BC unveils Budget surplus but negligible new support for growing high-tech sector

Critical lack of Series A financing

Buoyed by a projected GDP growth of 2.6% in 2015, the Government of British Columbia is forecasting a surplus of $284 million in 2015 on spending of $45.8 billion — standing virtually alone among the provinces, many of which are suffering from the collapse in commodity prices. Though BC's high-tech sector is booming, the province's February 17th Budget contains relatively little to support the commercialization of S&T and the research that underpins it.

A number of tax credit programs for digital media and small businesses have been extended but the majority of measures reflect fiscal prudence and a focus on natural resources.

The Budget expands the Small Business Angel Tax Credit by $3 million, increasing the equity financing available under the program from $100 million to $110 million. The Interactive Digital Media Tax Credit — established in 2010 and set to expire this year – has been extended to 2018, while the Digital Animation or Visual Effects Tax Credit is being expanded to include post-production activities.

The budget of the Ministry of Technology, Innovation and Citizen Services is largely stable at $17.9 million while the budget of the influential BC Innovation Council is being maintained at $6.1 million.

Fiscal prudence

With a booming tech sector, however, gaps have emerged in the financing continuum which the Budget did not address. According to a 2014 KPMG study, the number of new companies being formed is healthy and there's been an increase in the number of mid-sized firms. But that growth is threatened by a lack of access to venture capital and the availability of talent. And nowhere is the need greater than Series A venture capital.

"It's decidedly uneven. Risk capital in BC is at its highest level since 1999-2000. There's a healthy angel community and a good supply of late-stage or growth capital. But there's a drop-off in Series A financing," says Bill Tam, president and CEO of the BC Technology Industry Association (BCTIA). "We were pushing for support from the province to participate in a spirited way with the federal Venture Capital Action Plan and the resurgence of VC in many provinces. But the Budget theme was fiscal prudence."

Tam says that new capital from local VCs has dropped approximately 75% from about $200 million two or three years ago to less than $45 million today, leaving many promising tech firms potentially stranded.

"In Ontario and Quebec there's been an emergence of new funds and a replenishment of existing funds. And with VCAP there's potential for even more," says Tam. "But in BC that has not been happening and that means deals will be down ... The tech sector is growing but the challenge is how the various life cycles of industry are performing. We anticipate that a great number of companies incubated in recent years will need Series A financing."

There are more than 9,000 high-tech companies operating in the province, generating $15 billion in GDP and providing over 84,000 jobs — more than the forestry, mining, and oil and gas sectors combined. High-tech GDP growth is double the provincial average and second highest among all industries in the province while wages are 66% higher than the industrial average.

To address the shortfall in talent, the Budget is extending the provincial training tax credit to the end of 2017.

The Budget also set a goal to expand high-speed Internet access to all citizens by 2021.

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