C.D.Howe_Institute_SME_2015

Institut C.D. HOWE Institute
Conference Report
Driving Canada Forward:
Enhancing SME Growth
March 5, 2015

Statement of Motivation 1
Conference Agenda 2
Biographies of Speakers 3
Conference Participants 10
Conference Summary 12
Presentations 15
Follow–Up Activities 27
The Institute’s Commitment to Quality 29
C.D. Howe Institute Draft Publication 30
Thank You and Contacts 46
Notes 47
Recent C.D. Howe Institute Publications Back Inside Cover
Contents

1Conference Report
Statement of Motivation
Small and medium-sized enterprises (SMEs) play a critical role in the Canadian economy,
accounting for nearly 70 percent of the total private labour force in 2012. Canadian
governments focus considerable attention on supporting the SME sector. However, there is
a critical need to ensure that the wide range of policies being utilized to support the sector
are both achieving their objectives, and providing an adequate return on investment.
To ensure continued national economic growth, policies must work to bolster these
institutions.What should the government be doing to encourage success of SMEs? What do
fair incentives look like? What are the barriers to growth?
On March 5, 2015, with the gracious support of Industry Canada, the Institute held an
invitation-only conference in Toronto entitled Driving Canada Forward: Enhancing SME
Growth.The off-the-record event brought together senior policymakers, notable academics,
venture capitalists, and entrepreneurs to delve into viable policy options.The conversation was
held under Chatham House Rules to encourage frank conversation.This report covers the
content and findings of the conference and contains a list of follow–up activities that the
C.D. Howe Institute plans to pursue.
Please note that the contents of this report were prepared exclusively for Industry Canada. As the conference was held under
Chatham House Rules and the publication included is in draft form, the report is not for external circulation or citation.

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Conference Agenda
Institut
C.D. HOWE
Institute
Essential Policy Intelligence / Conseils indispensables sur les politiques
C.D. Howe Institute Special Seminar, March 5, 2015
Agenda
Reception and Registration
Welcoming Remarks
Presented by Duncan Munn, Senior Vice President and Chief Operating Officer, C.D.
Howe Institute
Session I – Growing SMEs: The Contribution of SMEs to the Economy
In any given year, SMEs provide a large share of both job creation and job destruction. How
should we view the role of small firms, new firms, and fast growing firms?
Presenters:
• Shereen Benzvy Miller, Assistant Deputy Minister of Small Business, Tourism and
Marketplace Services, Industry Canada
• Philip Walsh, Chair, Entrepreneurship & Strategy Department,Ted Rogers School of
Management, Ryerson University
• Julia Deans, Chief Executive Officer, Futurpreneur Canada
Panel discussion and Q&A (moderated by Finn Poschmann, Vice President, Policy Analysis,
C.D. Howe Institute)
Break and Refreshments
Session II – What Is Holding Us Back? The Barriers to SME Growth
Canadian small businesses report that they have difficulty seeking market funding. There are
multiple potential sources of funding for small businesses, ranging from venture capital to
equity investment to debt. What is the rational for governments to intervene in venture capital
markets? What is the evidence of government venture capital policy affecting firms?
Presenters:
• Doug Cumming, Professor in Finance and Entrepreneurship, Schulich School of Business,
York University
• Paul Buron, Executive Vice President and Chief Financial and Risk Officer, Business
Development Bank of Canada
• Elmer Kim, Managing Director, Roynat Equity Partners
Panel discussion and Q&A (moderated by Ben Dachis, Senior Policy Analyst,
C.D. Howe Institute)
9:00 am – 9:10 am
9:10 am – 10:10 am
9:40 am – 10:10 am
10:30 am – 11:30 am
11:00 am – 11:30 am
8:30 am – 9:00 am
10:10 am – 10:30 am

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Institut
C.D. HOWE
Institute
Essential Policy Intelligence / Conseils indispensables sur les politiques
Agenda
Lunch
Session III – From the Ground Up: Growth in the Eyes of the Entrepreneur
How do firms themselves view the opportunities to grow? What are the potential barriers they face
as they grow, and what are the economic costs of those barriers? Do policies create unintended
consequences? This session will explore the barriers entrepreneurs face and how they overcome
these obstacles.
Presenters:
• John Lester, Executive Fellow, University of Calgary, School of Public Policy
• Ben Dachis, Senior Policy Analyst, C.D. Howe Institute
• Victoria Lennox, Co-Founder & CEO, Startup Canada, Founder of NACUE
Panel discussion and Q&A (moderated by Duncan Munn)
Wrap Up and Closing Remarks
Presented by Ian Bandeen, Co-Founder and Vice-Chairman, NACO
Sponsored by
12:15 pm – 1:15 pm
1:15 pm – 1:30 pm
12:45 pm – 1:15 pm
11:30 am – 12:15 pm
Conference Agenda

