SR&ED changes don't seem as dramatic as feared

Lots of discussion lately about changes made by the Canada Revenue Agency to the federal scientific research and experimental development (SR&ED) tax credit. The Canadian Advanced Technology Alliance (CATA) is concerned about the impact of the changes on the high-tech industry, and I think all the national accounting firms have published reports on the modifications to the program.

I read the reports and the information released by CRA and reached two conclusions: 1) most of the changes just make it easier for companies applying for SR&ED to give CRA the information it always wanted (which I'll focus on in just a second), and 2) the SR&ED application process is -- and apparently always has been -- tied to chiched notions of science and discovery having little to do with how companies conduct R&D (particularly in the ICT world), making the application process both burdensome and artificial.

That's been an eye-onener. While I've worked with companies for the last 10 years that received SR&ED refunds, the process was always just some black box to me since I've never been the one filling out the forms. I've filled out applications for government funding that felt like I was playing a game of "let's pretend" but I never realized how much I had in common with the folks doing the SR&ED forms.

Having said that, I have a hard time seeing how CRA's changes to SR&ED make things any worse. In fact, at least provisionally, I'll have to agree with their claim that these changes could be considered an improvement. (The one exception would be for those few companies that submit more than 20 projects a year. Previously, they were given a break and were only required to detail their top 20 projects. Now they have to fill in applications for every project. That doesn't seem unreasonable to me, and it's not something that will have an effect on startups.)

Changes to the form, not to the law

The first thing to keep in mind is that there has been no change to the legislation underlying the SR&ED tax credit. Whatever money you were entitled to in the past, you're entitled to now.

What has changed is the form and, for the most part, the form has been changed so that 1) there are explicit sections for information CRA had already been asking for and 2) companies have to be as concise in their descriptions as CRA had already been asking them to be (CRA had already been saying that most projects could be described within four pages, so the new word limits just enforce direction that CRA had already been providing).

For example, you now have to specify on the form whether your project was scientific research or experimental development. But CRA had always distinguished between them, and even said right on the form in previous years that there were different eligibility requirements between the two. There's nothing new about projects being classified as either scientific research or experimental development, the only change is that there's now a box on the form.

One more example: now you're required to specify (from a long list) the area of science that your project involves. But CRA had already asked applicants "To what field of science or technology would the advance contribute?" so, again, it's hard to see this as a big change.

And there are a lot of examples like that.

Obstacles vs. uncertainties

The new form also refers to technical "obstacles" instead of "uncertainties." Somehow, CATA reached the conclusion that this is less precise. It's not. Obstacles is a better word, but I don't think that a bit of wordsmithing -- even to make an improvement -- was worth throwing people into a panic over what the change really means. The new guide even refers to "technological obstacles/uncertainties" and, from looking at the term in the context CRA uses it, I think it's really grasping at straws to stir up FUD around the change.

Too early to know effect on audits

I think the real concern, though, is about audits. Nobody likes to be audited, obviously, and the form is what CRA has in its hands when it decides which applicants to audit. It sounds like some companies are concerned that they won't be able to avoid audits without being able to submit 15-page project descriptions -- which CRA had already said it didn't want.

Right now, we don't know if the new form will lead to more or fewer questions from CRA examiners. We know that CRA is hiring more auditors, so you could interpret that as a effort to speed up the process or as an ominous sign that there will be more audits in the future. We'll see.

But, overall, I don't see the changes to the SR&ED program having any significant impact on startups. The process won't be any less of a pain, but to me, the new form looks like a very small improvement.

Narrow view of innovation drives proposed Ontario law

The Ontario government introduced its "Ideas For the Future Act" last week—following through on its pledge earlier this year to provide a refund of provincial income tax to university spinoff companies over their first 10 years in business.

The refund would only be available to companies incorporated after March 24, 2008 and only to companies whose sole purpose—in the opinion of the Ministry of Research and Innovation—is selling/licensing:

1) Software created by university employees or students "in the course of" their employment at the university or their academic studies. The software must constitute "a technological advancement" in the opinion of the Ministry of Research and Innovation.

2) Computer/communications/semiconductor/electronics equipment, health technology, or bioeconomy products "an essential element of which" is a patented technology wholly developed by university employees or students "in the course of" their employment at the university or academic studies. The patent doesn't have to have been issued before the company can qualify, but it must be issued within the company's first 10 years.

