Canadian Venture Capital Funds
In the early 1980s, high unemployment and the rapid exodus of capital from Quebec led the province to offer seed capital and tax incentives for a new kind of venture capital fund that provided equity to small and medium-sized businesses. The Solidarity Fund was created in 1983 and controlled by the Quebec Federation of Labor. In 1988, the federal government enacted its own tax credit for labor sponsored investment funds(LSIFs), using the Solidarity Fund as a model. Since then about 25 such funds have been created: two national and the rest provincial. More than 400,000 Canadians are shareholders in the funds, which generate $500-$700 million a year, equivalent on a per capita basis to $5-$7 billion in the United States.
Each province sets its own rules for its own funds, but all have social objectives in addition to their economic and fiduciary goals. Most require that the enterprise have a majority of its holdings in the province, that the tax credits are available only for residents of the province, and that a labor union or federation appoint a majority of the board of directors.
The Canadian venture capital experiment, at a minimum, will provide valuable lessons about how a country's small and medium-sized businesses benefit when their venture capital comes primarily from union-controlled funds. At a maximum, the Canadian experiment will teach Americans how to tap into household assets to build equity investments that marry social and economic ends.
Here we've collected the Canadian rules, recent news and resources for further information on Canadian-style venture capital funds.
Rules:
- The Manitoba Model
Manitoba established the Crocus Fund in response to capital flight from Manitoba. Its primary objective is to retain Manitoba capital in Manitoba and use that capital to create jobs in small Manitoba businesses. Manitoba's statute is the most explicit out of all the provinces in its desire to encourage a locally owned economy. It requires that the Crocus Fund "promotes capital retention and a stable economy, worker ownership and employment, and continued resident ownership of firms in Manitoba, and...contributes to other goals, such as corporate social responsibility and worker economic education." More...
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