This exemption has been instrumental in encouraging long-term, high-risk investment in early-stage U.S. companies—especially in the technology sector—and is widely cited by stakeholders as a catalyst for angel capital formation. QSBS has significantly bolstered U.S. early-stage investment appeal. A similar or more ambitious policy in Canada could significantly enhance our competitive position in global innovation markets. A comparable Canadian incentive could significantly improve the risk-return profile for angel investors and encourage broader participation in innovation-focused enterprises. While the U.S. QSBS exemption significantly enhanced early-stage investment appeal by aligning risk and reward through tax incentives, it also benefited from America’s distinct capital market depth and high-risk tolerance culture. A Canadian equivalent should thoughtfully adapt to domestic market conditions and investor behaviors rather than directly replicate the U.S. model. 8. Core Challenges in Canada's Risk Capital Ecosystem 1. Disproportionate Growth in Funding Continuum ● Government Success with Venture Capital Policy : Canadian VC investment grew from 0.15% of GDP (2017) to 0.71% (2021) ● Record Investment : $14.7B of VC invested in Canadian startups in 2021, positioning Canada third among OECD countries ● Continued Government Commitment : Proposed $1B recapitalization of VCCI in 2024 ● Growth Rate Disparity : Angel investment grew 61% (2017-2021) while VC grew 308% in the same period ● VC to Angel Capital Ratio : Approximately 56:1 in Canada vs. 20:1 in the U.S. ● Recent Angel Investment Volatility: Peaked at $262.1M in 2021, dropped to $114.9M in 2023, partially recovered to $137.26M in 2024. While NACO data shows that angel investment activity in Canada has grown over the past decade—peaking at 653 deals in 2022—it still lags behind venture capital activity, which reached 706 deals in the same year, according to CVCA data. Even during periods of heightened angel activity, such as in 2021, the gap persisted: 635 angel-backed deals were completed, compared to 805 venture capital investments. The disparity becomes even more pronounced during periods of market contraction. In 2023, the number of angel investments declined sharply to 338—a 48% year-over-year decrease—while venture capital activity proved more resilient, recording 660 deals, nearly double the angel total.
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