1. © Douglas Cumming (2012)Entrepreneurship and Venture Capital Public Policy for Entrepreneurship and Venture Capital March 6, 2012 Turning Research into Action: Symposium of Ontario Research Chairs in Public Policy Panelists: Bogdan Buduru Senior Economist, Industry Canada Douglas Cumming Professor and Ontario Research Chair Schulich School of Business, York University Maxx-Phillippe Hollott Manager, Access to Capital Secretariat Ontario Ministry of Economic Development and Innovation Jim Pullen Partner, Concert Partners 1

2. © Douglas Cumming (2012)Entrepreneurship and Venture Capital Ontario versus Peers: GDP Per Capita Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion GDP / Capita Venture Capital / Capita 2 US $47,482 California $51,914 New York $57,423 Massachusetts $58,108 Canada $47,605 Quebec $40,394 Ontario $46,303 Alberta $70,826

3. © Douglas Cumming (2012)Entrepreneurship and Venture Capital Ontario versus Peers: Venture Capital / GDP Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion GDP / Capita Venture Capital / Capita Investments for Funds Focused in Seed, Early Stage and Expansion Stages in Canada by Province, 2004 – 2008 This figure summarizes investments per GDP for funds focused at the seed, early and expansion stage investments relative to GDP by all types of investors for all industries in select US states and Canadian provinces, January 2004 – December 2008. Data source: Thompson Financial SDC VentureXpert.

4. © Douglas Cumming (2012)Entrepreneurship and Venture Capital VC / GDP: Ontario versus Massachusetts Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion GDP / Capita Venture Capital / Capita 12.8 times the amount of new capital commitments to newly established VC funds in Massachusetts on a per GDP basis than Ontario. Required an additional $37.5 billion of new capital committed for Ontario to be at the level of VC per GDP that is comparable to Massachusetts-based VC funds.

5. © Douglas Cumming (2012)Entrepreneurship and Venture Capital R&D / GDP – Access to Capital Essential Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion R&D / GDP – Access to Capital Essential Gazelles – Access to Capital Essential Correlation (Access to Venture Capital, R&D/Capita) = 0.39 Correlation (Access to Bank Capital, R&D/Capita) = 0.26 Slovak Republic Poland TurkeyHungary Italy Spain Czech Republic Portugal Ireland Luxembourg Norway Netherlands Canada UK Belgium France Australia Austria USA Iceland

6. © Douglas Cumming (2012)Entrepreneurship and Venture Capital Canada is Behind in Share of Gazelles - Access of Capital Essential Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion R&D / GDP – Access to Capital Essential Gazelles – Access to Capital Essential Canada ranks 24 th in the World in Access to Capital Behind peers: Australia, New Zealand, US, UK, Ireland, etc

7. © Douglas Cumming (2012)Entrepreneurship and Venture Capital Types of Policy Responses Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion 1.Legal / Regulatory / Tax 2.Government Venture Capital Funds 3.Innovation Centers 1.Legal / Regulatory / Tax 2.Government Venture Capital Funds 3.Innovation Centers

8. © Douglas Cumming (2012)Entrepreneurship and Venture Capital World Bank Doing Business Reports: Country Rankings Economy Ease of Doing Business Rank Starting a Business Dealing with Constructio n Permits Getting Electricity Registering Property Getting Credit Protecting Investors Paying Taxes Trading Across Borders Enforcing Contracts Resolving Insolvency Singapore1435148241122 Hong Kong SAR, China 2514574332516 New Zealand 3123134136271018 United States 41317 16457220715 Denmark5311013112429147329 Norway64160128482427944 United Kingdom 7192260681102413216 Korea, Rep.824261171879384213 Iceland9373411140463581311 Ireland1013279081855216210 Finland11394525 4065286115 Saudi Arabia 121041814817101813873 Canada1332515641245842593 1.Legal / Regulatory / Tax 2.Government Venture Capital Funds 3.Innovation Centers Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion

9. © Douglas Cumming (2012)Entrepreneurship and Venture Capital 2. Government Venture Capital Funds Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion 1.Legal / Regulatory / Tax 2.Government Venture Capital Funds 3.Innovation Centers LSVCCs became dominant with massive tax breaks, not performance (next slide) Sources: Cumming and MacIntosh, 2006, 2007; Cumming and Johan, 2009.

10. © Douglas Cumming (2012)Entrepreneurship and Venture Capital 2. Government Venture Capital Funds Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion 1.Legal / Regulatory / Tax 2.Government Venture Capital Funds 3.Innovation Centers LSVCC tax incentives in Ontario phased out in 2011. This figure helped push us in the right direction! Sources: Cumming and MacIntosh, 2006, 2007; Cumming and Johan, 2009.

11. © Douglas Cumming (2012)Entrepreneurship and Venture Capital 3. Innovation Centers Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion 1.Legal / Regulatory / Tax 2.Government Venture Capital Funds 3.Innovation Centers Centers like the Investment Network of the Innovation Synergy Center, Markam (now “ventureLab”), facilitate strong entrepreneurial outcomes – $6,545,000 in financing, while the program costs were totaled at $662,360, thereby giving a ratio of financing raised per dollar of cost at only $0.10. Empirical evidence needs to control for endogeneity and selection effects. – Cumming and Fischer (2012 Research Policy) – Causal relation between mentor hours and sales and angel capital – Correlation, not causation, between mentor hours and patents and alliances

12. © Douglas Cumming (2012)Entrepreneurship and Venture Capital Sampling of Topics for Discussion Ontario and Canada are Behind Sources of Canadian Inefficiency Policy Remedies Topics for Discussion Which polices best stimulate gazelle entrepreneurs and more R&D in Canada so that we can catch up to competing jurisdictions? How successful should will the Ontario Venture Capital Fund (OVCF) be, as well as companion programs such as the OETF and IAF? Should Ontario provide tax breaks to large companies to invest in venture capital funds? – Should Ontario provide tax breaks to top tier venture capital funds? – Lower tax rates overall for everyone? Or capital gains tax rates? How to best design programs like the Investment Network at the Innovation Synergy Center, Markham (now “ventureLab”)? How much funding to allocate to early stage programs relative to others?