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.