Cross Border Webinar Slides

Cross-Border Investment: A Primer Webinar for US Angels Interested In Canadian Opportunities

The National Angel Capital Organization Thanks Its Sponsors

Housekeeping:
Technical Housekeeping – Bryan Watson
Introduction – Lanis Anthony
Panel Discussion
Cross-Border Investment Issues
Suggested Structures for Investment in Canada
Case Studies/Examples
Q&A
Conclusion
ACA-NACO Angel Webinar Agenda

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!

Al Browne, Partner, Cooley Godward Kronish LLP (Boston office)
Partner in VC Financings and Emerging Companies practices.
Represents tech companies in all areas.
Alan James, Partner, Gowling, Lafleur, Henderson LLP (Toronto office)
Focused on VC & PE structuring and technology/infrastructure investments.
Has advised investment funds and corporations in numerous cross-border investment transactions.
Lanis Anthony, Saskatchewan Angel Investors Network (SAINT)
Chair of SAINT (Saskatchewan Angel Investors Network), board member of NACO and NRC IRAP National Advisory Board.
A serial entrepreneur, business lecturer and capital strategist.
David Verrill, Founder, Hub Angels & Chair, ACA Collaboration Committee
Co-founder of Hub Angels.
Research science background followed by work at MIT's Corporate Relations and Xerox Adaptive Products.
Helped found two businesses: technology consulting & third party marketing in financial services.
Matey Nedkov, Director, NACO & Member, ACA Collaboration Committee
Founded Infonet Media, now owned & operated by Rupert Murdoch’s Newscorp Canada.
Formed Nedcorp Holdings Inc, a Merchant & Investment Banking company specializing in early-stage cos.
Webinar Panellist Biographies

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

Legal Issues for US Angel Investors Investing in Canada Al Browne, Cooley Godward Kronish LLP Alan James, Gowling Lafleur Henderson LLP June 10, 2009

Who We Are (Gowlings)
Gowlings is one of the largest law firms in Canada with offices across Canada
We have extensive experience acting for Canadian resident investors and US resident investors that invest in Canada
We represent a large number of companies that have received one or more rounds of VC and Angel financing

Who We Are (Cooley)
Cooley is a full-service law firm serving high-growth companies and the investors and financial institutions that fund them.
We have 10 offices throughout the U.S., including offices in most major U.S. cities.
We have over 675 attorneys nationwide with deep substantive expertise across a range of legal specialties.
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.
We are the #1 law firm in the U.S. in the number of private equity funds formed
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

Why invest in Canada?
Large, talented technology workforce at 20-30% discount to the US
Scientific Research and Development tax credits can reduce early stage R&D outlays by 40-50%
Low tax rates for Canadian Controlled Private Corporations
Easy access to U.S. markets, partners, and acquirers
Very similar legal system, culture and language

Possible Ownership Structures
Direct Investment by US investors into Canadian corporation
Indirect Investment by US investors through US Corporation
Indirect investment by US investors through “tax friendly” jurisdiction

The “Ideal Structure” – Direct Investment
All Investors invest directly in Canadian Company
US Investors Cdn Investors CanCo, Inc.

Advantages of the “Ideal Structure”
May Preserve CCPC Status
Shareholders of CCPCs may qualify for capital gains exemptions upon the sale of their shares
CCPC’s may be eligible for preferential tax rates and qualify for enhanced SR&ED credits
Significantly Cheaper to Implement
Requires only one corporation in the structure
Avoids costly legal fees associated with more complicated structures
Avoids taxable dispositions by Canadian shareholders

Reasons for not Adopting “Ideal Structure”
Section 116 Withholding Requirements
Comfort (familiarity with DE law)
Some US investors are only permitted to invest in US companies
US companies are viewed as superior “exit vehicles”
Passive Foreign Investment Company (“PFIC”) Issues
Controlled Foreign Corporation (“CFC”) Issues
Foreign Investment Entity Rules

The Preferred US VC Structure
All Investors invest directly in US Company
US Investors Cdn Investors US HoldCo, Inc. Your CanCo, Inc.

Issues with Preferred VC Structure
Advantages include having all investors holding shares in the eventual exit vehicle
Disadvantages include
Taxable dispositions for Canadian shareholders
Potential loss of CCPC status
Investment Company Act of 1940

Sample Exchangeable Share Structure
The Solution:
US Investors Cdn Investors US HoldCo, Inc. CallCo, Inc. Cdn OpCo, Inc.

Alternative Ways to Implement “Ideal Structure” for U.S. VC’s
Form an offshore investment vehicle in order to avoid Section 116 problem, but preserve tax efficiency on exit
Typical offshore structures include
“ stack” structure in Luxembourg, Netherlands, Barbados

Sample LuxCo Structure
The Solution:
US Investors Cdn Investors LLC LuxCo Cdn OpCo, Inc.

Thank You Alan James Partner Gowling Lafleur Henderson LLP and Al Browne Partner Cooley Godward Kronish LLP

Questions? Contact us at: National Angel Capital Organization Phone: 416-581-0009 E-mail: [email_address] Web: www.angelinvestor.ca

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)

Upcoming events of the National Angel Capital Organization
Survey of Angels’ Impact and Risk (for Canadian investors)
Across Canada in June 2009
Crucially informative for policy-makers – complete it in 2 minutes at:
www.angelinvestor.ca/Investees_Survey.asp
9 th Annual National Angel Summit (Canada)
In Toronto, Canada from October 14 th to 15 th , 2009
Themed Angel Capital: The Engine of Commercialization
The cornerstone event for Angel investors, the high-net-worth individuals who capitalize Canada’s prospective global champions.
Cross-Border Co-Investment Summit (United States)
In Boston, Massachusetts November, 2009
Showing high-potential Canadian companies to US Angels

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Cross Border Webinar Slides

by Jim Murphy on Jan 21, 2010

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