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HomePolicy Articles Article Summary

Financing Entrepreneurs. Better Canadian Policy for Venture Capital

Commentary by Douglas Cumming

Douglas Cumming asserts that the development and maintenance of a strong economy depends, in great part, on innovation and the role of entrepreneurs. He argues that Canada’s current structure for supporting entrepreneurs and venture capital is outdated and requires modification. Currently, the dominant source of venture capital is the government subsidized Labour-Sponsored Venture Capital Corporations (LSVCCs), which are designed similar to mutual funds. While LSVCCs invest in high-risk unlisted companies in exchange for tax subsidies, their heavy regulation, according to Cumming, has resulted in diminished returns for investors. Further, the tax subsidies given to LSVCCs ‘crowd out’ the private investors.

Cumming argues that LSVCCs should be set aside and policy-makers should look for other means of encouraging capital investment. He states that legal reform in the areas of taxation, securities, and bankruptcy offer short-term options. In particular, he contends that reductions in capital gains taxes and restructuring bankruptcy laws will protect and encourage startups and venture capital investment. Furthermore, Cumming posits that government involvement through “direct government investment programs” increases innovation and economic development. The author notes that Canada can look to programs in the United States and Australia for models that have proven effective. Cumming concludes that LSVCCs have run their course and that new strategies must be adopted if Canada is to remain competitive in developing and maintaining economic growth.

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Policy Publication Details

Author(s): Douglas Cumming;
Publisher: C.D. Howe Institute [ Visit Website ]
Year Published: 2007; Publisher Type: Research Institute
Publicly Available: Yes Research Focus: National;
Registration Required: No Language: English
Payment Required: No Publication Format: Adobe PDF

Subjects / Categories:

Policy Articles / Fiscal & Budgetary / Tax Policy
Policy Articles / Labour & Markets / Investment
Policy Articles / Monetary & Capital Management / Domestic Investment
Policy Articles / Fiscal & Budgetary
Policy Articles / Labour & Markets
Policy Articles / Monetary & Capital Management
Policy Articles / Fiscal & Budgetary / Tax Policy / 2007
Policy Articles / Labour & Markets / Investment / 2007
Policy Articles / Monetary & Capital Management / Domestic Investment / 2007

Keywords / Tags:

innovation; investment; venture capital; taxation; legal reform; bankruptcy; capital gains; tax-subsidies; government investment; business development;