There's some flexibility given to both the Ministry of Finance and the Ministry of Research and Innovation in deciding exactly what qualifies, but if your company falls into one of those two categories, there's a good chance that it will qualify. If it doesn't, I suspect you'll have a hard time getting approval.

You won't know for sure if you qualify until after the end of each year when you ask the Ministry of Research and Innovation to provide you with a certificate of eligibility. If your company is certified, you can then ask the Ministry of Finance for a refund of your provincial income tax.

The bill is only at first reading stage, so there will be opportunities to make changes before it becomes law—which is good, because there are a lot of ways that the act should be improved.

Unfortunately, the act would do nothing for the majority of our most innovative companies, most of which wouldn't qualify. It certainly won't do anything to encourage startup creation—in the 10 years I've worked with new tech companies, provincial income tax has never been raised as an issue by any entrepreneur. At best, it's like a nice Christmas bonus, which makes its overly-restrictive eligibility rules even more of a disappointment.

If the goal is to cultivate Ontario's economic future, shouldn't we be supporting all of our innovative startups? Why is a tech company started by a 22-year-old student more worthy of support than a startup created by a 26-year-old graduate ... or a 46-year-old who isn't a university employee, or anyone else?

The cardboard version of innovation driving this legislation goes something like this: research occurs at universities and labs and leads to patents which are then pushed out into the business world and commercialized, creating the innovative tech companies that the economic future of the province depends upon.

In the real world, the links between research and economic prosperity—and the two are certainly connected—follow many different routes. Unfortunately, policymakers have obsessed over one patent-centric path at the expense of others that have more impact on our economy. As Mike Lazaridis pointed out years ago, if you want to see the economic impact of research, you need to look more at students and less at patents. Few innovative companies are created to commercialize university-created patents, but almost all of them have university- or college-educated people driving them. RIM itself wasn't created to commercialize a particular university-created innovation. In fact, Lazaridis has said that over RIM's first 20 years in business it licensed just two technologies from universities.

The government should expand the eligibility for the tax refund so it includes all  innovative startups—all of which make use of ideas and knowledge that flowed from research—and not just the small percentage of those companies that were created to commercialize a specific university-based invention.

Proposed copyright amendments fall far short

It's been a couple of weeks since the federal government introduced its long-awaited—or dreaded—amendments to the Copyright Act. As was feared, the bill is inconsistent and leaves Canadians vulnerable to pay outrageous damages for activities that no one could reasonably confuse with piracy.

To give one example, you come home with a new CD and a new DVD. You load them both on to your spacious hard drive to play them on your computer or to transfer them to an iPod or other mobile device. Under the proposed new law, you're probably okay with transferring the CD, at least for most CDs now in stores (record companies could decide at any time to change that—it would now be entirely up to them). With the DVD, on the other hand, you could face a lawsuit for at least $20,000 in damages, and possibly several times that, depending on who sues you. And those are just statutory damages—there could be punitive damages as well. Even the tools you used to copy your DVD to your hard drive or mobile device would be banned under bill C-61. And if record companies decide they don't want you putting music on your iPod, with a simple change on their end, you could face a $20,000 lawsuit there as well.

There's no shortage of scenarios online illustrating dire consequences of the proposed legislation—even for legitimate personal use. Larry Borsato has some observations here, Alec Saunders gives his own example here, and, of course, Michael Geist's blog and Howard Knopf's blog are chock full of comments.

Even putting those scenarios aside, C-61 is a failure. All along, we were told by the government that that amendments were needed to bring Canadian copyright law into the 21st century. But C-61 focuses on 20th century technologies—ones that will still be with us for a while, but whose days are numbered. At the same time, it either ignores the networked technologies on the horizon or explicitly removes them from the exemptions contained in the bill.

At best, this is copyright legislation for the last decade, not for the future. The government chose to avoid any serious rethinking of what copyright law should look like and will need to look like. And it's understandable that they wouldn't want to take that on—it wouldn't be easy. But what we got instead was superficial tinkering. I don't know if it's even paving the cow paths so much as throwing some gravel onto them. We're going to have to go through this all over again before too long.

Copyright law is a minefield at the best of times. One of the challenges is that these laws have been violated by nearly everyone, and we didn't need digital technology to get to that point. Photocopiers, tape recorders, and VCRs have been used for decades in ways that were not Copyright Act-approved. Canada has never even had laws that allow people to tape TV shows to watch at another time—something that is only now being introduced with C-61 ... now that people have been time shifting for more than 20 years.

