Yukonomist: Investing in Silicon Taiga

If your financial plan is solid, you might want to think about the local tech investing options

Here’s a brainteaser for you.

An isolated territory that is five hours by plane north of Silicon Valley has a small but budding tech sector.

The founders of its start-up companies need capital to make the jump from garage idea to operating business.

Some of the territory’s inhabitants have a surprisingly large amount of capital, but are mostly used to investing it in real estate, mutual funds and mining companies.

Currently, local investors can easily log onto their online brokerage account and invest in high-growth (and high-risk) global start-ups, but it is hard to find local investment opportunities. Not only do you need to be well networked, but private investing is complex and tech jargon can be baffling.

Silicon Valley investors seldom make the flight north. Local start-up entrepreneurs can make the trek to San Francisco or Vancouver, but then have to join the massive queue of competitors trying to stand out from the crowd. You could spend so much time seeking investors that you don’t have enough time to build your product.

The answer would seem to be matching local investors with local start-ups.

This is what B.C. is trying to do. They have two interesting programs. The first is a 30 per cent refundable tax credit if you invest directly in an Eligible Business Corporation (EBC). EBCs can be B.C.-based businesses active in five areas: high tech, digital media and gaming, destination tourism, clean technology and manufacturing.

The second program is the Venture Capital Corporation, which is an investment fund that puts money into EBCs. The point of this is that regular investors don’t have to find and research an individual company and put all their eggs in one basket. Instead, they are paying the fund a fee to pick the EBCs and diversify their investment. These investments also get you a 30 per cent refundable tax credit.

Both programs allow a maximum of $200,000 investment per year, which works out to a tax refund of $60,000. This makes the program aimed more at the broader “affluent investor” demographic rather than the mega-rich category, who invest much larger sums.

Currently the Yukon has its own version of the EBC part of B.C.’s strategy. It’s called the Small Business Investment Tax Credit. It gives a 25 per cent tax credit for investing in eligible Yukon businesses, with the annual tax credit capped at $25,000. More than 1,000 Yukoners have used it to invest in Air North. Local tech company Proskida is also in the process of using this program to find investors to fund its growth strategy.

One big question is whether we need a Yukon venture capital corporation that plays the role of funneling individual investor money to local start-ups.

On the one hand, this kind of investment fund would pick investments for local investors and spread the risk. One wouldn’t want to put the entire retirement fund into risky tech companies (or early-stage mining companies for that matter), but having a portion of the portfolio in higher-potential investments can make sense for many investors. On the other hand, our small scale means administrative costs could be high and there aren’t that many start-ups to choose from (so far, anyway).

This brings up another part of B.C.’s tech strategy: the B.C. Tech Fund. The previous B.C government led by Premier Christie Clark launched a $100 million fund in 2016 that both invests in privately managed venture capital funds and invests directly in B.C. start-ups. It’s most recent deal was announced earlier this month.

While the federal and territorial governments have various programs to support tech start-ups, local entrepreneurs continue to wonder if the Yukon government will announce an investment fund that invests tax dollars in promising start-ups, like the B.C. Tech Fund.

Whether this kind of fund is a good idea is another tough question. We wouldn’t want to have local start-ups forced to relocate to B.C. to obtain access to this kind of money. But we also need to be wary of the sometimes spectacular losses of taxpayer money that tech investment funds in other jurisdictions have suffered over the years.

In the meantime, the Yukon Small Business Investment Tax Credit continues to exist. If your financial plan is solid, you might want to discuss your risk appetite and local tech investing options with your professional advisor.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He is a Ma Murray award-winner for best columnist.

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