, and keeps both the investment of capital and the
subsequent rewards within the province.
Increased venture capital investment has compounding benefits for the economy. Early stage
investment spurs more investment from other sources, it creates a more mature venture capital eco-
system, and if an investor finds success, they are more likely to invest in the future. There is also a
“legacy effect” in which successful businesses make generous contributions back into the overall
business community. This has been observed across tech-hubs both in Canada and the United States.
Alberta is fortunate to have large pools of capital, yet a system must be put in place to encourage the
flow of this capital back into the province’s small businesses. This tax credit is a hands-off approach
which puts the onus on investors to make the final decision on risk and efficiency, but incentivises them
to keep their money within Alberta and put it toward high-growth businesses. A program such as this is
an important step towards protecting the long-term health of the Albertan economy, while ensuring that
the province remains competitive for both investors and small businesses owners.
Recommendations
In consultation with our Tax and Economic Affairs Committee, the Calgary Chamber of Commerce
recommends that the Government of Alberta:
1. Establish an investor tax credit which incentivizes equity investment in small and medium size
businesses in Alberta
a. Provide a non-refundable tax credit equal to 30% of investment made through the
program against provincial taxes
b. Allow the credit to be moved forward or back 2-4 years in order to smooth the fiscal
impact of the program
c. Place a cap on the amount of tax credit available each year
d. Establish a yearly maximum on how much a company may raise through the program in
order to ensure investment is not being pooled in a small group of firms and that the
program is only attracting early-stage investment
e. Require that the investor not have held a major stake in the venture prior to investment
in order to ensure the program is only attracting new investment
f. Set a threshold for what constitutes an Albertan small-business based on the number of
employees and the percent of wages paid to the Alberta residents, but consider a lower
wage threshold for firms who primarily engage in exports
g. Allow common shares, preferred shares, and convertible debentures to be eligible, in
order to properly reflect current venture capital practices
h. Eligible investors include individuals, companies, and pooled funds who pay taxes in
Alberta
i. Emulate B.C’s online registration system to minimize administrative costs, regulatory
burden and wait times

4. 2. Consider leveraging an investor tax-credit incentive to diversify Alberta’s economy
3. Reevaluate disclosure and prospectus requirements in order lower the administrative burden on
small businesses seeking venture capital investment