In August I posted an opinion on why R&D subsidies in the technology sector are currently an ineffective tool to support technology innovations and posed some general solutions to re-energize investment into all industries that commercialize Intellectual Property (I/P), including information technology, communications, life sciences, cleantech, and instrumentation. It is also posted on the DVC SmallTech Newsletter.
In essence, the RES Free Thinking post offered the following solutions:
1. Deliver the same level of investor tax benefits to I/P companies as mineral exploration companies in the form of flow-through shares.Similar levels of initial risk exist, although the value of I/P has potentially more sustained impact on GDP and job creation over the long-run.
2. Streamline current tax incentives and industry credits so technology SMEs can benefit more quickly and with less administrative effort. The current net returns on available current tax credits are reduced by administration, and it often takes several quarters to actually receive funds.
3. Expand industry credits and incentives to focus on I/P commercialization and de-emphasize pure R&D. R&D on its own does not create a successful enterprise, and comprises only a small component of a commercialization process. Successful commercialization creates investor returns, jobs, and ultimately wealth.
4. Update legislation related to VC and PE funds so that they are more attractive to both retail and institutional investors by creating more liquidity and sustained returns. Unlike during the 1980s and 1990s, investors have access to more liquid financial instruments that generate more returns with less restrictions. Venture Capital investing needs to be put on more equal footing within the capital markets sector, otherwise capital will continue to dry up.
5. Tighten regulations (including compensation) so that VCs are more inclined to deploy available funds into emerging companies. Canadian VCs tend to deploy less capital as a percentage of available funds into ventures than their counterparts in other jurisdictions. In order to successfully support the I/P based economy, more available capital actually needs to be put to work.
6. Promote knowledge transfer and mentoring by better supporting knowledge clustering, using K-W as a reference model.
It is interesting that opinion from multiple sources appears to be coalescing around similar themes. Today Mark McQueen posted a note on the Wellington Financial blog that more eloquently addresses the topic. It links to a debate on SqueezePlay, along with CVCA letters written to politicians at the Federal and Provincial levels of government. For those that are concerned about the current state of the capital markets related to the I/P ecosystem, this is essential reading.