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Institut
C.D. HOWE
Institute
Speaker Biographies
SHEREEN BENZVY MILLER
Shereen Benzvy Miller, M.A., LL.B, is the Assistant Deputy Minister, Small Business,Tourism and
Marketplace Services at Industry Canada.
Ms. Benzvy Miller joined the federal public service in the late 1990s when she was recruited by the
Correctional Service of Canada for her experience as a human rights lawyer. She worked with CSC
until 2008 when she became the Director General responsible for the Office of Small and Medium
Enterprises and Client Engagement in the Acquisitions Program at Public Works. She played a
pivotal role in bringing the perspectives of suppliers and government buyers together to help federal
procurement meet the needs of all parties: suppliers, the government, and Canadians.
Shereen was instrumental in the introduction of e-strategy initiatives including the launch of
buyandsell.gc.ca and of a new approach to procurement embodied in the Canadian Innovation
Commercialization Program (now referred to as BCIP), a program that allows the Canadian
government to buy pre-commercialized innovations from Canadian companies.
She brought these experiences with her to Industry Canada where she continues to work within
government to reduce barriers for small and medium enterprises wishing to do business in Canada.
Shereen is a mother of two and actively involved in championing the rights of persons with disabilities.
DUNCAN MUNN
Duncan Munn is Senior Vice President and Chief Operating Officer of the C.D. Howe Institute. He
joined the Institute in 2000, holding increasingly senior roles culminating in his appointment as Sr.
VP and COO in 2008. He oversees the daily affairs of the Institute as well as initiatives and special
projects, and plays a leadership role in the strategic direction of the organization.
He is also the Chair of the Board at Alterna Savings, a full-service financial services firm with
$2 billion in assets under management. He studied at the University of Toronto where he won the
Gordon Cressy, JS Woodsworth and Woodsworth Cup awards and has previously served a number of
organizations in a voluntary leadership capacity including Youth Challenge International (Director),
The Etobicoke Easter Seals Society (as Chair) and the George Hull Centre for Children and Families
(as a Director).
Apart from his work with the Institute and in the voluntary sector, he has business interests in an
investment management firm focused on real estate.
Session I – Growing SMEs:The Contribution of SMEs to the Economy
Welcoming Remarks
Biogr aphies of Speakers (Listed in order of appearance)

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Biogr aphies of Speakers
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Institut
C.D. HOWE
Institute
Speaker Biographies
JULIA DEANS
Julia Deans is the Chief Executive Officer of Futurpreneur Canada (formerly the Canadian Youth
Business Foundation), the only national non-profit organization providing financing, mentoring and
support tools to aspiring business owners aged 18-39. Futurpreneur Canada and its 3000 volunteer
mentors and other partners have helped 7500 young people launch start-ups in Canada.
Julia joined Futurpreneur Canada in January 2013 with a track record of success in the corporate,
entrepreneurial, non-profit and public sectors. She started her career as a lawyer, practicing law with
Torys LLP in Toronto and Hong Kong, before creating a successful legal recruitment business in
Singapore. From 2005 to 2012, she was CEO of the CivicAction – a coalition of thousands of senior
leaders tackling major social, economic and environmental challenges through large-scale summits
and collaborative projects. In 2012, she chaired Ontario’s Expert Roundtable on Immigration, helping
develop the province’s first-ever immigration strategy.
Julia is Co-Chair of the International Women’s Forum (Toronto), a trustee of the Canada Post
Community Foundation, and an advisor to Artscape. She is a former board member of Luminato and
the Living City Foundation and a past advisor to many organizations including the Mowat Centre
for Policy Innovation and the Hague Process on Refugees and Migration. She has been awarded
the University of Toronto’s Arbor Award and recognized as a Woman of Influence 2012 Canadian
Diversity Champion. Most recently she was named 2014 Canada’s Most Powerful Women: Top 100
Award Winner.
Julia is a graduate of Queen’s University (political studies), Columbia University (public
administration), Osgoode Hall Law School, and Harvard Business School Executive Education. She is
qualified to practice law in Ontario, the United Kingdom and Hong Kong.
PHILIP WALSH
Dr. Walsh is currently Chair of the Entrepreneurship & Strategy department at the Ted Rogers School
of Management and undertakes policy research into the commercialization of energy technology
innovation at Ryerson’s iCUE. Prior to joining academia in 2003, he founded a consultancy providing
services to energy utilities, governmental and municipal agencies, and various energy consuming
organizations, some of whom he continues to consult for today. Phil is a John Dobson ACE Fellow, a
Fellow of the Ryerson Entrepreneurship Research Institute and a member of the Ryerson Institute for
the Study of Corporate Social Responsibility. He holds a B.Sc. from Queen’s, an M.B.A from the Ivey
School of Business and a Ph.D. from Bradford University.

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Institut
C.D. HOWE
Institute
Speaker Biographies
DOUGLAS CUMMING
Douglas Cumming, J.D., Ph.D., CFA, is a Professor of Finance and Entrepreneurship and the Ontario
Research Chair at the Schulich School of Business, York University. His research interests include
venture capital, private equity, hedge funds, entrepreneurship, and law and finance.
He is a Co-Editor of Entrepreneurship Theory and Practice, and has been a guest editor for 12
special issues of top journals. He has published 90 articles in leading refereed academic journals, such
as the Journal of Financial Economics, Review of Financial Studies, and the Journal of International
Business Studies.
He is the coauthor of Venture Capital and Private Equity Contracting (Elsevier Academic Press, 2009),
and Hedge Fund Structure, Regulation and Performance around the World (Oxford University Press, 2013).
He is the Editor of the Oxford Handbook of Entrepreneurial Finance(Oxford University Press, 2012), the
Oxford Handbook of Private Equity (Oxford University Press, 2012), and the Oxford Handbook of Venture
Capital (Oxford University Press, 2012).
His work has been reviewed in numerous media outlets, including Canadian Business, the National
Post, and The New Yorker. He is a research associate with the Bocconi University Paolo Baffi Center
for Central Banking and Financial Regulation (Milan), Groupe d’Economie Mondiale at Sciences Po
(Paris), Capital Markets CRC (Sydney), Venture Capital Experts (New York), Cambridge University
ESRC Center for Business Research (Cambridge UK), Center for Financial Studies (Frankfurt),
Amsterdam Center for Research in International Finance, and the University of Calgary Van Horne
Institute. He has also consulted for a variety of governmental and private organizations in Australasia,
Europe and North America.
Session II – What is holding us back? The barriers to SME growth
FINN POSCHMANN
Finn Poschmann graduated in economics from Carleton University in Ottawa in 1986 and is Vice
President, Policy Analysis at the C.D. Howe Institute, where he has held a variety of positions since
January 1998.
For more than a decade previous, he was at the Parliamentary Research Branch in Ottawa, where he
held a number of research positions principally involved with providing economic analysis and advice
to Parliamentarians and Standing Committees.
He has worked in numerous areas within the field of economics,but has primarily been concerned
with public finance and taxation and federal-provincial relations. He is particularly interested in the
distributional impact of taxation and in the use of microsimulation tools in the design of tax policy, but
has also worked on monetary policy issues and disparate public policy questions. Recent publications
have dealt with public-private partnerships, federal and provincial tax and fiscal issues, the tax
treatment of retirement savings, and Canada’s exchange rate policies.
Moderator: Session I

