Expanding Alberta's Life Sciences. If Not Now, When?

In 2007, BioAlberta released a document entitled, “A Blueprint for Success: Capitalizing on the Life Sciences Revolution.” It offered policy recommendations on behalf of Alberta’s life sciences industry. Seven of its nine policy and program recommendations have since been adopted. Since the advanced technology industries (information and communications, life sciences and engineering) emerged into Alberta’s economic forefront in the 1970’s, access to capital has been a major stumbling block to its growth. Even the energy industry had access to junior capital pools, but not the advanced technology industries.

One of the nine recommendations was considered the crown jewel–an investor tax credit. This tool was and continues to be seen as an instrument to increase access to start-up and growth capital; money that exists but may never find its way into technology industries without some incentive. Advocacy efforts targeted at Alberta policy makers and politicians to implement an Investor Tax Credit were steady for many years. Finally, many advocates were able to offer a sigh of relief when such a credit was established in 2017. Unfortunately, the investor tax credit program was suspended in 2019.

The following excerpt from an article on August 2, 2019 in the Calgary Herald brings Albertans up to speed on the current situation:

"...A government spokesman confirmed Thursday that applications for the Alberta investor tax credit — which offers a 30 per cent tax credit to private investors who put money into companies doing work in non-traditional sectors such as information technology, clean technology, health technology, interactive digital media and digital animation — are no longer being processed, in spite of the program’s website noting there is still $6.1 million in tax credits available for this year.

While the government may think its corporate tax cut is an appropriate replacement for the tax credit programs, Sandi Gilbert, CEO of Calgary-based InterGen and chair of the National Angel Capital Organization, said the reality is that seed-stage tech companies don’t need tax breaks. “They’re not making any money, so they don’t pay taxes. It’s of no benefit to them,” Gilbert said. “This government campaigned on the fact that they wanted to increase investor confidence, and with this uncertainty (around the tax credit) they are doing the exact opposite...”

While a new government review of all business programs is understandable, BioAlberta stands up once again on behalf of its members and asks the current UCP government to reinstate and reinvigorate the investor tax credit. In order to sustain GDP growth, to protect the province from economic and commodity cycles, we need the economy to fire on as many economic cylinders that it can. In a jurisdiction where we have not yet solved the access to capital problem, the Investor Tax Credit can be a significant building block to the solution. While the technology sectors may not be as well developed in Alberta as in other jurisdictions, the province has begun to optimize on the billions of dollars spent on research and development, infrastructure and recruitment of highly qualified people since the early 1970’s. This progress changes the province’s funding in these areas from an expenditure to an investment. Elimination of the tax credit will roadblock this economic progress.

A review* of the B.C. investor tax credit program in 2010 suggests the following:

• Over the period 2001-2008, investments made in 517 companies received a total of $191M provincial and $65M federal tax credits. These companies generated an estimated $379M in provincial and $368M in federal taxes. The estimates suggest that for every $1 of provincial tax credits issued, recipient companies generated $1.98 in provincial taxes; and for every $1 of Canadian (i.e., combined provincial and federal) tax credits issued, they generated $2.92 in Canadian taxes. In short, the BC tax multiplier was 1.98 and the Canadian tax multiplier was 2.92.
• The analysis distinguishes between retail funds (professional venture capitalist who invest and manage capital on behalf of qualified investors through prospectus offerings) and nonretail investors who essentially invest their own capital directly (nonretail investors are sometimes referred to as “angel investors”).
  

For the average company, revenues grew by $572K, based on average revenues of $2.27M. Revenue growth remained positive every year after 2002. Companies financed by retail funds had significantly larger revenues ($5.18M, increasing by $1.18M per year) than nonretail investors ($703K, increasing by $235K), reflecting the fact that retail funds focus more on later stage growth companies that are more mature, while nonretail investors focus more on early stage start-ups, some of which become large established corporations. In aggregate, we estimate that tax credits of $256M were leveraged into at least $2.3B of equity investments. On average, companies raised a total of $2.14M of equity within the program. Retail-backed companies raised considerably larger amounts ($4.61M) than nonretail backed companies ($810K). We find that for every $1 of equity raised within the program, companies raised on average an additional $3.76 of equity and $1.15 of debt outside the program, demonstrating the program’s capital leverage.

It always takes time for a new government to assess and fully understand what they have inherited and what can drive the economy. Policy and program decisions need to consider impacts at both the level of the economy overall and the impact at the level of the firm. For this province to succeed in propagating future prosperity for its citizens and future leadership in the national economy, we invite the current government to be deliberate in its actions to reinvigorate the provincial economy by implementing a comprehensive set of policy and program tools. Many lessons can be learned from the experience of other jurisdictions which have not only helped resource industries to continue in a growth trajectory but have also invested in the new economy. Critical to these lessons is the need to plan for the long-term. Give investors the confidence to make financial investments with programs and measures that do not disappear when government changes hands. It is time to be both sensible and bold. We invite our new government to draw a line in the sand and reclaim economic leadership in Canada by stimulating both the natural resource and advanced technology sectors.

If not now? When?

Mel Wong
President and CEO, BioAlberta

* Review report was prepared for the B.C. Ministry of Small Business, Technology and Economic Development by Thomas Hellmann Sauder, School of Business, University of British Columbia and Paul Schure, Department of Economics, University of Victoria. June 2010.