Cross Posted from Techvibes.
Mentor Speed-Dating 2.0 – which is free, thank you Bootup – takes place again at the law offices of Clark Wilson (thank you, Clark Wilson) on Friday, May 7th from 3:30 PM to 5:30 PM. Start-up companies interested in participating will need to set up a profile at http://mentors.bootup.ca and submit a one-page Executive Summary before Friday, April 30th. The organizers ask that you please hang on to your one-pager for now as the site will be updated shortly regarding submission details. Twelve to sixteen participating companies will be chosen by the organizing team (Mack, Simon & Karen). Companies are asked to arrive at MSD 2.0 having researched the mentors they’d like to meet and ready to identify two key issues (ie: legal, fundraising, technology, business development, sales, accounting etc.) they’d like help with.
Feel like sharing your wordly wisdom? MSD 2.0 isn’t a one-way street: Twelve participating mentors will also have the opportunity to mingle with each other at an informal dinner on the evening of Friday, April 30th.
If you’d like to help build Vancouver’s start-up community (which includes keeping track of companies you enjoy meeting for a follow-up after the event), sign up for a profile at http://mentors.bootup.ca.
There you go. Meet a Mentor at MSD 2.0. May 7th. Mark your calendar: this is one date you can’t afford to miss.
Are you ready for the next Launch Party!?
We had hoped to do LPV9 in January but with the Olympics, we had a hard time locking down a venue that was central and could accommodate all of us without breaking the bank. BUT we are excited to announce that we FINALLY found one! The Roundhouse in Yaletown has approved our application to hold the next Launch Party there on Thursday, June 17th, 2010. It will be a great way to kick off the summer season and celebrate the best new startups of 2010.
We are looking for the best Internet startups around to apply to show-off their wares at LPV9. If accepted, there is no cost at all for you to demo and participate in the event. Startups get a table, some signage, wifi, promotion, and lots of love from the BC technology community. **Warning: You may sound a little hoarse or lose your voice altogether when the night is done.**
As always, we will try to keep ticket prices low but because of the size of the event, our costs have gone up too. Ticket prices may rise a bit as a result but will include a drink, and appys in the price. And since we won’t be getting kicked out of the venue early, the celebration will go late.
Once we finalize the details, you will be able to register to attend. Startups feel free to apply now. We will be accepting applications until May 14, 2010.
Bring your laptops, bring some BEvERages of your choice, bring $5 for pizza, and we’ll see how many apps we can build in one evening. Tuesday, March 23rd, 6pm until late.
Let us know you’re coming on Upcoming.
The first CloudCamp Vancouver will be held this Saturday, March 13 at Discovery Park. CloudCamp is a free full-day “unconference” where early adopters of Cloud Computing technologies exchange ideas. With the rapid change occurring in the industry, this is our chance to meet and share our experiences, challenges and solutions. At CloudCamp, you are encouraged to share your thoughts in several open discussions, as we strive for the advancement of Cloud Computing.
What will we do at Cloud Camp?
- Learn the differences between public cloud, private cloud, and hybrid clouds.
- Hear from your peers, who are building and developing on the cloud about how they have stopped buying and installing and maintaining physical servers.
- Get your questions answered about compliance, security and privacy.
AGENDA: (this may change)
- 9:00-9:30am Registration
- 9:30-9:45am Welcome & Intros
- 9:45-10:00am Lightning Talk
- 10:00-10:30am Unpanel
- 10:30-11:00am Organize Unconference
- 11:15-12:00pm Session 1
- 1:00-1:15pm Lunch
- 1:15-2:00pm Breakout Session #2
- 2:00-3:00pm Breakout Session #3
- 3:00-3:30pm Wrap-up Session
- Evening – ad-hoc dinner/drinks somewhere??? (at your own expense!)
Coffee and lunch will be provided. There are a few spots still available, so Sign-up now.
Jim Fletcher is a partner of Chrysalix Energy Venture Capital and Chair of Vision Critical Communications Inc.. He wanted to share some thoughts on the recent 2010 Canadian budget. While we were all pretty excited about Section 116 being “solved”, there are some big issues around stock option taxation.
Last Thursday, in his speech accompanying the country’s 2010 budget, Canadian Finance Minister Jim Flaherty said: “We are building Canada’s reputation as an investment-friendly country.” And to well-deserved accolades, Budget 2010 did indeed finally remove the arcane “Section 116” taxes that have been a perennial thorn in the side of Canadian entrepreneurs trying to entice venture capitalists and other investors from outside Canada to invest in their businesses.