But copyright laws are like speed limits—we seem to be okay with having them on the books as long as their enforcement is less than zealous. While it was never spelled out in the Copyright Act that you wouldn't get in hot water for time shifting or many other copyright violations, it was commonly understood that there was almost no chance that you would face prosecution or a lawsuit.

Unfortunately, we now have industries with outdated business models chomping at the bit to sue as many people as they can for as much as possible. That's the danger of tinkering around with copyright law at this time. Imagine how life would be if an industry association could file suit against you every time they thought they had evidence that you'd gone above the speed limit. If the government was determined to go ahead and cross this minefield, it owed it to Canadians to be very careful about what acts would be allowed or disallowed under its proposed reforms, but C-61 just isn't well thought out or precisely worded.

In the U.S., more than 20,000 people have already been sued by the recording industry. One woman was recently ordered to pay nearly a quarter-million dollars in damages for having about two CDs worth of songs in a shared folder on her computer. It looks like the government was trying to avoid these kind of situations for Canadians when it created a $500 statutory damages cap for personal use infringement. And that would be great. Unfortunately, the current language of the bill is too convoluted to provide any comfort that this would be a real cap. If that's the government's intention, then it should be easy to clarify the language through amendments.

With any contentious legislation, you have to make decisions around whose advice you're going to ignore. The problem here is that the government chose to ignore—or at least give less priority to—what was best for Canadians and brought forth legislation that only please a small number of industry groups (CRIA, CMPDA) while trying to placate Canadians with a few soundbites—throwing them a couple of bones around format shifting and time shifting, which has been an everyday practise for decades, even if it was never formally supported by legislation.

Yes, this bill could have been worse, but it should have been much better. If the government wasn't willing to tackle the deeper issues around copyright law, it should have just left the whole thing alone. But the U.S. lobbyists weren't going to let that happen, so we got what you'd expect from a half-assed process and a desire to appease the lobbyists—even if it was at the expense of Canadians.

Instead of spending his time tinkering around with copyright laws, I wish Industry Minister Jim Prentice had focused on providing more resources for IRAP. It's one of the most important programs in Canada for bringing our economy into the innovation era—and has been a great help to startups in Waterloo Region. Unfortunately, the program has run out of money just two months into its fiscal year. If Prentice really wants to do something that will benefit Canadians, he can let C-61 die on the order paper and put his support behind IRAP.

Why start a startup?

The third StartupCampWaterloo will be starting soon—kicking off with a panel discussion of "why start a startup?" Maybe some startup founders will say that they needed some convincing on that question, but I suspect that if it's something you need to have answered, then maybe creating a startup isn't the best thing for you.

It's always going to be easier being employee #57 or #5,700 where you can have your job description and be given tasks to perform—maybe in a skillful way, but within a framework that is planned and managed by others. Every two weeks, money gets deposited in your bank account, even if you've been in a rut and have only been moderately productive. Want to go to a business event? Feel too sick to work? That's fine, you still get paid your full salary—no money comes out of your pocket. On top of that, you're guaranteed a paid vacation every year and probably have at least a basic benefits package.

It's a pretty good deal and one that most people are happy to take.

Forget all of that with a startup, at least at the beginning. But that's a big part of the appeal. You don't have a job description (or, if you do, it's pretty fuzzy) and you get to do things that no one in their right mind would hire you to do—developing a lot of new skills. You don't have to write a resume and go on job interviews to be asked silly questions hoping that someone will recognize your talents. You work with people you want to work with on the products of your choosing (preferably with a lot of market input) where you get to decide the strategy and how you'll execute. And you never have to stare at the clock and wish it was 5pm.

It's not for everyone, and if your startup grows into a bigger company, some of the freedom of the early days goes away, but for many people who have been there, there's no going back to being employee #57.

Waterloo startups finding money close to home

Toronto lawyer Suzanne Dingwall Williams wrote a piece for the CVCA blog this week lamenting how often the startups she works with choose to seek investment from American VCs over their Canadian counterparts.

If that's the case, it sounds like another significant difference between the Toronto and Waterloo startup communities. In these parts, if you go much farther than Toronto to look for early stage capital you risk being accused of being exotic. It happens, but not often. Of the six seven-figure seed/early-stage deals we saw last year, I think only one involved a foreign investor. That seems to be consistent with the national statistics, which saw most foreign investment being put into later stage deals.

