For several years, participants in the technology sector have advocated extending the flow-through share program currently available to resource companies by making it available to the innovation sector. With the erosion of our manufacturing base and the commodity and energy downturn, the case for using flow-through shares to catalyze our underperforming innovation sector has become more compelling.
A recent paper by Vijay Jog, published by the University of Calgary’s School of Public Policy (and taken up in FP Comment in Kevin Libin’s column on February 9) found poor investment returns for flow-through investors between 2008–2012.
From that, the paper concludes that between the investor losses, the cost to government and the potential “crowding out” of investment in other sectors, flow-through shares do more harm than good and should be phased out.
Even though four years is too short a period to fairly assess investment returns, poor investor returns from flow-through shares should come as no surprise, as it is the risk profile that calls for a tax incentive in the first place. My guess is that Silicon Valley venture capital returns are similar: mostly losers with sporadic wins.
Successful innovation calls on several ingredients, including strong education and training, and a culture that supports entrepreneurship. But the greatest challenge for innovators is the difficulty in accessing risk capital.
In this sense, early-stage resource and innovation companies are similar in that both require the convergence of discovery, entrepreneurship and risk capital.
For the rest of this article, click here: http://business.financialpost.com/fp-comment/why-flow-through-shares-should-be-extended-to-spur-innovation-funding