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Institut
C.D. HOWE
Institute
Speaker Biographies
ELMER KIM
Elmer Kim is a Managing Director at Roynat Equity Partners. Elmer has been investing in small-to
medium-sized enterprises since 1995 with Whitecastle Investments Limited,Whitecap Venture Partners,
Whitecastle Private Equity Partners and currently with Roynat Equity Partners. His successful investing
experience spans numerous industries such as industrial (Turtle Island Recycling), telecom (Broadband
Networks Inc.), food (Bento Nouveau Inc.) and financial (Equity Financial Holdings Inc.).
He currently sits on the boards of Doc-It Inc. (document management software), Carbon60
Networks (cloud based hosting company), Skytrac Systems Ltd (aviation flight data management),
NetSet Communications (rural wireless internet service provider) and Redberry Restaurants (Burger
King and Pizza Hut).
Elmer is currently a board of director member of Canada’s Venture Capital and Private
Equity Association. On the side, Elmer has been a contributing weekly panelist on CBC News
Network’s Saturday morning business show “The Bottom Line” for more than five years.
PAUL BURON
Paul Buron was appointed Executive Vice President and Chief Financial Officer in 2006, and
also became CRO in 2015. He is responsible for finance, risk management and treasury, as well as
corporate strategy and planning. In the fall of 2011, Mr. Buron was also appointed Interim Executive
Vice President, Financing and Consulting. For the following year, he was responsible for financing,
consulting, corporate financing, global expansion services for entrepreneurs, and operations support
across the bank, in addition to his CFO responsibilities.
Mr. Buron has over 30 years of experience in finance. Before joining BDC, he held leadership
positions in major corporations, such as Société générale de financement du Québec, Donohue Inc. and
the TVA Group Inc., where he assumed responsibility for television operations and regional stations in
addition to his role as Senior Vice President and Chief Financial Officer.
He holds a Bachelor of Business Administration from HEC Montréal and is a member of the Ordre
des comptables agréés du Québec.
Moderator: Session II
BENJAMIN DACHIS
Benjamin Dachis is a Senior Policy Analyst at the C.D. Howe Institute. He started with the C.D.
Howe Institute in 2006 as a Research Fellow and also has experience with a major U.S. think tank. He
returned to the C.D. Howe Institute as a Policy Analyst in January of 2008.
Dachis has an Hon. BA in Economics from the University of Toronto, an MSc from the London
School of Economics, where he was awarded the George and Hilda Ormsby prize for his dissertation,
and an MA in Economics from the University of Toronto. He has written on municipal finance,
transportation, tax, energy, environmental and labour policy. He is a member of the 2012 Insight
Grants Economics Committee for the Social Sciences and Humanities.

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Institut
C.D. HOWE
Institute
Speaker Biographies
VICTORIA LENNOX
Victoria Lennox is a Canadian social entrepreneur, commentator, program architect and policy advisor
with a track record of creating meaningful political and policy inroads to advance entrepreneurship.
As the co-founder and CEO of grassroots non-profit Startup Canada and the founder and President
Emeritus of UK-based Charity NACUE, Victoria is recognized by the UNDP and EU as a foremost
expert in entrepreneurship education; ecosystem and program architecture, governance, development
and implementation; and fuelling entrepreneurship movements and awareness campaigns. Victoria
contributes actively on the global stage as the founder of Startup Generation; a catalyst of the Startup
Nations; through speaking at global forums; advising more than 20 youth enterprise organizations;
and, by supporting colleges and universities in countries across the world in enhancing student
entrepreneurship. She is the first Canadian and one of the youngest recipients of the Queen’s Award
for Enterprise Promotion on the recommendation of the British Prime Minister; is the recipient of
the UK’s ‘Enterprise Support Network Builder Award’ and ‘Overall Enterprise Champion of the Year
Award’ and has been recognized as a ‘Top 30 Under 30’ by Real Business Magazine, ‘One to Watch’
by Spectator Business, and as one of Canada’s ‘Top 30 Entrepreneurs’by Profit Magazine. Victoria
completed her MSc. Global Governance & Diplomacy at Oxford University in 2008, before becoming
the first woman President of Oxford Entrepreneurs. She has an undergraduate degree in Political
Science and Governance & Public Policy from the University of Ottawa.
BENJAMIN DACHIS
Senior Policy Analyst, C.D. Howe Institute
For full biography please see previous page.
JOHN LESTER
John Lester is an Executive Fellow with The School of Public Policy at the University of Calgary, Canada.
He is a former federal government economist whose last public service assignment was Director of
Research for the Expert Panel Review of Federal Support to Research and Development. Prior to that
assignment, John managed the Tax Evaluations and Research Group at the Department of Finance
Canada. Since leaving the public service he has published papers with the School of Public Policy, the
Canadian Tax Journal and Canadian Public Policy on the Canadian government’s expenditure management
system (including evaluation policy) as well as benefit-cost evaluations of the federal government’s
investment tax credit for R&D, its largest R&D grant program and tax credits for foreign location
shooting of films. His most recent paper, published by the School of Public Policy, is An International
Comparison of Tax Assistance for R&D: Estimates and Policy Implications, jointly with Jacek Warda.

