Phasing Out an Inefficient Venture Capital Tax Credit
35 Pages Posted: 14 May 2010
Date Written: May 11, 2010
In 2005, the Government of Ontario, Canada, announced the phase out of the Labour Sponsored Venture Capital Corporation (LSVCC) tax credit, which will be become effective in 2011. Some media attention has suggested this might lead to difficulty for Ontario entrepreneurs and emerging firms in raising capital. This study presents evidence from Ontario innovative healthcare firms that capital raising concerns are not related to the phasing out of the LSVCC tax credit, and this evidence is consistent with evidence of extreme underperformance of LSVCCs. However, amongst firms currently funded by LSVCCs, there is significant concern about the phase out of the tax credit, which is at least in part attributable to the terms within LSVCC shareholder agreements. Policymakers should account for firms currently funded by LSVCCs to efficiently facilitate the phase out of the tax credit.
Keywords: Entrepreneurship, Venture Capital, Tax Policy, Canada
JEL Classification: G24, G28, G32, G38, K22
Suggested Citation: Suggested Citation