Cross-Border Investment Webinar: What Angels Need to Know to Invest in Canada

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Hosted by the National Angel Capital Organization (NACO) in collaboration with the Angel Capital Association (ACA), this podcast addresses issues related to investing in high-potential Canadian companies and presents methods of structuring investments into such companies to ensure investors retain as much of their return as possible!

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Cross-Border Investment Webinar: What Angels Need to Know to Invest in Canada

  1. 1. Cross-Border Investment: A Primer Webinar for US Angels Interested In Canadian Opportunities
  2. 2. The National Angel Capital Organization Thanks Its Sponsors
  3. 3. <ul><li>Housekeeping: </li></ul><ul><ul><li>Technical Housekeeping – Bryan Watson </li></ul></ul><ul><ul><li>Introduction – Lanis Anthony </li></ul></ul><ul><li>Panel Discussion </li></ul><ul><ul><li>Cross-Border Investment Issues </li></ul></ul><ul><ul><li>Suggested Structures for Investment in Canada </li></ul></ul><ul><ul><li>Case Studies/Examples </li></ul></ul><ul><ul><li>Q&A </li></ul></ul><ul><ul><li>Conclusion </li></ul></ul>ACA-NACO Angel Webinar Agenda
  4. 4. Welcome! To ensure the recording has the best possible sound quality please mute your phone (press *6). If you have a question, please unmute (*6) and ask!
  5. 5. <ul><li>Al Browne, Partner, Cooley Godward Kronish LLP (Boston office) </li></ul><ul><ul><li>Partner in VC Financings and Emerging Companies practices. </li></ul></ul><ul><ul><li>Represents tech companies in all areas. </li></ul></ul><ul><li>Alan James, Partner, Gowling, Lafleur, Henderson LLP (Toronto office) </li></ul><ul><ul><li>Focused on VC & PE structuring and technology/infrastructure investments. </li></ul></ul><ul><ul><li>Has advised investment funds and corporations in numerous cross-border investment transactions. </li></ul></ul><ul><li>Lanis Anthony, Saskatchewan Angel Investors Network (SAINT) </li></ul><ul><ul><li>Chair of SAINT (Saskatchewan Angel Investors Network), board member of NACO and NRC IRAP National Advisory Board. </li></ul></ul><ul><ul><li>A serial entrepreneur, business lecturer and capital strategist. </li></ul></ul><ul><li>David Verrill, Founder, Hub Angels & Chair, ACA Collaboration Committee </li></ul><ul><ul><li>Co-founder of Hub Angels. </li></ul></ul><ul><ul><li>Research science background followed by work at MIT's Corporate Relations and Xerox Adaptive Products. </li></ul></ul><ul><ul><li>Helped found two businesses: technology consulting & third party marketing in financial services. </li></ul></ul><ul><li>Matey Nedkov, Director, NACO & Member, ACA Collaboration Committee </li></ul><ul><ul><li>Founded Infonet Media, now owned & operated by Rupert Murdoch’s Newscorp Canada. </li></ul></ul><ul><ul><li>Formed Nedcorp Holdings Inc, a Merchant & Investment Banking company specializing in early-stage cos. </li></ul></ul>Webinar Panellist Biographies
  6. 6. Cross-Border Investment: A Primer Webinar With Al Browne, Partner, Cooley Godward Kronish LLP Alan James, Partner, Gowling , Lafleur , Henderson LLP Lanis Anthony, Saskatchewan Angel Investors Network (SAINT) David Verrill , Founder, Hub Angels and Chair, ACA Collaboration Committee Matey Nedkov, Director, NACO and Member, ACA Collaboration Committee
  7. 7. Legal Issues for US Angel Investors Investing in Canada Al Browne, Cooley Godward Kronish LLP Alan James, Gowling Lafleur Henderson LLP June 10, 2009
  8. 8. Who We Are (Gowlings) <ul><li>Gowlings is one of the largest law firms in Canada with offices across Canada </li></ul><ul><li>We have extensive experience acting for Canadian resident investors and US resident investors that invest in Canada </li></ul><ul><li>We represent a large number of companies that have received one or more rounds of VC and Angel financing </li></ul>
  9. 9. Who We Are (Cooley) <ul><li>Cooley is a full-service law firm serving high-growth companies and the investors and financial institutions that fund them. </li></ul><ul><li>We have 10 offices throughout the U.S., including offices in most major U.S. cities. </li></ul><ul><li>We have over 675 attorneys nationwide with deep substantive expertise across a range of legal specialties. </li></ul><ul><li>We represent over 3,000 emerging companies, and many of the largest and most sophisticated technology and life sciences companies in the world, such as Adobe Systems, Applied Materials, eBay, Gilead Sciences, Gen-Probe, NVIDIA, Qualcomm and Synopsys. </li></ul><ul><li>We are the #1 law firm in the U.S. in the number of private equity funds formed </li></ul><ul><li>We serve as counsel to over 200 investment fund organizations, such as Francisco Partners, Battery Ventures, Mohr Davidow Ventures, Duff Ackerman, Sutter Hill Ventures and Venrock Associates </li></ul>
