Wednesday, April 25, 2007

Canada's Startups: Unlocking US private equity

Like most lawyers, I find it hard to love any lawyer more than I love myself. But lately, I've been having unnaturally warm feelings about Stephen Hurwitz, late of Choate Hall in Boston. Many of you will remember his predecessor firm Testa Hurwitz, which rose to prominence on the back of its prowess in trade secrets litigation. When my clients wanted to make someone cry, I would send them to TH. Since the demise of TH, Stephen has made his home at Choate Hall.

Stephen's practice is built in part on US and Canadian VC activity, and I applaud his recent efforts to revive US interest in high tech Canada. In particular, he has done a good job identifying and advocating changes in tax treaty rules to make it easier for US VCs to invest in Canada.

Under the current regime, US VCs typically invest through an alternate structure to ensure their capital gains on any Canadian investment aren't double-taxed. Whenever a US VC is added to any deal I work on, I mentally add $100k to the legal fees, and I'm usually not far off. A reform of Canada's tax rules could eliminate this hurdle, at a time when new sources of capital are sorely needed. A summary of the tax challenges of cross border VC investing is available on Choates' web site; I recommend a look for those who want greater detail.

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