The Way I See It… by Michael C. Volker
Now’s the best time to start a technology venture
I’ve been involved with starting technology companies for thirty years. Right now is the best time for an entrepreneur to start a new high tech venture.
For the past two years the general sentiment, precipitated by the turmoil in the financial markets, has not been overly optimistic. Because of the uncertain economic outlook, we’ve seen almost no new IPOs hit the street in either Canada or the U.S. Angels and venture capitalists have been focused on making their current projects successful, leaving little time and interest for new deals.
But the situation is changing. In early March, U.S. Federal Reserve chairman Alan Greenspan declared that the U.S. recession was over. Yet, just a week earlier, he was considerably less optimistic with his prognosis. The U.S. economy expanded at an annual rate of 1.4 per cent in the last quarter of 2001 while the Canadian economy chalked up a 2 per cent growth in the same period. Both reports were substantially better than expected. Low interest rates – the lowest in over 40 years, low inflation, and improvements in productivity are all positive economic factors.
In Canada, we’ve seen major reductions in income tax, especially here in B.C. where the 25% income tax cut by the B.C. Liberals – on their first day in office – has reduced the top personal rate to 43%. This will go a long way towards stopping the brain drain that’s been such a burning issue over the past decade.
The Federal government’s “Innovation Agenda” calls for a doubling of direct federal support for R&D from $3.7 billion to $7 billion by 2010. This will allow our research organizations and universities to produce the intellectual property that entrepreneurs need to create new product innovations. The low costs of performing corporate R&D made possible through both federal and provincial Scientific Research and Experimental Development tax credits keep technology companies competitive.
New securities regulations will make capital formation easier. I hope that securities commissions in other provinces will follow B.C.’s lead in this regard. The B.C. Securities Commission’s de-regulation project is eliminating tons of red tape faced by entrepreneurs when they raise capital. For example, private investment limits are being eliminated. No longer will investors be required to invest a minimum of $97,000 (as in B.C.). For public companies the new “Continuous Market Access” system will mean that companies no longer need to file expensive prospectus documents when they want to raise capital from the public. As the name implies, they will have continuous access to the market to fuel their growth.
Angel and venture capital investments are up aided by reduced capital gains taxes as well as up front incentives now available to investors. For example, the B.C. Venture Capital Corporation program offers a refundable 30% tax credit to investors to stimulate early stage investing. More tax-driven labor sponsored funds are expected to be formed as well. Angels – successful entrepreneurs investing their own time and money in new ventures – are growing in numbers and company founders will find it easier to tap into this valuable resource.
And finally, the infrastructure support for tech companies is overwhelming. In B.C., for example, there is no shortage of initiatives – industry organizations, collaborative initiatives, new venture support, and boot camps just to name a few – to facilitate and help entrepreneurs in the realization of their ambitions. To get a sense of what kind of support there is, you only need to take a look at www.hitechbc.com for a laundry list of these groups.
The way I see it, there hasn’t been a better time in the past several decades for starting a new high technology enterprise than right now. Entrepreneurs who have the two P&L’s critical for success - a focus on profit and loss statements accompanied by passion and leadership - will be in for a much better ride.
Michael Volker is a high technology entrepreneur and director of Simon Fraser U's University/Industry Liaison Office. He runs Vancouver’s Angel Technology Network and is chairman of the BC Advanced Systems Institute as well as past chair of the Vancouver Enterprise Forum. He may be reached at firstname.lastname@example.org.