In the same post, Dingwall Williams also writes about the reputation of Canadian VCs being tarred by American brushes, but from a Waterloo perspective, I'd be shocked if one startup founder in ten here knows anything about Blackstone and Stephen Schwarzmann, to use the example she cites. Actually, my guess is that's true in Toronto as well. Some may be aware that VCs have been very well paid and that -- with some exceptions -- they haven't come close to delivering results consistent with that compensation. But that's made-in-Canada tar. The CVCA and others have published rates of return for Canadian VCs and the numbers don't paint a flattering portrait of the industry. There may have been an emperor-has-no-clothes epiphany on the part of LPs and entrepreneurs toward Canadian VCs but, from what I've seen, this has had more of an effect on LPs than on startup founders.

From any perspective, I don't agree with her view that startups should feel a "moral imperative" to get funding from Canadian VCs. That's straight out of "buy Canadian" campaigns that encourage you to buy products that you would otherwise avoid just because it might help keep people employed and extend the amount of time they spend making second-rate products. If that's the best pitch we can make for Canadian VCs we might as well just shut the whole industry down now. [Actually, with Canadian VCs collectively showing almost zero rates of return, from a strictly economic perspective it would have been better if we had let American VCs make those investments and put our money to more productive use. I wouldn't recommend that either. :-)]

Startup entrepreneurs should go where they can get the best deal for their companies. Fortunately, that will often be with a Canadian VC. What we do seem to be seeing, though, is that a greater percentage of startups today are companies where bootstapping or sub-VC funding are all that's needed to get a product to market, and often to get companies to a point where they are acquired (usually by American firms; at that point you don't hear many complaints about foreign ownership). Of those six deals from 2007 I referred to, only one of them involved a VC, and even that also included angels.

For that reason, there has been the disconnect between startups and VCs that Dingwall Williams refers to. But that's okay. Not all promising startups need VC funding. That was really an artifact of the boom years. As long as companies get the funding they need, I'm not going to lament that a shrinking percentage of startups are paired with a VC.

Unfortunately for the Canadian VC industry, many of its current problems are linked to matters of history that can't be rewritten with better mission statements and promotional campaigns (although, on the subject of marketing, I think Rick Segal has done an amazing job of both getting himself over and improving the reputation of the entire Canadian VC industry). But the message from startup entrepreneurs I'm hearing in Waterloo is more that they often don't see the need to work with VCs, not that they are avoiding Canadian VCs in favour of American investors.

BlackBerry fund looks to startups for innovation

With the new BlackBerry Partners Fund, RIM is putting its money and brand behind an initiative to look for innovation in the entrepreneurial world of startups, helping fund new companies that will create and develop innovative technologies and products.

RIM is Canada's largest company by market value and is now one of the 10 most valuable companies on Nasdaq—a list headed by Microsoft and Google in the top two positions. With its size and resources, it could have pursued any approach to innovation that it wanted, and it chose to put its support behind startups.

It could have allocated the money to university professors and told them to stop what they were working on and focus their efforts on coming up with a bunch of patents ... which RIM might then incorporate into its products.

Or it could have invited companies to rummage through RIM's patents—particularly any that aren't being used—to see if there was something there that they'd like to try to commercialize.

But it didn't do either, and there's a lesson there, particularly for government. While government policies and programs for high-tech startups have improved significantly over the last few years, there is still a tendency to think that "innovation" is something that primarily happens at universities and research labs, and that these institutions should be focusing on generating patents while the government helps create an infrastructure to push institutionally-created intellectual property into the business realm.

With the BlackBerry Partners Fund, RIM again shows that it understands that innovation isn't just something that is transferred to startups, it is something created by startups of all kinds.

Best Canadian business blogs ... and mine

Just wanted to thank Andrew Willis of The Globe & Mail for including this blog as one of his five picks for Canada's best business blogs. Most of my favourite blogs aren't even on the list -- I think the Wellington Financial blog is the only other one I often read (also a Willis pick) and many of the others are ones I've never heard of. I'll have to take a look to see what I'm missing.

