Thank you, Mr. Chair, for the opportunity today to appear before you and your colleagues to address important issues that relate to the venture capital ecosystem in Canada.
In its March 2013 budget, the federal government announced a surprise phase-out of the long-standing 15% federal tax credit for Canadian investors who have chosen to support budding entrepreneurs across Canada who want to start and grow their businesses. This federal tax credit has resulted in the levering of billions of private dollars of risk capital from over millions of Canadians who have been available to our early-stage companies since the early 1980s. In fact, since the program was created by the Mulroney government, well over one-third of all venture capital available in Canada has come from labour-sponsored venture capital funds in British Columbia, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Prince Edward Island, Nova Scotia, and Newfoundland and Labrador.
Despite the best efforts of many individuals across the country to convince the federal government to reverse its decision to phase out the federal tax credit, the industry is now faced with the reality of moving forward and dealing with a number of challenges that result from the withdrawal of the tax credit. The biggest of those challenges is fund liquidity and the adverse impact that issue may cause for existing shareholders in our funds and for the portfolio companies in which our funds have already made investments.
The Department of Finance has indicated there will be changes made to some of the rules governing federal investment pacing obligations for labour funds that want to exit the program, which at first glance appears to be helpful during the transition process. However, these same funds have provincial pacing obligations, which are not forgiven on the same basis as the proposed federal changes, so funds are still obligated to invest their shrinking capital base, which further exacerbates the liquidity issue. It would be helpful if the federal Department of Finance would work collectively on this matter with its provincial counterparts.
We also know the federal government is changing its approach to ensuring an adequate supply of venture capital is available to Canadian entrepreneurs and companies by directly investing $400 million of new capital into the industry. Many of us in the industry have been supportive of this initiative, now known as the \/CAP program. It's my understanding that further positive announcements will be made by early fall about additional private sector funds that will be chosen to participate in the VCAP program.
While these announcements will be welcomed by the industry, a word of caution is in order. The choice of additional funds that will qualify for federal \/CAP funding is only the first step in creating new pools of capital for Canadian entrepreneurs. These chosen funds then have the significant challenge of seeking matching private funding before they are in a position to actually write cheques to Canadian entrepreneurs seeking risk capital. How long this process of raising private capital will take and how successful these funds will be in this endeavour is anyone's guess. On that basis alone I would ask the federal government to reconsider an extension of one to two years for the existing federal 15% tax credit to ensure there is a continued adequate supply of venture capital while the VCAP program gets up and running.
In closing, the particular fund I manage operates in Atlantic Canada and I want to say a word about the Atlantic Canada Opportunities Agency and the positive impact it's making in our region in the start-up community. We like to say that if you think it's difficult for an entrepreneur to raise venture capital in central Canada, come on out east and see how challenging it is in our region. ACOA has become a very important source of non-dilutive capital for very many local companies, and an excellent partner for those of us in the private sector who are also investing in these companies. We appreciate their good work and I just wanted to make sure your committee is aware of this fact.
Thank you for your time and I will be pleased to answer any questions you may have later in the session.