But a little-noticed provision in Budget 2010 completely overwhelms the benefits of eliminating Section 116 taxes. Budget 2010 proposes to instantaneously tax any employee that exercises stock options – at the moment of exercise – and to require the employer to “withhold” the associated taxes, even though the employer has nodirect funds to withhold or pay such taxes – all of which are being levied on “deemed” – but unrealized – income. There is no cash being received anywhere in the process of exercising options, but a whopping tax bill is being levied on the “nothing”.
Next step: Annual taxation of unrealized appreciation in evertyone’s investment portfolio? Seems inconceivable. Yet this is the slippery slope that Canada has embarked upon, as this is precisely what these proposed rules do to employees.
In fairness, Budget 2010 also addressed some of the past inequities in the taxation of stock options in Canada with retroactive relief to harmed employees, and it closed a loophole in the Income Tax Act that permitted double dipping by employees and employers – as well it should have.
But make no mistake, Budget 2010 makes us wildly less “investment-friendly”, to use Mr. Flaherty’s words.
As an illustration of the dire consequences of the proposed new changes in stock option taxation, we have had to halt the IPO process for a very successful Canadian technology company. Under the proposed new rules, if all 300+ employees exercised all of their vested options at once, post-IPO, the company would have an immediate withholding tax liability of about $20million. This is a new, open-ended and completely uncontrollable contingent liability. If we happened to get “irrationally exuberant” technology markets again,the liability could be multiples of $20 million.
All of this flows from a fundamentally flawed and misguided philosophy around the taxation of stock options in Canada. There is no recognition that employee ownership is a proven Good Thing in the motivation of employees and the development of early-stage companies. Employees are deemed to have windfall – and taxable – profits when they exercise stock options, when in fact, all they are doing is preserving their existing ownership stake in the business, rather than selling anything. And most perverse of all, these deemed profits are taxed as “employment income”, while any subsequent losses in the event of a decline in their employer’s share price are treated as capital losses, so that employees can and often are effectively taxed at rates of 100% or even infinite rates on “profits” or sales of shares that they never see.
Budget 2010 exacerbates these perverse rules by demanding a withholding tax from the employer when an employee exercises his options. It is silent on how an employer is supposed to come up with these non-existent funds, or on how or why an employee – that may be subject to lock-ups or blackouts – is supposed to sell enough shares to cover the tax on these mythical profits.
As in the past, we can avoid all of these tax policy problems of tax on unrealized income if we do the ‘typical Canadian thing’, and just stay private for a while longer, and then sell out to a foreign multinational. But then Canada would lose yet another opportunity to have a global company with Canadian headquarters. It is high time that this Government fixes the problem – at its roots – once and for all.
The root of the problems (and of the past acknowledgedinequities that Budget 2010 had to address retroactively) is that the tax treatment of stock option “gains” needs to be symmetrical with the treatment of subsequent share price losses, and taxes need to be levied only on realized net gains. This is not seeking special treatment; rather, this is no different than every other asset class from art to real estate to stock purchase warrants or other securities – or even founding shareholders of the company, or partners in professional firms – none of whom are taxed on the unrealized appreciation in the value of their ownership positions. Nowhere else in the tax system do people get taxed differently on gains and losses with no ability to offset losses against gains – let alone taxed on unrealized income in the first place. Why do “employees” deserve to be singled out for this draconian and patently unfair treatment?
Stock options – and the associated employee ownership – are an absolutely fundamental, powerful economic tool for driving innovation and prosperity in this country. Start-up technology company employees work extraordinarily long hours – for the thrill of creating something special and “game-changing” – but also to share in the economic rewards.
But for option programs to achieve their motivational benefits and potential, they must be fair, they must be simple for all employees to understand (even if you don’t have a degree in accounting), they must not arbitrarily force employees to reduce their ownership in the business simply to pay taxes on unrealized incomeand they must be reasonably easy for the employer to administer.
Here’s the employee’s perspective, as per Budget 2010: Jane, with an option to purchase 50,000 shares at $2.00 that was granted 5 years ago and is now about to expire, has to go to the bank, family or wherever they can to scrape together $100,000. After exercise, she owns 50,000 shares with precisely the same economic value of the options the day before, plus the $100,000 that she has now invested. Where is the realized “income” or “gain” in that? Yet, under the new proposals, if the share value at the time of exercise is (say) $12, she ALSO immediately owes CRA about $110,000. So the cost of exercising her options – just to maintain her existing ownership stake in the business – has more than doubled! And that is supposed to be motivational?
It is even worse in many respects for private companies, because in the example above, if her employer were to subsequently fail, she would not only lose the $100,000 she invested on exercising the options, but she would be permanently on the hook for $110,000 in “taxes” to CRA – without ever having had the opportunity to sell a single share.