There's a poll where readers can choose their favourites among the ones nominated by the Globe's writers. I don't imagine too many Globe readers will be voting for a site that focuses on Waterloo tech news -- and I doubt that I can clear my cookies fast enough or log on to enough proxy servers to have much impact. :-) But it was nice to be mentioned when so many deserving others weren't.

UPDATE: Now that I read things more carefully, it says "finance and investment" blogs -- which mine really isn't, although there is a monthly stock section. That explains the e-mail I got from someone wanting to interview me about my investment philosophy (That would make a gripping story: "Um, well, actually I don't invest in any of the companies I write about.")

Ontario's innovation agenda shows progress

The Ontario government released its innovation agenda last week -- outlining directions and priorities for achieving a "high and sustainable level of prosperity" for residents of the province. For the most part, these kind of documents are views from 50,000 feet and aren't particularly contentious -- not many people are going to oppose easier access to capital, building business skills, and streamlined government processes, for example.

But I was pleased to see that there's been a lot of progress made over the last couple of years. I wrote a blog post in December 2005 taking issue with the language of government "commercialization" policy at that time, and all of my key complaints were addressed in last week's document.

It shows an awareness of the primary role of markets and products -- something almost unheard of in 2005. There's no mention of "receptor capacity" or any of the other artifacts of innovation theories generated by wonks and academics that had little connection to what actually happens in business. It even recognizes graduates as a part of "knowledge transfer" from universities -- it's by far the most important part, and the government doesn't quite go so far as to say that, but it's good to see them acknowledge that universities contribute much more than intellectual property to the province's innovation system.

At the very least, the rhetoric coming from the government has improved significantly over the last two or three years. That may not sound like much, but I see it as big step.

Having said that, I'm still opposed to the government's proposal to offer income tax exemptions to companies commercializing university-created IP -- but not to other companies commercializing innovation. This may be the final relic of old school innovation theories -- that innovation is something that primarily happens in universities and labs and that university-generated innovation should be given special treatment over other innovations, regardless of the potential economic impact that each offers.

Great ideas with the potential for significant economic benefits to the province can come from anywhere. With any luck, it won't take another two or three years to overthrow the view that innovations generated outside universities and labs are less deserving of support.

Showing off our startups at TLC 2008

About 400 people are expected to attend the 2008 Technology Leadership Conference this Thursday at Bingemans in Kitchener. Along with being one of the top events of the year for the local tech community, the conference has become the place where you can see some of the top startup companies from the area as they present their companies at the Tech Expo in the main hall.

Exhibitors this year are AideRSS, LoyaltyMatch, Semacode, Tungle, Well.ca, Smartpatterns, Something On, Client Outlook, Aeryon Labs, Ghoti Studios, T-Ray Science, and FOSS Factory. ProductWiki, SuitedMedia, and Crez had tables at last year's event and are expected to be among the attendees this time, as are Primal Fusion and Metranome.

It's great to be able to show off our startups to the community and guests from out of town. Two years ago, I had trouble coming up with more than a handful of names but since then we've had no trouble filling all the available tables. With companies like Primal Fusion, Metranome, ParkVu and Avvasi expected to launch their first products in the coming months, next year's Tech Expo will be another one to look forward to.

Keynote speakers this year are Chris Anderson, editor of WIRED and author of The Long Tail, Chris Sacca, blogger and investor -- 1,800+ Twitter followers -- formerly with Google, and Jeff Taylor, founder and former CEO of Monster. Noted VC and blogger Rick Segal will also be speaking as part of a panel. Should be a great day.

Well.ca raises angel funding

Congratulations to online drugstore Well.ca, which announced today that it has closed a round of funding -- one that has been several months in the making. The size of the round wasn't disclosed, but the investors were Jim Estill and Toronto's Maple Leaf Angels. It's the first external funding for the company and also seems to be the first deal that Maple Leaf Angels has announced.

It's the latest in a string of angel-backed deals for local startups. As I mentioned before, we had six companies raise seven-figure seed rounds in 2007 and every one of them involved angels (although one -- AideRSS -- was led by VC firm Tech Capital Partners).

I first talked to Well.ca founder Ali Asaria late in 2006, and the entire entrepreneur services team -- and I think just about everyone else at Communitech too -- has enjoyed working with Ali and his team ever since.

(See Ali's comments about the investment.)

Tungle launches

Tungle launched today. You can now download the beta version of the Tungle Outlook plug-in that lets you share calendars and availability across organizations.