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C.D. HOWE
Institute
Speaker Biographies
IAN BANDEEN
Ian Bandeen is a financial consultant specializing in capital markets. A Founding Director in 2002 of
the National Angel Capital Organization (NACO), Ian sits on their Executive Committee and is both a
Vice-Chairman as well as Chairman of their Finance Committee. He also sits on the Ontario Securities
Commission’s Small and Medium Enterprises Committee.
In 2001, Ian was the co-founding Chairman of CNSX Markets Inc., operator of both the Canadian
Securities Exchange (CSE) as well as Pure Trading, and served as their CEO from 2005 until July 1, 2011.
CSE was the first new stock exchange in Canada in over 70 years. Pure Trading is a facility of CSE and was
the first visible alternative market system for the trading of equity securities listed on other exchanges.The
arrival of Pure Trading served as the effective catalyst for the evolution of the Canadian capital markets into
the global realm of multi-market,high-speed trading.
Prior to this, Ian co-founded the Canadian Mortgage-Backed and Asset-Backed Securities markets in
1986 and 1990 respectively. He retired in November, 1999 from his role as Managing Director & Global
Head of Securitization and Structured Finance at BMO Nesbitt Burns Inc. Additionally, Ian was a member
of the Bank of Montreal’s Capital Management Committee as well as the Asset Liability Committee.
From 1996 to 2005 Ian was a Director at the Robarts Research Institute where he served as Chairman of
their Business Development Committee and as such oversaw their various commercialization initiatives. He
served as a Director of the Toronto International Film Festival Group from 2001 to 2013 and sat on their
Finance Committee. Ian is a member of the Advisory Board for the Faculty of Law at McGill University
as well the Hot Docs Cinema Advisory Committee. A past member of the British-North American
Committee, Ian is a long standing Trustee of the S.M. Blair Family Foundation as well as a proud member
of Canada Company.
Ian completed an Honours BA (Economics) from Queen’s University, an L.L.B. and B.C.L. from McGill
University, was admitted to the Ontario Bar in 1987 and remains a member in good standing of the Law
Society of Upper Canada. Married with four children, he resides at Lorne Hall in Toronto.
Wrap Up
Sponsored by
DUNCAN MUNN
Senior Vice President and Chief Operating Officer, C.D. Howe Institute
For full biography please see page 4.
Moderator: Session III

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Conference Participants
Adrianna Alterman
C.D. Howe Institute
Kent Andrews
TD Bank Group
Natasha Apollonova
Toronto Region Board of Trade
Stephanie Appave
Ministry of Economic Development Employment
& Infrastructure
Ian Bandeen
NACO
Shereen Benzvy Miller
Industry Canada
Paul Buron
Business Development Bank of Canada
Justin D. Caldwell
C.D. Howe Institute
Jeff Cates
Intuit Canada
Alex Ciappara
Canadian Bankers Association
Michael Cohen
Industrial Skyworks
Will Cornelissen
Wind Beacon
Annie Cuerrier
Industry Canada
Douglas Cumming
York University
Ben Dachis
C.D. Howe Institute
Eric Dagenais
Industry Canada
Tatiana Danilova
Wind Beacon
Julia Deans
Futurpreneur Canada
Robert Dunlop
Jasmin Ganie-Hobbs
Jennifer Green
Ministry of Economic Development Employment
& Infrastructure
Jason Hann
Canadian Commercial Corporation
Dan Herman
Centre for Digital Entrepreneurship and Economic
Performance
Russell J. Hiscock
CN
Sarah Howcroft
Ontario Securities Commission
Greg Hunter
Ontario Ministry of Finance
Elmer Kim
Roynat Equity Partners
Amanda Klowak
C.D. Howe Institute
Hal Koblin
C.D. Howe Institute
Robert E. Lamoureux
The Independent Order of Foresters

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Conference Participants
Victoria Lennox
Startup Canada
John Lester
The University of Calgary
Lauren Linton
Achilles Media Ltd
Dennis Lopes
Microsoft Canada Inc.
William Mak
Ted Mallett
Canadian Federation of Independent Business
Colin McKay
Google Canada Inc.
Susan McLean
Ministry of Research and Innovation
Laura Morin
Industry Canada
Duncan Munn
C.D. Howe Institute
Kyle Murphy
C.D. Howe Institute
Anchela Nadarajah
Department of Finance Canada
Alison Nankivell
Yanning Peng
Federal Economic Development Agency for
Southern Ontario
Avvey Peters
Communitech Technology Association
Blair Poetschke
ONS Projects
Matthew Poirier
Canadian Finance & Leasing Association
Finn Poschmann
C.D. Howe Institute
Paul Redman
Ontario Securities Commission
Jos Schmitt
Aequitas Innovations Inc.
Matthew Seniuk
Startup Canada
Thitima Songsakul
Industry Canada
Cyprian Szalankiewicz
Startup Canada
John D.Tennant
W2N2 Partners
Jimmy Vu
Department of Finance Canada
Philip Walsh
Ryerson University
Marion G. Wrobel
Canadian Bankers Association