So Mr. Flaherty’s claims that we are becoming increasingly “investment-friendly” are bogus, the 116 fix notwithstanding. Investors will see these draconian tax policies and recognize that rather than options being the powerful motivational tool that they were intended to be, Canadian tax policy turns them into the Sword of Damocles over the employees’ heads – most of whom are ill-equipped to understand the nuances of tax jargon and contingent liabilities. All the employees want to do is own – and retain – a stake in their business, just the way the founders and investors get to do – until it is time to sell. Everyone is happy to pay their fair share of taxes – when they sell. But investors with a choice of investing in a properly motivated workforce South of the border, or a demoralized – and even terrorized – one North of the border, will choose accordingly.
Symmetry of treatment up and down, and taxation onlyon realized net gains – like everything else that moves and gets taxed in this country – solves everything. It’s really quite simple. And it’s the only thing that’s even close to fair. And most of all, that is critical to fostering equity capital formation in Canada’s struggling technology sector. As a side benefit, fair tax policy would, like RRSPs, even create a nice legacy of future tax revenues for the country as employee shares continue to grow in value and someday get sold!
Budget 2010 goes the other way, and enhances its pre-existing flawed option tax policies with a withholding tax sledgehammer, in the process shutting down entrepreneurs’ access to equity capital in more ways than can be imagined.
Hello Vancouver! We’ve been getting a lot of emails and calls asking when our next Launch Party event will be. And now that the Olympics are over <sigh>, and venues are freed up, we are working on finalizing the details for LPV9.
But I need your help…
I’ve been sourcing out venue after venue after venue but can’t seem to find a space that will fit all of us. I feel like I have looked at every venue from Gastown to Yaletown but it is hard to find a big enough space within our non-profit budget. So, I was hoping that you might have some venue recommendations for me.
This is what we need:
At our last event, we had over 400 attendees. And if you recall, it was pretty hot and cramped in Circa. This time around, we would like to have a bit more breathing room.
- Capacity 500
- Natural Lighting (preferred)
- Bar and on-site kitchen
- Air Conditioning / Ventilation
- Fantastic speaker system & working mic.
We are shooting to have our next Launch Party in mid May, early June.
If you are a Venue and would like to us to host our next LPV at your venue, please contact me at – sonia (at) bootup (dot) ca or if you have any recommendations, please leave a comment on this post.
On February 25, Arif from Lightspeed Venture Partners dropped by Bootup to talk with local entrepreneurs about Lightspeed and the Valley culture. As a Canadian and member of the C100, a non-profit member organization comprised of experienced Canadian technology leaders, Arif wants to see tech hubs like Vancouver flourish. He kicked things off last Thursday with some background information about Lightspeed and the entrepreneurial and VC ecosystem in the Valley.
“We think big. We think long term.”
Lightspeed closed an $800M fund in 2008 and are focused primarily on early stage investments including Seed (less than 1M), Series A(syndicate deals) and Series B (10M). When they invest at an early stage they look at the total capital needed for the entire investment and leave the door open for follow on rounds. Arif said that because of the size of their fund, they shoot for companies that are going big and focus on growth over early M&A targets. Therefore, it may take 8-9 years to get a significant return on an investment.
While the last two years have been hard for raising capital and VCs are still being cautious, Lightspeed has money to invest and has also done roughly 8-10 global investments. Many Valley VCs, who invest early like to be in close proximity to the companies they fund, which can be a challenge for us in Vancouver looking to attract attention from investors on Sand Hill Road but the right team + market makes a difference. And those are the two things Arif looks at first. He is also actively looking for the right company to fund in Canada.
The Valley – It’s a Culture of thinking Very, Very Big!
When Arif was a student at Waterloo, he was thinking about what companies he would be working for upon graduation rather than becoming a CEO at the start of his career. In the Valley, he said students have a totally different mindset. Entrepreneurship and the notion of creating companies that are defining is rooted in the culture. For instance, a strong program at Stanford encourages students to choose an entrepreneurial path and University professors are encouraged to take leaves of absence to build on their research. Some profs like Rajeev Motwani, who mentored Larry & Sergey may even take equity in companies. These types of programs contribute to the strong entrepreneurial ecosystem and open culture in the Valley.
Arif also shared a few tips on meeting with VCs:
- Don’t bother cold calling or knocking on doors.
- Tap your network to get warm intro’s to investors you are interested in meeting.
- Be sure to check out the VC’s portfolio before you reach out to make sure they are not funding a competing company.
- If the partner or associate you meet with likes your business, you will be brought in to pitch multiple partners and if they still like you after that, they will talk about you at their partner meeting, which always happens on Mondays.
Many thanks to Arif for joining us, sharing his insight and being a voice for Canadian entrepreneurship in the Valley.