The company is headed by Marc Gingras and Fang Yang, who have a long history as a team in Waterloo. I first met Marc eight years ago when he was heading the Kitchener-based development office of Entrade. Marc, Tungle's CEO, is now in Montreal, while Fang, the CTO, is based in Waterloo. Tungle raised $1.5 million last year from JLA Ventures and Desjardins Venture Capital, with additional funding from a U.S. based angel investor.

Marc blogged about the launch earlier today.

Is this the best way to meet potential investors?

The Canadian Innovation Exchange (CIX) is being held in Toronto at the end of this month. If selected, a company looking for early-stage funding pays $600 to give a presentation to an audience that includes several VC firms and other potential investors.

Even though there's a Communitech logo on the site (which I had nothing to do with -- I've had no contact with anyone organizing this event), and my colleague Ron Neumann is a scheduled presenter, I have mixed feelings about these kind of events.

For entrepreneurs, it certainly seems convenient to get your company in front of several investors with just one pitch. I'm sure some would say that the amount of time saved when compared to arranging individual meetings with each investor justifies the fee by itself. And there's no question that there are some good speakers scheduled for CIX.

On the other hand, these events reinforce the myth that companies need to pay intermediaries (in this case, the event organizers) to get in front of VCs, or at least that it's beneficial to do so. It's something I mostly associate with the leeches and hangers-on who try to charge startup entrepreneurs a fee for introducing them to VCs. There aren't as many today as there were back in the bubble era, thankfully, but it still goes on.

Here's a little secret: it's not difficult to get a Canadian VC to look at your business (getting them to invest is, but that's equally true for companies that present at VC events). They aren't hard to find and contact, and it won't cost you anything.

I know people at most Canadian VC firms (including almost all of the firms whose logos appear on the Canadian Innovation Exchange site) and can guarantee you that, if you have a good investment opportunity for them, almost all of them would be happy to come to Waterloo to hear more. You won't have to hope to be selected for some dog-and-pony show in Toronto and pay hundreds of dollars. Introductions certainly help, particularly coming from someone investors believe will filter out the junk, but you don't have to pay for them. If you have a VC-fundable business, every member of Communitech's entrepreneur services team can hook you up with VCs at no cost.

I agree with Alec Saunders, who last week compared the event to a beauty pageant and said he found a lot not to like in the model. If there had been more U.S. investors participating (there are some), I might have found it to be more valuable. There are so many of them, your degrees of separation will likely be greater than one -- which won't be the case for Canadian VCs -- and most will expect you to go to them, which starts getting expensive.

But to get in touch with most of the people scheduled to be at CIX, I can't say that signing up for a beauty pageant would be the way I'd go about it.

Don't all innovative startups deserve access to the same tax break?

One of the items included in the Ontario budget unveiled yesterday was "a 10-year Ontario income tax exemption for new corporations that commercialize intellectual property developed by qualifying Canadian universities, colleges or research institutes."

As with all budget announcements, this will be subject to refinements and revisions before it gets implemented ... if it ever does ... and an obvious first reaction would be that few tech startups are particularly concerned about paying income tax (and provincial income tax in particular). There's usually enough losses up-front to put off paying a significant amount of income tax for a long time.

What disappointed me, though, was the distinction this announcement made between university spinoffs and other tech startups. As presented in the budget, only spinoffs would qualify for the tax exemption.

We have several university spinoff companies in the Waterloo area, but most of our tech startups are not spinoffs -- certainly not in accordance with how Statistics Canada defines a spinoff. Neither are most of our largest tech companies. Some are, but most aren't.

I have an office at the Accelerator Centre at the UW Research & Technology Park, and on our floor we have spinoff companies and non-spinoff startups working side-by-side. If you weren't told which were which, you'd have a tough time separating one from the other in terms of the sophistication of the technology, market opportunity, or number of employees.

Under the budget proposal, however, we'd have the spinoff in one suite exempt from Ontario income tax and essentially being subsidized by its neighbouring startup that isn't a spinoff and doesn't qualify for the exemption. I can't see any justification for that distinction.

If the Ontario government wants to give a tax break to new companies commercializing innovative technology, let it extend that benefit to all tech startups regardless of their starting points. If the goal is to assist in the economic development of the province, it shouldn't matter whether companies that drive our economic success are university spinoffs or not.