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Conference Summ ary
Introduction and Context
On March 5, 2015, experts on small and medium–
sized enterprise issues gathered in Toronto to discuss
how to enhance the growth of Canada’s small and
medium-sized enterprises.With a lively question
and answer period with the conference attendees,
participants routinely underscored the issue of
awareness of programs for growth-oriented firms,
the need for mentorship opportunities, the effect
of federal and provincial tax policies on growth and
the need to more openly discuss, and learn from,
examples of firm failures.
Summary of Conference Discussion
and Presentations
The event had three main sessions.The kick-off
session presented an overview of the role of SMEs in
the Canadian economy.The second session examined
how firm-financing issues hold back firm growth.
The third session examined the barriers in the
Canadian tax system and elsewhere that firms face
as they grow.The day concluded with wrap up and
closing comments.
Session 1 – Growing SMEs: The Contribution of
SMEs to the Economy
The discussion started on entrepreneurship and firm
growth. Canada has many advantages in fostering
firm growth: Canadians have relatively favourable
views of entrepreneurs, Canada has a good general
ease of doing business score and a low tax burden,
and has a large number of businesses starting in
a year. But the problem is that small firms are not
necessarily growing firms. Many traditional SMEs
are lifestyle firms, meant to serve local markets and
grow little. Growth-oriented firms, however, are a
small minority of firms but are responsible for the
majority of net job growth, and export more and do
more research and development.
Canada’s SMEs have seen high growth in
employment since 2002.The Canadian industries
that have the most firms starting up are in the
accommodation,services and construction sectors.
However,these are among the slowest growing sectors.
The sectors with the fastest growth are knowledge-
based sectors.The majority of SME owners are now
over the age of 50,suggesting a looming demographic
problem for SMEs.However,only 12% of SMEs are
led by people under 39 and few people under 39 are
looking to take over small businesses.Further,many
of Canada’s small businesses have owners with little
formal education,which leaves them unprepared to
run more sophisticated companies should they grow.
The role of many government programs – such as
export promotion programs,the Industrial Research
Assistance Program and the Scientific Research and
Experimental Development credit – and their role for
small firms came up in the discussion.Many small
firms are simply not aware of the programs available.
Many participants of the conference believed there is a
need to integrate SME programs such as those around
firm financing,mentorship,networking,and building a
focus on growth.
Although SMEs are supported by over 200
programs,the majority of programs serve business
based on their size,not their growth ambition.The
imperative is to provide an integrated approach of
these policies to stimulate growth by taking action
on awareness of programs related to access to growth
capital,support for export activities,mentoring and
supporting an entrepreneurial culture.
Session 2 – What Is Holding Us Back? The Barriers
to SME Growth
Canada’s poor record of venture capital financial
begins with understanding the poor performance of
labour sponsored venture capital funds,and the effect
that they had on crowding out venture capital funding
from elsewhere.Since those have been replaced in

Ontario and federally with privately managed venture
capital funds seeded with government funding,the
question becomes: is this enough to bring Canada’s
venture capital market in line with that of parts of the
United States? The data reveal that Ontario’s venture
capital investment would need to be nearly twice
as large to match that of Massachusetts.Likewise,
federal investments would need to nearly double to
match venture capital as a share of GDP figures in the
United States.
There are also relatively few firms in Canada able
to offer equity financing for growth-oriented firms
in Canada.There is a particular dearth of growth-
oriented equity capital outside of Quebec.A particular
cause is the excess focus that Canadian financial
institutions place on whether a person had a previous
bankruptcy in a previous venture.In Silicon Valley,
for example,a previous failure would be relatively
little impediment to accessing finance,as firms there
are more interested in the potential upside benefit
of investing in an idea.Indeed,learning from such
failures assists firms in their future growth.
The discussion of this topic was wide-ranging.
There are a number of barriers to firm: first is a lack of
management desire or ability to grow; second is a low
risk tolerance; third is underinvestment in the latest
technology; fourth,is a lack of financing and ability to
increase scale.The discussion brought up the need for
financial institutions and other firm finance providers
to use government programs to reduce the risks of
financing small firms.
One commenter argued that it would be
worthwhile to better understand the nature of the
kinds of firms that take up government programs and
whether they are the 3% of SMEs that are growth
oriented. For example,it could be worthwhile to see
what indicators of firm characteristics governments
could use to assess whether a firm is likely grow
quickly and target support to those firms.
The Canadian investment ecosystem could learn
from places like Israel that support people who
have failed in start-ups,but also have supported
crowdfunding mechanisms that appear to be
successful.In particular,the discussion centred on the
importance of celebrating failure,such as by hosting an
event that discusses failed business ideas.
Session 3 – From the Ground Up: Growth in the
Eyes of the Entrepreneur
The final session of the day began with a focus on
tax policy for small firms.Federal and provincial
policy substantially favours small firms,with a small
business deduction for corporate taxes.As of 2015,
small firms have a cumulative ten percentage point
lower combined federal and provincial corporate
income tax rate relative to large firms.This higher tax
rate once a firm grows creates a tax claw back that
results in firms choosing to set their income levels to
minimize their tax burdens.The result is some firm
clustering at the income level at which they minimize
their taxes.The social cost of the program is that the
federal government must finance the lower rate for
small firms with other revenues,creating a social
cost through higher taxation for other firms and
individuals.Further,the lower rate creates potential
efficiency losses by leaving firms below their optimal
scale.The result is that the economic benefits of the
program,such as by enabling firms to have more
retained earnings to invest in themselves,are lower
than the social costs.
Economic theory suggests that it is young firms
that will grow.Young firms simply happen to be small.
The evidence from Canada and around the world
is that,after controlling for firm age,firm size has
relatively little relationship with growth.It is young
firms that grow.Further,the only Canadian evidence
on firms that benefit from the lower tax rate on small
business shows that 90 percent of the benefit of the
tax break goes to firms that do not grow past the
threshold to eventually pay the full corporate tax.
Lastly,there is a disconnect of the support start-
up firms are looking for as opposed to what they can
find.First and foremost is the need for mentorship as
many firms feel isolated.However,many government
programs are not helpful for many start-ups.Only

