Quebec Budget introduces new VC and seed funds to assist cash-strapped tech firms

Provincial Budgets

The Quebec government is banking on renewable energy and green technologies and the commercialization of university inventions to prepare for life after the recession. In its March 19 Budget, the Liberal government targeted a group of technologies where the province has competitive advantage while providing massive stimulus to the venture capital (VC) industry to continue supporting tech-based firms in their formative stages.

With a projected $3.9-billion deficit for FY09-10, and $3.8 billion for FY10-11, the government projects a return to balanced budgets by FY13-14.

The urgent task of salvaging early-stage tech based firms from the severe drought in VC is supported by the Budget's two largest S&T-based initiatives — $825 million to help capitalize sector-based VC funds and $125 million to create three new funds for seed and start-up companies. The measures are similar to those taken by the Ontario government in recent months as VC firms face stagnation or worse in a brutally tight fiscal environment (see page 3).

The short-term financial impact of the two measures is relatively modest — $12.5 million in each of the next two fiscal years. Budget documents say Investissement Québec (IQ) will provide $200 million for the VC fund, while the Fonds de solidarité FTQ (FSTQ) and Caisse de dépôt et placement du Québec will each contribute $250 million. A further $125 million will be sought from the private sector. Details of the fund, which will be managed by FSTQ and the Ministry of Economic Development, Innovation and Export, will be announced in the coming weeks.

For the seed fund, IQ is contributing $50 million to be matched by funds from "tax-assisted funds". The private sector will be required to provide $25 million, with each fund receiving $42 million. No details on the focus of the seed funds were provided.

While the Budget contained very little for university-based research, it introduced a major sweetener for the commercialization of intellectual property (IP) of discoveries emanating from Quebec-based universities and public research centres. The Budget introduced a 10-year tax holiday for firms that are created to commercialize this IP. The rationale is to keep the benefits of publicly funded research in the province and help build firms to the point where they are more attractive to private financing. Further impetus for creating the tax holiday is to match Ontario, which last year introduced a nearly identical measure (R$, March 27/08).

budget light on Research funds

The Budget's funding for research is extremely modest, with three initiatives receiving $4 million in each of the next two fiscal years. The Centre interuniversitaire de recherche en analyse des organisations (CIRANO) receives $6 million over four years to continue its work in the area of public policy. HEC Montreal's Institut d'economie appliquée (IEA) also received $6 million over four years to conduct research and propose solutions for the causes of delayed productivity in the provincial economy. The Univ of Sherbrooke receives $5 million over five years for its Research Chair in Taxation and Public Finance and "to preserve this top centre in multidisciplinary knowledge".

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