  10. 10. Why invest in Canada? <ul><li>Large, talented technology workforce at 20-30% discount to the US </li></ul><ul><li>Scientific Research and Development tax credits can reduce early stage R&D outlays by 40-50% </li></ul><ul><li>Low tax rates for Canadian Controlled Private Corporations </li></ul><ul><li>Easy access to U.S. markets, partners, and acquirers </li></ul><ul><li>Very similar legal system, culture and language </li></ul>
  11. 11. Possible Ownership Structures <ul><li>Direct Investment by US investors into Canadian corporation </li></ul><ul><li>Indirect Investment by US investors through US Corporation </li></ul><ul><li>Indirect investment by US investors through “tax friendly” jurisdiction </li></ul>
  12. 12. The “Ideal Structure” – Direct Investment <ul><li>All Investors invest directly in Canadian Company </li></ul>US Investors Cdn Investors CanCo, Inc.
  13. 13. Advantages of the “Ideal Structure” <ul><li>May Preserve CCPC Status </li></ul><ul><ul><li>Shareholders of CCPCs may qualify for capital gains exemptions upon the sale of their shares </li></ul></ul><ul><ul><li>CCPC’s may be eligible for preferential tax rates and qualify for enhanced SR&ED credits </li></ul></ul><ul><li>Significantly Cheaper to Implement </li></ul><ul><ul><li>Requires only one corporation in the structure </li></ul></ul><ul><ul><li>Avoids costly legal fees associated with more complicated structures </li></ul></ul><ul><li>Avoids taxable dispositions by Canadian shareholders </li></ul>
  14. 14. Reasons for not Adopting “Ideal Structure” <ul><li>Section 116 Withholding Requirements </li></ul><ul><li>Comfort (familiarity with DE law) </li></ul><ul><li>Some US investors are only permitted to invest in US companies </li></ul><ul><li>US companies are viewed as superior “exit vehicles” </li></ul><ul><li>Passive Foreign Investment Company (“PFIC”) Issues </li></ul><ul><li>Controlled Foreign Corporation (“CFC”) Issues </li></ul><ul><li>Foreign Investment Entity Rules </li></ul>
  15. 15. The Preferred US VC Structure <ul><li>All Investors invest directly in US Company </li></ul>US Investors Cdn Investors US HoldCo, Inc. Your CanCo, Inc.
  16. 16. Issues with Preferred VC Structure <ul><li>Advantages include having all investors holding shares in the eventual exit vehicle </li></ul><ul><li>Disadvantages include </li></ul><ul><ul><li>Taxable dispositions for Canadian shareholders </li></ul></ul><ul><ul><li>Potential loss of CCPC status </li></ul></ul><ul><ul><li>Investment Company Act of 1940 </li></ul></ul>
  17. 17. Sample Exchangeable Share Structure <ul><li>The Solution: </li></ul>US Investors Cdn Investors US HoldCo, Inc. CallCo, Inc. Cdn OpCo, Inc.
  18. 18. Alternative Ways to Implement “Ideal Structure” for U.S. VC’s <ul><li>Form an offshore investment vehicle in order to avoid Section 116 problem, but preserve tax efficiency on exit </li></ul><ul><li>Typical offshore structures include </li></ul><ul><ul><li>“ stack” structure in Luxembourg, Netherlands, Barbados </li></ul></ul>
  19. 19. Sample LuxCo Structure <ul><li>The Solution: </li></ul>US Investors Cdn Investors LLC LuxCo Cdn OpCo, Inc.
  20. 20. Thank You Alan James Partner Gowling Lafleur Henderson LLP and Al Browne Partner Cooley Godward Kronish LLP
  21. 21. Questions? Contact us at: National Angel Capital Organization Phone: 416-581-0009 E-mail: [email_address] Web: www.angelinvestor.ca
  22. 22. Thank You Al Browne, Partner, Cooley Godward Kronish LLP (abrowne@cooley.com) Alan James, Partner, Gowling, Lafleur, Henderson LLP (alan.james@gowlings.com) Lanis Anthony, Saskatchewan Angel Investors Network (SAINT) (lanis@ccteam.ca) David Verrill, Founder, Hub Angels & Chair, ACA Collaboration Committee (Dverrill@aol.com) Matey Nedkov, Director, NACO & Member, ACA Collaboration Committee (matey@nedcorpinc.com)
  23. 23. Upcoming events of the National Angel Capital Organization <ul><li>Survey of Angels’ Impact and Risk (for Canadian investors) </li></ul><ul><ul><li>Across Canada in June 2009 </li></ul></ul><ul><ul><li>Crucially informative for policy-makers – complete it in 2 minutes at: </li></ul></ul><ul><ul><ul><li>www.angelinvestor.ca/Investees_Survey.asp </li></ul></ul></ul><ul><li>9 th Annual National Angel Summit (Canada) </li></ul><ul><ul><li>In Toronto, Canada from October 14 th to 15 th , 2009 </li></ul></ul><ul><ul><li>Themed Angel Capital: The Engine of Commercialization </li></ul></ul><ul><ul><li>The cornerstone event for Angel investors, the high-net-worth individuals who capitalize Canada’s prospective global champions. </li></ul></ul><ul><li>Cross-Border Co-Investment Summit (United States) </li></ul><ul><ul><li>In Boston, Massachusetts November, 2009 </li></ul></ul><ul><ul><li>Showing high-potential Canadian companies to US Angels </li></ul></ul>

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