Transcript Slide 1

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
Schulich School of Business, York University
Maxx-Phillippe Hollott
Manager, Access to Capital Secretariat
Ontario Ministry of Economic Development and Innovation
Jim Pullen
Partner, Concert Partners
© Douglas Cumming (2012)
Entrepreneurship and Venture Capital
1
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
Canada $47,605
US $47,482
Quebec $40,394
California $51,914
Ontario $46,303
New York $57,423
Alberta $70,826
Massachusetts $58,108
2
© Douglas Cumming (2012)
Entrepreneurship and Venture Capital
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.
© Douglas Cumming (2012)
Entrepreneurship and Venture Capital
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.
© Douglas Cumming (2012)
Entrepreneurship and Venture Capital
R&D / GDP – Access to Capital Essential
Ontario and Canada are Behind
Sources of Canadian Inefficiency
Policy Remedies
Topics for Discussion
Gazelles – Access to Capital Essential
R&D / GDP – Access to Capital Essential
Entrepreneurs with innovative but risky projects can
generally find venture capital and loans in your country (1 =
not true, 7 = true)
6
Norway
5
Finland
Luxembourg
Slovak
Republic
Ireland
3
Spain
Turkey Hungary
Swedenv
Belgium
UK
Poland
USA
Australia
Canada
4
Denmark
Netherlands
France
Portugal
Czech Republic
Switzerland
Austria Germany
Japan
Iceland
Korea
Italy
2
1
Correlation (Access to Venture Capital, R&D/Capita) = 0.39
Correlation (Access to Bank Capital, R&D/Capita) = 0.26
0
0
0.5
1
1.5
2
2.5
3
3.5
Gross domestic expenditure on R&D as a percentage of GDP
Venture Capital
© Douglas Cumming (2012)
Loans
Linear (Venture Capital)
Linear (Loans)
Entrepreneurship and Venture Capital
4
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
3.5
3
Canada ranks 24th in the World in Access to Capital
Behind peers: Australia, New Zealand, US, UK, Ireland, etc
Share of Gazelles in Sector
2.5
Correlation (Access to Capital Rank, Manu Gazelles) = -0.24
Correlation (Access to Capital Rank, Services Gazelles) = -0.19
2
1.5
1
Canada
0.5
0
0
20
40
60
80
100
120
140
160
Country Rank for Access to Credit
Share of Gazelles in Manufacturing
Share of Gazelles in Services
Linear (Share of Gazelles in Manufacturing)
Linear (Share of Gazelles in Services)
© Douglas Cumming (2012)
Entrepreneurship and Venture Capital
Ontario and Canada are Behind
Sources of Canadian Inefficiency
Policy Remedies
Topics for Discussion
1.
2.
3.
Legal / Regulatory / Tax
Government Venture Capital Funds
Innovation Centers
Types of Policy Responses
1. Legal / Regulatory / Tax
2. Government Venture Capital Funds
3. Innovation Centers
© Douglas Cumming (2012)
Entrepreneurship and Venture Capital
Ontario and Canada are Behind
Sources of Canadian Inefficiency
Policy Remedies
Topics for Discussion
1.
2.
3.
Legal / Regulatory / Tax
Government Venture Capital Funds
Innovation Centers
World Bank Doing Business Reports: Country Rankings
Economy
Ease of
Doing
Business
Rank
Singapore
1
4
3
5
14
8
2
4
1
12
2
Hong Kong
SAR, China
2
5
1
4
57
4
3
3
2
5
16
3
1
2
31
3
4
1
36
27
10
18
4
13
17
17
16
4
5
72
20
7
15
Denmark
5
31
10
13
11
24
29
14
7
32
9
Norway
United
Kingdom
6
41
60
12
8
48
24
27
9
4
4
7
19
22
60
68
1
10
24
13
21
6
Korea, Rep.
8
24
26
11
71
8
79
38
4
2
13
Iceland
9
37
34
1
11
40
46
35
81
3
11
Ireland
10
13
27
90
81
8
5
5
21
62
10
Finland
Saudi
Arabia
Canada
11
39
45
25
25
40
65
28
6
11
5
12
10
4
18
1
48
17
10
18
138
73
13
3
25
156
41
24
5
8
42
59
3
New
Zealand
United
States
Dealing
Starting a
with
Getting Registering
Business Constructio Electricity Property
n Permits
© Douglas Cumming (2012)
Getting
Credit
Protecting
Investors
Paying
Taxes
Trading
Across
Borders
Enforcing Resolving
Contracts Insolvency
Entrepreneurship and Venture Capital
Ontario and Canada are Behind
Sources of Canadian Inefficiency
Policy Remedies
Topics for Discussion
1.
2.
3.
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)
Figure 9.1. Venture Capital Under Management by Investor Type in Canada: 1992-2004
25
$Can (billions of 2004 dollars)
20
15
10
5
0
92
93
94
95
Corporate
96
97
Government
© Douglas Cumming (2012)
98
Year
99
Institutional Direct / Foreign
00
01
02
Labour Sponsored
03
04
Sources: Cumming and MacIntosh, 2006, 2007;
Cumming and Johan, 2009.
Private Independent
Entrepreneurship and Venture Capital
Ontario and Canada are Behind
Sources of Canadian Inefficiency
Policy Remedies
Topics for Discussion
1.
2.
3.
Legal / Regulatory / Tax
Government Venture Capital Funds
Innovation Centers
2. Government Venture Capital Funds
Figure 9.3. Selected Indices 1992 - 2005
Index Value (Adjusted to Start at 0 on September 1992)
1400
LSVCC tax incentives in Ontario phased out in 2011.
This figure helped push us in the right direction!
1200
1000
800
600
400
200
0
-200
Date
Globe LSVCC Peer Index
Globe Canadian Small Cap Peer Index
TSE 300 Composite Index / TSX Total Return Index
US Venture Economics Index
Sources: Cumming and MacIntosh, 2006, 2007;
Cumming and Johan, 2009.
30-Day Treasury Bill Index
© Douglas Cumming (2012)
Entrepreneurship and Venture Capital
Ontario and Canada are Behind
Sources of Canadian Inefficiency
Policy Remedies
Topics for Discussion
1.
2.
3.
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
© Douglas Cumming (2012)
Entrepreneurship and Venture Capital
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?
© Douglas Cumming (2012)
Entrepreneurship and Venture Capital