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Venturing into big investment territory

New tax regulations boosting interest

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NEW regulations for the province's small business venture capital tax credit program have only been in place for a month, but if the current level of interest is an indication, investment in Manitoba's small businesses might spike dramatically this year.

One company alone, Invenia Technical Computing Corp., has already been approved to raise $10 million, which is three times the total that was raised by about 10 participating companies last year.

Good incentives

CHANGES to Small Business Venture Capital Tax Credit regulations:


  • 45 per cent tax credit -- up from 30 per cent
  • the amount of equity an investor can hold in an individual company and still be eligible for the credit -- 35 per cent up from 10 per cent
  • maximum amount a company can raise -- $10 million up from $5 million
  • the minimum investment is $25,000 -- unchanged


In the last budget, the province increased the tax credit for qualified investors of approved companies from 30 per cent to 45 per cent.

The program has been well subscribed in the past, but ultimately undersold, meaning companies were approved to raise varying amounts but were unsuccessful in closing those offerings.

Matthew Hudson, the CEO of Invenia, a high-tech company that applies very advanced computer learning to electricity markets across North America, said the program's new regulations have made conditions more attractive for its efforts to raise money to grow the business.

"It's very targeted. What the province is trying to do is focus on organizations like ours doing innovative things and growing and have the need for capital, and there is just a bit of an alignment issue," Hudson said.

Ideally the realignment required is to bring the local investment community -- including a growing number of organized angel investors -- together with those growing companies.

Jim Kilgour, head of the financial service office of the Manitoba Jobs and the Economy ministry that runs the program, said that is exactly the purpose of the program -- to give more small business access to more capital.

"We are noticing a huge uptick in companies requesting approval to go out and raise money," Kilgour said. "Time will tell how much they actually raise."

Kilgour knows from experience that just because a company is approved to raise investment dollars, it's no guarantee they will be successful.

Last year, he said, about 10 companies were approved to raise just less than $10 million, but they were only able to raise a total of $2.7 million.

Invenia has been around for close to 10 years, building its capacity to analyze incredible amounts of data through specialized algorithms and to come up with increasingly accurate -- and valuable -- predictions about regional electricity transmission and consumption dynamics.

In addition to consulting and advising utilities, Invenia makes arbitrage investments in the day-ahead markets operated by independent system operators across North America.

It is in the process of expanding those efforts into the California and Texas markets and expects to use some of the capital it raises to cover some of the additional costs it will incur to do that expansion.

Invenia's offering is not a typical common-share scenario. The company is looking to raise funds through preferred shares with a dividend attached as well as a proposed share buyback in three years, which will all be dependent on the company meeting certain performance targets. It is ultimately a lower risk scenario for investors.

"How it settles will be based on how we execute but we feel pretty confident in our ability to execute," Hudson said.


Republished from the Winnipeg Free Press print edition August 1, 2014 B4

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