1.What is venture capital? Venture capital is the investment of funds in a privately held company. Small to medium sized companies that are in a high growth cycle will often seek financing in order to further support the expansion of the business. These businesses typically are too small or early stage to secure significant bank financing and are looking for the added resources that a venture investment partner can provide. Learn more>>
2.What role do the investment managers play? Investment managers play an integral role in each of the companies they manage. Their experience in dealing with high-growth companies allows them to provide strategic guidance and operational support as these investments continue to grow and manage their business. Additionally, Covington's industry and operational contacts provide additional support to both entrepreneurs and employees within the firm.
3.What is an LSIF?
Labour sponsored investment Funds (LSIFs) are specialised venture investment funds that make investments in privately held companies. These companies are typically classified as small to medium sized businesses looking for capital to fund the growth of the businesses. These funds essentially provide the average investor with access to venture capital investment opportunities previously available only to high-net worth and pension fund investors. Investors benefit from investing in retail venture capital funds in a number of ways including: significant tax credits, portfolio diversification, access to strong performing privately held enterprises.Learn more>>
4.What is a ROIF? Research Oriented Investment Funds (ROIFs) are a specialized form of Labour Sponsored Investment Funds (LSIFs) that provide Canadian investors with access to venture capital investments in companies with a focus on research and development. A minimum of 50% of a ROIF’s investment must be held in companies that are primarily focused on research and innovation. The majority of investments in ROIFs are within the life sciences fields. Investors in Ontario are eligible for up to 35% in tax credits on the first $5,000 invested each year. Learn more>>
5.How do venture capital funds benefit Canada’s economy? As at 2005, venture capital funds had deployed over $20 billion into the Canadian market. By providing essential capital to small and medium sized businesses, venture capital is a critical provider of employment. Small and medium sized business employ approximately 60% of the population and are responsible for close to half of Canada’s economic activity. (Source BDC Annual Report March 2006.)
6.How are venture capital funds different from mutual funds? Unlike a typical mutual fund portfolio, where a manager will invest in a basket of stocks that trade on a public exchange and simply trade the stocks within their portfolio, venture capital investing is an active, hands-on form of investing.Lean more>>
7.How are returns generated? Returns on private company investments are primarily realized only after the company has been exited or a significant event occurs (eg: third party financing at an increased value to what the investment is currently held at). An exit is an event whereby the company is either sold via a merger or acquisition, or goes public on a stock exchange (at which time the shares in the investment are freely tradable*). Learn more>>
8.How do I invest? Covington funds may be purchased through a registered securities dealer, including financial advisors and planners, brokers, and discount brokerages. Before investing in a venture capital fund we encourage you to speak with a financial advisor who can provide valuable information as to the suitability of this investment for your specific portfolio as well as review the prospectus of the Fund*.
9.How long must I hold my shares? In order to keep the tax credit an investor must hold their shares for eight years. After which, your venture capital holdings may be redeemed “clawback” free at any time. Shares redeemed prior to their 8th anniversary, will be subject to the federal (15%) and provincial (15% - 20%) clawback (for a list of exceptions please consult your financial advisor). Shares are redeemed at their current market value.
10.What is the purchase deadline? The yearly purchase deadline for retail venture capital funds follow the same deadlines as RRSP for tax eligibility. Shares purchased within the first 60 days of the calendar year (January – February) may claim the associated tax credit for that current taxation year or the upcoming taxation year.
11.Are LSIFs and ROIFs RRSP and RRIF eligible? Yes. Shares of LSIFs and ROIFs may be purchased and held within an RRSP and transferred to a RRIF. While LSIF shares may be held within a RRIF it is important to note that they cannot be purchased directly within the RRIF.
12.Can I use existing funds within my RRSP to purchase an LSIF? Yes. You may use existing funds within your RRSP to purchase your LSIF shares. While you will not be eligible for an RRSP deduction (as this is not considered new money to the RRSP) you will be eligible for the full tax credit.
1.What is a tax credit? A tax credit is the amount deducted directly from tax otherwise payable. Tax credits are non-refundable and must generally be claimed within a year of issuance. They are claimed when you file your annual tax return.
2.How does a tax credit work within an RRSP? LSIF purchases within an RRSP are eligible for the federal and provincial tax credit (up to 35% in Ontario) in addition to the standard RRSP deduction. Tax credits function completely independently from any RRSP deductions.