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12 percent of companies access start-up support
programs.the conclusion is governments should focus
on improved delivery of support programs and better
partnership with the private sector and entrepreneurs.
The discussion focused on the question of what
kinds of firms grow and how to interpret the meaning
of firms clustering at the small business deduction
threshold.One participant pointed out that the effect
of the tax threshold is likely lower now than in the
past and that firms might be ‘recharging their batteries’
at the threshold to prepare for future growth with
more retained earnings.
The conclusion for policymakers is that they should
reform Canada’s tax system to provide low corporate
rates for all firms and not use the tax system to support
firm growth.Instead,governments should focus on
enabling new firms to enter and target other policies
for firm growth by other means,such as venture
capital policy.
Wrap Up and Closing Remarks
The conclusion of the day was a call for better
mentorship opportunities for growing firms.The
particular conundrum is that growing firms need
better access to growth-focused capital,yet many are
not aware that they have program options available to
address this.
It is also important to have a better understanding of
firm growth by better understanding,and learning about,
firm failures.In particular,financiers and entrepreneurs
should come together to hear which particular mistakes
their failures have in common.

Presentations
Shereen Benzvy Miller, Assistant Deputy Minister of Small Business, Tourism and Marketplace
Services, Industry Canada
1 2
3 4

1 6
Presentations
Philip Walsh, Chair, Entrepreneurship & Strategy Department, Ted Rogers School of Management,
Ryerson University
7 8
65
Shereen Benzvy Miller, Assistant Deputy Minister of Small Business, Tourism and Marketplace
Services, Industry Canada

9 10
11 12
Presentations
Ryerson University

1 8
Presentations
Ryerson University
1615
13 14

Presentations
Ryerson University
19
17 18

2 0
Presentations
M A R C H 5 , 2 0 1 5
C D H O W E I N S T I T U T E
What is Holding Us Back?
Barriers to SME Growth
Douglas Cumming
Professor and Ontario Research Chair
York University Schulich School of Business
Public Policy towards Venture Capital
Disastrous experience with LSVCCs…
Ontario announced phase out in 2005, effective in 2011
Federal program announced phase out in 2012, effective 2016
-200
0
200
400
600
800
1000
1200
1400
IndexValue(AdjustedtoStartat0onSeptember1992)
Date
Figure 9.3. Selected Indices 1992 - 2005
Globe LSVCC Peer Index Globe Canadian Small Cap Peer Index
TSE 300 Composite Index / TSX Total Return Index US Venture Economics Index
30-Day Treasury Bill Index
Public Policy towards Venture Capital
Replacing the LSVCC program:
The Government of Ontario committed
$90 million to the Ontario Venture Capital Fund (OVCF),
$29 million to the Innovation Accellerator Fund, and
$205 million to the Ontario Emerging Technologies Fund
Each multi-year investments (these are not per year figures)
The Government of Canada allocated
$500 million to be displaced to private VC managers in 2013
Is this enough?
Douglas Cumming, Professor in Finance and Entrepreneurship, Schulich School of Business,
York University
1 2
3 4

Presentations
York University
Public Policy Towards VC: Drop in an Empty Pond
The data indicate that the Government of Ontario’s VC
expenditures would have to be 99% higher ($4.4 billion
per year) to achieve levels of VC/GDP that are
comparable to Massachusetts.
Similarly, the Government of Canada’s expenditures
would have to be 94% higher ($1.6 billion per year)
higher to achieve levels of VC/GDP that are comparable
to the U.S.
These statistics are even more startling when one
considers the fact that the government is already the
largest VC investor in Canada through the BDC and EDC.
Venture Capital / GDP in Canada and the U.S.
Public Expenditure on Venture Capital and the
Remaining Shortfall in Ontario and Canada
What is Current Government Expenditure
Towards Business in Ontario?
$4.1 billion in 2012
Targeted towards…
5 6
7 8

2 2
Presentations
Can Institutional Investors Fill the Void
Small participation in Canadian VC funds
Partly explained by long history of low returns (explained in
part by presence of by LSVCCs)
Unusual, given the presence of the Institutional
Limited Partners Association (ILPA) in Toronto
But the ILPA has an international focus
Run courses taught by US instructors that have connections to
US funds
Can Crowdfunding Fill the Void?
$2 billion in 2012. $5 billion in 2013. $16 billion worldwide
in 2014. Growing exponentially!
National Crowdfunding Association of Canada (NCFA)
Potential for equity crowdfunding with new rules proposed by
the OSC
Example: OurCrowd in Israel finances some of the world’s
leading technologies; AngelList in the US
Example: Some VCs use crowdfunding to supplement their
deals, Mark Skapinker, Brightspark Ventures
Entrepreneurial Ecosystem
Learn from other successful places, such as Israel
Failure is acceptable
Failure Conferences – brag about and be rewarded about
failing
Incubator Centers
Much evidence of success from current incubators
Greater presence would help
York University
9 10
11

Presentations
John Lester, Executive Fellow, University of Calgary, School of Public Policy
1 2
3 4

2 4
Presentations
7 8
65

Supplementary Slides
4
Empirical analysis: the statutory small business deduction
Number of Small CCPCs Claiming the Federal Small Business Deduction, by Taxable
Income, 2000, 2007 and 2011 – from Department of Finance
Background Statistics – Small Business Deduction in 2009
0
10
20
30
40
50
60
Income eligble for the small business deduction (thousands)
Distribution of Income and Capital of Firms Claiming
the Small Business Deduction
Percentage of firms
Percentage of capital
%
11 12
¾ Benefits
‰ Improved access to financing
‰ Higher capital stock
¾ Costs
‰ Efficiency effect of raising taxes to finance the SBD
‰ Scale-related cost savings forgone
‰ Higher administration and compliance
¾ Net social cost
‰ 10-12% of tax revenue forgone – about $800 million in 2009
Illustrative Benefit – Cost Analysis of the Small
Business Deduction in 2009
109
Clustering at the SR&ED Expenditure Limit
0
20
40
60
80
100
120
140
Firmcount
Qualified SR&ED Spending Less the Firm-specific Expenditure Limit ($000)
2009 2008 Trend
About 170 extra
firms in each cluster

