Venture Capital Financing and
SR&ED
Venture capital financing may be made via a single investing
Limited Liability Partnership (LLP), an umbrella LLP, or direct
share purchase by the Venture Capitalist - with varying benefits
of simplifying the entrepreneurs’ process, reducing risks,
and protecting investors’ privacy. However, for SR&ED
purposes, this may negate the CCPC status of the entity, reducing
the SR&ED tax credit from a refundable (i.e. cash) 35%
to a non-refundable 20% (see ).
What is Venture Capital Funding?
Venture capital funding is differentiated by a minority equity
or quasi-equity (convertible) stake in a private company that
is expected by all to be of a long-term nature (3-8 years).
Venture capital funds are actively involved providing consulting,
mentoring, and guidance until the company is sufficiently
developed for transition to the next stage of maturity. Because
of the active nature of the venture capital process and the
impetus to be involved in key decisions, a seat on the board
of directors is typical. Strategy development for venture
capital emphasizes the next phase in the company’s growth
strategy since venture capital funding must eventually transition
to some form of tradable security or capital gain where the
value can be realized.
How Much Could Venture Capital
Financing Raise?
The venture capital financing amount varies widely between
$100k up to as much as $5m. Annual venture capital funding
in Canada is approximately $2b.; total resources invested
approximate $20b. A range of 10-45% minority share position,
depending on the valuation and amount of capital sought, is
also typical. Because of the high involvement, venture capital
funds tend to seek local opportunities.
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