3.Can I purchase an LSIF within a spousal RRSP? Yes. Additionally, when an LSIF is purchased within a spousal RRSP, either spouse may claim the tax credit (provided they have taxes payable). Additionally, assuming that no LSIFs have been purchased the year before, there is the opportunity to purchase up to $20,000 per couple (contact your financial advisor for additional details).
4.How much is the tax credit? The federal government provides for a 15% tax credit. Each province or territory provides for varying amounts ranging from 0% to 20%. Please refer to your province or territory’s tax savings chart .
5.How do I claim my tax credit? You will claim your tax credit when you file your annual tax return. Prior to tax filing you will receive a tax credit certificate issued to you by CI Investments that you may be required to submit with your final tax filing .
6.What are some investment strategies to make the most of my tax credit? There are a number of ways to gain added value from your venture capital investment including: putting your tax savings towards next year’s venture capital purchase, reinvesting the tax credit into an equity investment fund, paying down your mortgage or personal loans, reinvesting the savings in to an RESP for your children . Additionally, shares that have been held for eight years may be redeemed clawback free and reinvested to gain an additional 30% or 35% tax credit without having to invest “new money ”. Speak with your financial advisor to find the best ways to maximize the value of your tax credit.
7.What are the proposed changes in tax credit legislation and how does that affect my Covington holdings? In 2005 the Ontario Provincial Government announced the elimination of the provincial tax credit by 2011. It is important to note that this does not affect the federal tax credit which will remain at 15%. The chart below outlines the schedule for the elimination of the tax credit.
Estimated Timeline & Changes to Provincial Tax Credits
1.What is the difference between the Covington Funds? Covington offers a number of funds with specific investment objectives including; diversified, technology, life sciences funds. For more detailed information on each of our funds please go toCovington Group of Funds Overview.
2.How often are the funds priced? Covington’s retail venture capital funds are priced each business day. The share prices of our funds are available on our website at Covington Funds Overview
3.What does Covington look for in an investment? Covington looks for a number of fundamental criteria present in each potential investee company including:
Sector, Stage, and Management Covington’s principal focus is mid to later stage enterprises operating primarily in the manufacturing, distribution, information technology, and healthcare sectors. We do not invest in real estate and resource based enterprises and do not provide seed or start-up funding. Covington places tremendous emphasis on proven management teams with previous successes – entrepreneurs who have demonstrated their ability to grow an enterprise to a successful exit.
Market Potential Covington focuses on investments that have a large target market and the ability to grow in market capitalization and provide numerous exit possibilities. Our dedication to our investees continues beyond the initial funding through multiple follow-on financing rounds as the enterprise continues to grow. Companies should be able to provide a differentiator that will create and sustain a competitive advantage. Potential investees should have a strong potential to become market leaders within their target space.
Size, Structure, and Exit Potential Investment sizes will typically range from $500,000 to $7 million and will take the form of equity and or debt structures that are flexible - we try to structure our investments to suit each company’s specific needs. We target opportunities that we believe can be exited within four to seven years and provide strong return multiples on our original investment.
Location While our focus is primarily on enterprises based in Ontario, we review opportunities throughout Canada.
4.What makes Covington different from other venture capital managers? There are a number of factors that make Covington stand out from other venture capitalists, all of which stem from our most important characteristic –a singular focus on venture capital. Covington does nothing but venture capital investing. We do not do mezzanine financings, we do not manage debt funds, or other mutual fund structured products – it is simply pure venture capital. As one of the largest venture capitalists in Canada we also offer a large capital base from which to fund our portfolio of investees and have a list of strategic partners (such as Microsoft, HP, and Ivey Robarts School Business) that is second to none. In short, Covington is one of the few large investment houses that is focused purely on venture capital.
5.Why do companies choose Covington as an investment partner? Companies seeking a venture investment partner look for a number of criteria beyond straight capital. A seasoned entrepreneur will look for a venture capitalist that has an established track record of taking enterprises from the initial investment to a successful exit. They look for an investor who can provide them with strong strategic alliance partners, a network of resources to assist in the growth and operations of their growing business, and a partner whose managers are able to act as a partner and have the ability and time to become intimately familiar with their business. While the size of the venture capital firm is extremely important (as this demonstrates their ability to fund a company through multiple rounds of financings), there is far more to choosing the right venture partner than simply money.
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