2 6
Supplementary Slides
Background Statistics – Enhanced SR&ED Tax Credit 2009
0%
10%
20%
30%
40%
50%
60%
% of Firms % of Spending
Distribution of R&D Spending by Claimants of the Enhanced SR&ED Credit
Clustering at the Business Limit 2000
0
10,000
20,000
30,000
40,000
50,000
60,000
Numberoffirms
Income eligible for the SBD less the firm-specific business limit (dollars)
Observed
Trend
About 64,000 extra
firms in the cluster
15 16
Background Statistics – Small Business Deduction in 2009
0
10
20
30
40
50
60
70
80
90
100
Less than $1 million $1 to 7.999 million $8 to 9.999 million $10 to 14.999 million
Distribution by Size of Small Business Deduction Claimants
Percentage of Firms Percentage of Total Capital
%
1413
Background Statistics – Enhanced SR&ED Tax Credit 2009
% of firms
Nil 73.2%
Less than $100K 14.1%
$100 to $399K 10.3%
$400 to $499K 1.4%
$500K and up 1.1%
Distribution of Taxable Income
% of Firms
Under $1M 60.8%
$1M to $2.999M 20.7%
$3M to $9.999M 13.8%
$10M and over 4.7%
Distribution of Capital Stock
% of Firms
% of
Spending
Under $100K 51.0% 11.3%
$100 to $499K 39.7% 14.8%
$500 to $999K 5.9% 13.1%
$1M to $1.999M 2.4% 22.0%
$2M to $2.999M 0.6% 7.0%
$3M and over 0.4% 7.5%
Distribution of Spending on R&D

The C.D. Howe Institute is committed to continuing to bring awareness to the critical policy issues
SMEs face. While we will hold more events and publish research well into the future, our immediately
planned activities include the following.
Planned Publications on Small and Medium-Sized Businesses
Venture Capital Policy -- Choices and Consequences
Author:RichardRemillard,former executive director
of Canada’s Venture Capital and Private Equity
Association (CVCA)
Governments have supported venture capital policies
in Canada for a number of years.Governments have
done this through programs such as Labour Sponsored
Venture Capital Funds,the Business Development Bank
of Canada,‘angel investor’tax credits,or the new federal
Venture Capital Fund.Governments intervene in these
areas to address a perceived market failure resulting in a
lack of venture capital in Canada.This paper intends to
inform debate on the role of the state in venture capital.
Are there market failures,and will there always be? How
much involvement is too much? How effective have the
various policy tools proven to be? Should the state get out
of the venture capital business entirely?
Ottawa is reviewing its Venture Capital Action Plan,
and this paper aims to examine the issues.
Tax Barriers to Small Business Growth
Authors:JohnLester,Executive Fellow,University of
Calgary School of Public Policy;BenjaminDachis,
Senior Policy Analyst, C.D.Howe Institute
Small firms benefit from a number of tax preferences
and have more favourable access to government subsidy
programs than large firms.For example,small business
income is taxed at a lower rate than large firms by the
federal and provincial governments.In addition,the
Scientific Research and Experimental Development
(SR&ED) investment tax credit is substantially more
generous for small firms than for larger firms.The main
rationale given for providing enhanced support for small
business is to compensate for capital market failures
that adversely affect investment and firm growth.A
second rationale is that extra support offsets the higher
compliance costs per dollar of tax paid incurred by small
firms.A third possible motivation in the case of SR&ED
is that the extra support encourages entry and increased
R&D intensity,which may lead to more successful
transitions to large firms.
The general research issue raised by the enhanced
support for small business is whether it represents good
public policy in the sense that the benefits exceed the
costs.This project contributes to that assessment by
examining the evidence on one important potential cost
of the extra support:the creation of a barrier to growth
through threshold effects.
This paper tests this proposition by using a cross-
section of Canadian corporate tax data from 2000 to 2009
to examine whether firms are clustering at thresholds
that limit access to the small business deduction and the
enhanced SR&ED tax credit.
Public Policies to Support Venture Capital in Canada:
Past Mistakes and Promising Avenues
Authors:DouglasCumming,Professor in Finance
and Entrepreneurship,Schulich School of Business,
and Ontario Research Chair in Economics and Cross
Cultural Studies; SofiaJohan,Adjunct Professor,
Schulich School of Business
Follow–Up Activities

2 8
Follow–Up Activities
This paper will analyze the supply of venture capital over
the 1997-2012 period,with consideration given to the
adoption of LSVCC legislation in different provinces in
the 1980s and1990s.Also,it will consider the announced
phase-out of the LSVCC program in 2005 in Ontario,
and other related public policy reforms.The paper will
analyze whether there was a comparative decline in
venture capital with the adoption of LSVCC programs,
and a comparative improvement in Ontario with its
removal.Further,it will examine recent public policy
initiatives in Ontario,including the Ontario Venture
Capital Fund and the Ontario EmergingTechnologies
Fund,in terms of recent fundraising and investment
efforts in Ontario,and the likelihood of future success.
The Microeconomics of Macroeconomic Policy
Author:PeterHowitt,Lyn CrostProfessor Emeritus of
Social Sciences and Professor Emeritus of Economics,
Brown University
How do different types of firms and people respond to
macroeconomic policy? Interest rates,free trade,taxes,
depreciation,etc.all have different effects in different
sectors and on firms within each sector.Do firms at the
technological frontier grow in response to certain policy
changes,while others stagnate? What role do other
signals (like exchanges rates,market prices,foreign entry)
have versus policy in influencing divergent growth? What
role does increased competition – such as through foreign
entry and foreign direct investment – play in improving
productivity of firms? What are the implications for
sectoral restrictions on foreign ownership?This paper
will aim to fill the gap in understanding how increased
competition and firm entry influences productivity
growth in Canada and what that means for traditional
macroeconomic policy.
Planned Policy Events
TorontoEntrepreneursDebateSeries
BreakingThroughThe Barriers:How Do We Create
Successful Entrepreneurs in Canada?
ArleneDickinson,CEO,Venture Communications
and featured on CBC’s Dragons’Den,NitinKawale,
President,Enterprise Business Unit,Rogers,and
GregTaylor,Co-Founder,Steam Whistle Brewing
Thursday,April 23,2015 5:30 – 7:00 pm
Sponsored by:BusinessDevelopmentBankofCanada
JamesMoore,Minister,IndustryCanada
Toronto Roundtable Luncheon
Monday,April 20,2015 12:00 - 1:30 pm
SamSabastian,ManagingDirector,GoogleCanada
Toronto Roundtable Luncheon
Thursday,September 24,2015,12:00 - 1:30 pm

