Thank you very much, Mr. Chair.
Good afternoon, ladies and gentlemen.
It is a great pleasure for me to be here with you today. If memory serves me well, this is the first time that we have been invited by the committee to testify. We are very mindful of your interest in our activities.
I'm going to confine my remarks to three broad areas: an introduction to the venture capital industry; some of the challenges the industry is facing, especially as they pertain to small business; and some solutions that have come to our mind.
We're the only national association for venture capital in Canada. We were founded with six funds in 1974, and we have grown to 130 funds, with $75 billion in capital under management. That's considerable growth over a 35-year period.
Venture capital funds invest almost exclusively--over 90%--in high-technology companies. Venture capital is the principal source of financing for the high-tech sectors in Canada, like RIM, Intel, Google, and Microsoft. Our investments are principally in information and communications technologies, life sciences, and, increasingly, clean technology.
Research that we commissioned together with Industry Canada, the BDC, and four provincial governments shows that venture-capital-backed companies tend to be high exporters, high job creators, and high R and D-intensive companies--much higher than the Canadian company average.
Venture capital is facing a perfect storm right now, and the perfect storm is a crisis on several fronts. Investments are down significantly by any measure. Fundraising is down humongously. There are no exits, no initial public offerings for companies, and merger and acquisition activity is incredibly slow. For example, in the third quarter of 2009 the industry raised $1 million in Ontario. That funds half a company for one year.
The consequences of this dire state facing our industry is that there are fewer smaller investments in Canadian SMEs, particularly in the high-tech sectors. Canadian firms get only about a third of what they do south of the border in the United States. Commercialization of all that R and D we invest in as a country is a missed opportunity. We are not creating the jobs that we could and should be creating.
We have a couple of solutions that I'll suggest to the committee.
One, government could set up a substantial fund of funds to help recapitalize the industry. There are some examples in Ontario, Quebec, and Alberta principally.
Two, major international corporations that are awarded government contracts should be encouraged to invest in venture capital funds, in part fulfilment of their offset obligations.
Three, retail investors should also be further encouraged to invest in the venture capital asset class. SR and ED tax credits should be further enhanced. There is one particular section of the Income Tax Act that is preventing foreign capital from coming into the country. It's called section 116, and it is a black mark on Canada's investment record and its ability to attract foreign venture capital. As a result, foreign venture capital numbers are going down in the country.
Lastly, we believe the committee might want to ask the Departments of Finance and Industry whatever happened to recommendation 37 of the Wilson panel. Mr. Wilson headed a panel on competitiveness and reported on it in June 2008. Recommendation 37--and I paraphrase--says that the Ministers of Industry and Finance should put together and release a paper on private venture capital options for consideration.
It's now mid-November and we haven't seen that paper yet. It's probably worthwhile to consider an expert panel on commercialization. We're missing a big opportunity.
Thank you for your time.