1. Accessing Capital in Small Communities
Part 1: Equity Capital

2. Learning Outcomes After this webinar, you’ll be able to:
Summarize the types of capital and forms of financial capital
Describe the types of equity capital that businesses use at different life stages
Identify resources in B.C. that can help businesses in your community attract equity capital
Recognize the barriers that prevent businesses from attracting equity capital

3. What is Capital?
Assets that make it possible to generate economic benefit
Financial
Built
Natural
Social
Human

4. Forms of Financial Capital for Economic Development
Equity: money given for shared ownership
Debt: money loaned at a cost, to be repaid
Grants: money provided for specific outcomes, generally not repayable.

5. Equity Vs Debt Advantages of Equity Advantages of Debt
Money does not need to be repaid*
No interest payments to use up limited cash flow
Equity partners may also contribute knowledge and connections
Don’t need to qualify for a loan (credit history, business banking criteria)
Lender has no claim on future profits or control of the company
Interest on debt can be claimed on income taxes
No need to comply with securities regulations
Variety of types of debt to meet your specific needs

6. Equity Vs Debt Disadvantages of Equity Disadvantages of Debt
Sharing ownership, decision-making, future gains of your company
Slow, complex process to access financing
Ending the relationship = “it’s complicated”
Money rarely comes in small amounts
Interest costs must be paid regardless of business results
Tough to qualify for loans based on credit history
Lenders may require more collateral that you have
Non-repayment results in asset seizure and credit problems in the future

7. A Deeper Dive into
EQUITY

8. What do businesses use equity for?
Higher risk activities
Start-up
Research & development, commercialization
Market / product expansions
Leverage for debt
Down payments

9. Life Stages & Equity Needs

10. Free Cash Flow Income (sales) – Operating costs
– Interest & principal payments on debt
– Taxes
– Capital expenditures
= Free Cash Flow
Funds available to pay business owners through dividends / share buy-back OR reinvest in the business.

11. How do Equity Investments generate Return?
Capital Gains:
Value of an asset (e.g. shares, property) increases
Investor sells the asset for more than they paid
Dividends:
Free cash flow is shared with investors by paying $x per share

12. Investors Consider Risk/Return
Investor risk tolerance
Investment horizon/timeline
Macroeconomic variables
Knowledge of the business/industry
Influence over management
Investment diversification

13. Private vs Public Equity
Public Companies:
Registration & Disclosure Requirements
Private Companies:
Fewer than 50 shareholders
Only sell shares to “qualified purchasers”

14. Programs to Encourage & Attract Equity Investment

15. Small Business Venture Capital Tax Credit Program
Early-stage financing

16. Small Business Venture Capital Tax Credit Program
Province offers 30% tax credit to investors who invest in eligible businesses
Investors
Employees
Family and friends
Angel Investors
Corporations

17. Small Business Venture Capital Tax Credit Program
Businesses
Must apply for registration and approval to raise funds
Finance growth
Product development
Scaling up technology
Patient source of equity financing

18. ELIGIBLE BUSINESS CORPORATION
Two Investment Models
Small Business Venture Capital Act
Tax Credit Programs
ELIGIBLE BUSINESS CORPORATION
Venture Capital Corporation
30% tax credit rate
$400,000 (annual max) – fully refundable for individuals
$128.3 million can be raised in 2019 ($38.5m in tax credits)

19. Eligible Business Corporation (EBC)
Direct investment model
Investors receive 30% tax credit
5-year hold period
Investors up to $400k per year
EBC can raise up to $10M
EBC eligibility criteria:
Permanent establishment in BC
Under 100 employees
75% BC wages and salaries
50% assets/expenses applied to eligible activity
No more than 20% assets outside BC
$25,000 in equity capital

20. Venture Capital Corporation (VCC)
Indirect investment model
Investor invests in VCC
Investors receive 30% tax credit
VCC must invest 80% of capital raised within 2 years into eligible small businesses
Business eligibility criteria similar to EBC
VCC’s can invest up to $10M within a 2-year period in the small business

21. Eligible Business Activities
Manufacturing & Processing
R&D of Proprietary Technology
Tourism
Community Diversification
New Media
Clean Tech
Advanced Commercialization

22. Employee Share Ownership Program
A Deeper Dive into
Employee Share Ownership Program

23. Employee Share Ownership Program
Employee & employer together contribute to the long term success of business
Program Information
20% tax credit to eligible employees
$2,000 investor cap annually
No lifetime limit
Tax credit non-refundable
RRSP eligible
Payroll deductible

24. Employee Share Ownership Program
Eligible employees
BC residents
20 hours per week
Not a major shareholder
Eligible employers
Canadian companies that pay at least 25% to wages to BC residents
Less than $500m in assets (with affiliates)

25. Employee Share Ownership Program
ESOP Shares
Equity issued from treasury
Must be held for 3 years
Must be at risk
ESOP Planning
Retirement/succession planning
Employee recruitment/retention
Employee engagement
Finance growth

26. A Deeper Dive into
Investment Funds

27. BCRCF & BC Tech Fund
Later-stage financing

28. Equity for Growth/Mature Businesses
Developing a new product or service
Expanding into new markets
Attracting new customers
Putting up collateral for debt-funded assets
Buying out previous owners

29. BC Renaissance Capital Fund
BCRCF $90M
Created in 2008
Invested into 9 Funds managed by 8 Fund Managers
Funds are maturing and the BCRCF will be wound up in a few years

30. BC Tech Fund BC Tech Fund $100M Created in 2016
75% Funds | 25% Direct Investments
Focuses on Early Stage A-Round Investments
BC Based Tech Companies: Life Sciences, Digital Media, ICT, Clean Tech

31. Investment Capital Branch
Office: Toll Free:

32. Barriers to Attracting Equity Capital
Are your local businesses investment-ready?

33. Attractive Business Opportunity
Product or service
Size and accessibility of markets
Management team skills & qualities
Potential revenues & costs
Free cash flow
Detailed financial reporting

34. Sharing Ownership
Willingness to share control and decision-making over the business
Realism about the value of the business and its potential

35. Company Structure & Systems
Sole Proprietorship/Partnership – no shares
Incorporation – share classes
Other shareholders
Financial systems & reporting

36. Isolation Lack of potential investors
Lack of legal/accounting/technical supports
Lack of peer supports

37. How Can You Help Businesses?
Provide/arrange business planning supports
Referrals to legal/accounting support
Build peer networks (in & out of town)
Make connections to provincial programs
Work regionally!

38. Resources for Support

39. Be a Connector!