The Institute’s Commitment to Quality
C.D. Howe Institute publications undergo rigorous external review by academics and independent experts
drawn from the public and private sectors.
The Institute’s peer review process ensures the quality, integrity and objectivity of its policy research.The
Institute will not publish any study that, in its view, fails to meet the standards of the review process.The
Institute requires that its authors publicly disclose any actual or potential conflicts of interest of which they
are aware.
In its mission to educate and foster debate on essential public policy issues, the C.D. Howe Institute
provides nonpartisan policy advice to interested parties on a non-exclusive basis.The Institute will not
endorse any political party, elected official, candidate for elected office, or interest group.
As a registered Canadian charity, the C.D. Howe Institute as a matter of course accepts donations from
individuals, private and public organizations, charitable foundations and others, by way of general and
project support.The Institute will not accept any donation that stipulates a predetermined result or
policy stance or otherwise inhibits its independence, or that of its staff and authors, in pursuing scholarly
activities or disseminating research results.
EssentialPolic
y Intelligence | Conseils indispensables s
urlespolitiques
INSTITUT
C
.D. HOW
E
INSTITUTE
Finn Poschmann
Vice-President, Policy Analysis

3 0
Thank You
The C.D. Howe Institute wishes to thank Industry Canada for their support for the conference. As a
charity, the Institute depends on member giving to allow it to convene important policy discussions,
mobilize outstanding scholars, push innovative ideas, and ultimately foster, smarter public policy.This
conference would not have been possible without Industry Canada’s generous funding.
Contacts
For more information, please contact:
Duncan Munn, Senior Vice President and Chief Operating Officer,
416-965-1904 ext. 1730, dmunn@cdhowe.org
Benjamin Dachis, Senior Policy Analyst,
416-865-1904 ext. 4126, ben@cdhowe.org
Adrianna Alterman, Manager, Special Projects and Events,
416-865-1904 ext. 1405, adrianna@cdhowe.org

A Reputation for Independent, Nonpartisan Research
The C.D. Howe Institute’s reputation for independent, reasoned and relevant public policy research of the
highest quality is its chief asset, and underpins the credibility and effectiveness of its work. Independence and
nonpartisanship are core Institute values that inform its approach to research, guide the actions of its professional
staff and limit the types of financial contributions that the Institute will accept.
For our full Independence and Nonpartisanship Policy go to www.cdhowe.org.
Recent C.D. Howe Institute Publications
March 2015 Busby, Colin, and Nicholas Chesterley. A Shot in the Arm: How to Improve Vaccination Policy
in Canada. C.D. Howe Institute Commentary 421.
March 2015 Dachis, Benjamin. “Tackling Traffic: The Economic Cost of Congestion in Metro Vancouver.”
C.D. Howe Institute E-Brief.
March 2015 Gros, Barry, Karen Hall, Ian McSweeney, and Jana Steele. “The Taxation of Single-Employer
Target Benefit Plans – Where We Are and Where We Ought To Be.” C.D. Howe Institute
E-Brief.
March 2015 “Oil Prices, Economic Growth and Monetary Policy.” C.D. Howe Institute Verbatim.
February 2015 Blomqvist, Åke, and Colin Busby. Rethinking Canada’s Unbalanced Mix of Public and Private
Healthcare: Insights from Abroad. C.D. Howe Institute Commentary 420.
February 2015 Boyer, Marcel. The Value of Copyrights in Recorded Music: Terrestrial Radio and Beyond.
C.D. Howe Institute Commentary 419.
February 2015 Friesen, Jane, Benjamin Cerf Harris, and Simon Woodcock. Expanding School Choice through
Open Enrolment: Lessons from British Columbia. C.D. Howe Institute Commentary 418.
February 2015 Blomqvist, Åke, Colin Busby, Aaron Jacobs, and William Falk. “Doctors without Hospitals:
What to do about Specialists Who Can’t Find Work.” C.D. Howe Institute E-Brief.
January 2015 Dodge, David A. “Financial Regulation and Efficiency: Tradeoffs in the Post-Financial
Crisis Era.” C.D. Howe Institute Verbatim.
January 2015 Robson, William B. P. “It’s All About People – Really! Some Human Capital Priorities for
Canada in 2015.” C.D. Howe Institute Verbatim.
January 2015 Oreopoulos, Philip, Robert S. Brown, and Adam Lavecchia. “Evaluating Student Performance
in Pathways to Education.” C.D. Howe Institute E-Brief.
January 2015 Ciuriak, Dan, Jingliang Xiao, and Ali Dadkhah.“The Canada-Korea Free Trade Agreement:
What it Means for Canada.” C.D. Howe Institute E-Brief.

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