Strong year for seed investment in Waterloo Region

Links to a couple of posts I made on the WatStart blog:

There may be some ominous signs for the future of venture capital in Ontario, but 2007 was a good year for Canadian VC investment.

In Waterloo Region, it was an amazing year, with a record number of seed-stage investments ... even though you may never have heard about most of them.

More associations demanding new Internet taxes

A couple of weeks ago, ACTRA (Alliance of Canadian Cinema, Television and Radio Artists), the Canadian Film and Television Production Association (CFTPA), the Directors Guild of Canada (DGC) and the Writers Guild of Canada (WGC) issued a news release claiming that Canadians wanted the federal government to require all Canadian Internet service providers (ISPs) and wireless service providers (WSPs) to pay money "to help fund the production of Canadian digital media content."

This request for what is essentially a new tax was said to be supported by a poll commissioned by the four groups that issued the news release. You'd have to take their word for it though, as they chose not to disclose the questions asked in the poll. Presumably, those four groups think that they should be -- at the very least -- among the recipients of the proceeds of this new tax, although they don't go into any specifics about what kind of levy they want and where the funds would go (and this complete lack of detail makes their whole claim of a poll supporting their proposal hard to take seriously). According to Michael Geist, the associations are asking for a levy of 2.5% of all broadband revenues, which works out to about $10-20 a year added to the bills of every broadband customer.

A lot of us create "digital media content" -- including this blog post -- but somehow I suspect that ACTRA, et al, won't be recommending that proceeds from their proposed tax be shared with us. Obviously, no one at these associations cares a whit about my website or your blog, or about 99+ percent of the content on the web, which is created with no input from members of any of their groups.

Most content creators wouldn't have a prayer of seeing a penny of this money, so where would it go, exactly? And what's the justification for demanding a government handout for content that creators have either chosen to make available on the web (like this blog) or have been paid to create (such as streaming video on ctv.ca)?

Geosign in Financial Post Business Magazine

The cover story of the current Financial Post Business Magazine is a piece on the Geosign saga, written by Robert Thompson. The story will be familiar to people in the local tech community, but this may be the first time the story has been covered by the mainstream national print media.

The one part that didn't seem quite accurate was this:

American Capital's latest securities filings peg Moxy Media's value at US$128 million - which means the sum of Geosign's former assets are worth less than American Capital's original minority investment.

American Capital, from the outset, listed its Geosign investment at around this level. In fact, it was initially listed as US$126.7 million in its first appearance on a 10-Q, and the debt component rose slightly with the next two reports until the total was finally listed as US$128.2 million.

The just-filed annual report shows a disposition of the full investment. I don't believe that Moxy Media was ever mentioned in any of the filings. I was expecting to see a value attached to Moxy Media in the annual report, but if there's anything there, I didn't see it.

So, why the difference between the reported $160 million and the US$127-128 million on American Capital's books? I can think of three possibilities, but it's never been reported. That's a question that American Capital's IR folks might answer, since the company was the source of both numbers.

There are some good quotes from Jim Estill in the Post piece, but other than a no-comment type comment from Tim Nye, it looks like no one from Moxy Media, eMedia, or American Capital wanted to talk.

Selling 30K albums in 60 days no reason to be disheartened

Nine Inch Nails' Trent Reznor has posted sales and download figures for the Saul Williams album The Inevitable Rise and Liberation of NiggyTardust, which Reznor produced.

In the two months since it was released -- available by download only -- the album has sold 28,322 copies, not far short of the 33,897 copies Williams's last album has sold in three years. And this was achieved even though, according to Reznor, "not one cent was spent on marketing" the new album. The album has generated nearly $150,000 in revenue, and Reznor says no one's getting rich from it (which is what you say when you've made some good money but don't want people getting the impression you're rolling in cash).

On top of that, the album was downloaded 154,449 times from the official site and this seems to be the number that Reznor has focussed on. He's says it's "disheartening" that just 18.3% of downloaders paid for the album -- which he describes as doing "the right thing."

I was one of them, and to me, this was a success. Not a home run by any means, but still a success. Williams has won many new listeners, the project was profitable, even with a marketing budget of zero and no one had to kowtow to a record label along the way.

Looking at it as doing the right thing vs, presumably, doing the wrong thing, isn't very helpful. From a business perspective, the objective is to make money and build a customer base, both of which seemed to have happened here.

(And I thought it was a good record -- definitely $5 well spent.)