Canada: Forget the Startup Visa – Focus on Regional Pilots

 

RCBI encompasses an extensive array of investment options. From real estate to bonds, share capital, and others, investors are spoilt for choice when it comes to getting second citizenship or residency. Except in Canada.

Canada has laid out a framework for entrepreneurs to gain residency through active investment, which essentially means setting up and managing their own company. Whether through its Provincial Nominee Programs (PNPs) or the trendy Startup Visa (SUV), Canada focuses on bringing in a particular type of investment migrant, those who could benefit the country in more ways than just bringing in foreign investments.

It is a smart move on behalf of The Great White North. A booming economy would indeed benefit from an influx of unencumbered foreign funds; the temporarily suspended Quebec Investor Program (QIP) is a testament to that. Nevertheless, in a country that boasts one of the best economies on earth, the benefit of long-term investment that creates jobs, brings in new business, integrates with communities, and continuously boosts the GDP is much more attractive than a quick cash-in.

Canada’s perception of investment immigration is commendable; it is well thought out and aligns with its strategic economic growth plans. However, the higher focus on the SUV is what I believe to be a mistake in the grand scheme of things. 

I cannot fault the pursuit of bringing in innovative and pioneering entrepreneurs; it is a robust framework for elevating Canada’s economic landscape and a route to attract even more high-tech businesses to its shores. However, I do believe Canada’s provinces, especially British Colombia, have a better plan in place.

Long term thinking

Canada gambling on the SUV is eerily similar to venture capitalists gambling on one of their investments to pan out, though venture capitalists have more insight into their investment and scrutinize chances of success on a much higher level.

For the sake of this argument, let’s say Canada’s investment in immigrant entrepreneurs is granting them a PR. The Canadian Government wants to bring in a specific type of persona who will actively manage and grow their business. If the immigrant reneges on their part of the deal, Canada will have lost a PR slot that could have better benefited its economy.

So let’s look at the facts; the SUV relies on private parties – business incubators, angel investors, and venture capitalists – to scrutinize the proposed investment and the investor to deem them worthy of a PR. Canada’s immigration office is only concerned with a clean background, a sensible business plan, and a complete application adorned with an endorsement letter from one of the aforementioned parties.

Now, the Canadian Government has to ensure that these approved endorsing bodies adopt the official rulebook and work within the Government’s best practices, which is not easy to track. One of the main findings in a report by Canada’s Revision Division published in 2016 stated:

“There were minimal levels of fraud and misuse associated with the SUV pilot and the integrity mechanisms employed were successful in identifying issues. However, there is a potential program integrity gap regarding the monitoring of designated entities’ SUV activities.”

Another finding was that “while the support provided by designated entities was generally viewed as positive, some key informants noted a lack of transparency and delivery of agreed-upon support by some business incubators”.

Both findings indicate that keeping a close eye on the endorsing bodies was instrumental to avoid immigration fraud and abuse of the program. Add the fact that the SUV allows for five partners in one startup, some of whom may not contribute to the business but rather buy their way into Canada through a convoluted passive investment, and the risk of giving away precious PR slots to those who may not contribute to the economy as intended increases.

My main issue with the SUV in the confines of real economic growth is that it grants a direct PR to investors without a guarantee that they will go through with the business. Canadian laws state that renewing a PR is mainly restricted to physical residence. So is granting citizenship, as long as the applicant isn’t involved in criminal activity. Hence, there is no legal obligation from the Government’s side for SUV investors to go through with the business. Unlike the PNPs, which grant a temporary work permit and require investors to sign a Business Performance Agreement (BPA) to ensure they establish and run the business, the SUV lacks leverage. 

You might argue that endorsing bodies may have a stake in the startups and will want to see them succeed. True. But we all know that the private sector doesn’t always operate in the manner the Government hopes it will. Out of the 64 approved endorsement bodies, the majority are business incubators (34), many of whom are getting paid instead of investing in the company. Not to bluntly say there is something afoot, but the whole structure is ripe for exploitation. 

Even when it comes to venture capitalists and angel investors, there is a plethora of workarounds to the brittle framework set out by the Government.

The problem, in numbers

The Canadian Government is yet to release a comprehensive report on the SUV to follow up on its 2016 report, but private firms put the number of PR admissions through the SUV at about 750 between 2018-2019. Although this number is not official, it does stand firm in my experience with the program and my discussions with Canadian lawyers. 

Considering Canada’s average startup 10-year survival rate is 43%, and that the rate for 7-year angel investors-backed startups is 35%, you can see where the long-term problem lies. Taking these numbers at face value and assuming that each startup was – unlikely – directed by one immigrant, then the best-case scenario of the number of immigrants that actually benefited Canada’s economy in the long term dropped to 292. 

The better alternative

Instead of focusing on getting the next wacky million-dollar idea, I believe Canada should focus on bringing fringe communities into the fray. Regional pilot programs, such as BC’s PNP regional pilot, focus solely on developing periphery communities by attracting investors to open up shop within their territories. 

BC has astutely lowered the requirements compared to its base category PNP, most importantly requiring a reduced investment of 100,000 CAD. The signs are promising, as 2019 saw 51 ITAs issued to prospective investor immigrants. 

The problem with the regional pilot, however, is the work permit. You won’t find a bunch of investors lining up to open a business in White Rock BC when they could be establishing their business in Vancouver for a few hundred thousand more. Unless they get a PR.

The uncertainty that comes from a work permit coupled with a BPA makes for grim thoughts. No one wants to move halfway across the world and lose their immigration status due to force majeure or otherwise. 

But what if the regional pilot gave out direct PRs along with a BPA bound by a deposit of 100,000 CAD, as New Brunswick did in the olden days? If the investor reneges on their duty, they lose the deposit; if they meet the requirements, they get the money back within 20 months.

This framework sounds a bit more like the SUV now, doesn’t it? But instead of getting applications that may be full of false pretenses or unattainable startup ideas, Canada will ensure it gets something in return for the PR. 

The fact that communities endorse business in the regional pilot makes it even better. Those communities understand exactly what they need. This setup not only helps in direct, strategic community development, but gives the business a better chance of succeeding because the local population requiring its services. It may not be the next million-dollar idea, but it is a safer bet.

Even if an investor doesn’t hold up to their end of the bargain, the deposit can be directed through a community-managed development fund supporting the local population by funding businesses, improving infrastructure, educating or training the workforce, or otherwise. It is a win-win situation however you look at it. Even if all 51 applicants of 2019 did not pursue their businesses as promised, communities in Canada would have gained 5,100,000 CAD in funds to develop themselves as they pleased. Not a shabby amount by any standard. 

Regional pilots are a great way to balance the economic divide between Toronto, Vancouver, Montreal, Ottawa, and the rest of the nation. They build up communities to become more active in the overall economic landscape of the country and are much easier to administer and monitor on a provincial level.

Letting provinces dictate what kind of businesses they need and where they need them can produce benefits that greatly outweigh those of the SUV, but the trendy word seems to be innovation, not inclusion; and for that, Canada is missing out.

Many of you readers may find reason in what I say, and many may disagree. Either way, I would love to hear from you and carry this discussion forward. If anyone wants to have a chat, provide some insight, or even submit a rebuttal article, contact me at aa@imidaily.com.

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Ahmad Abbas AuthorSubscriber
Director of Content Services , Investment Migration Insider

Ahmad Abbas is Director of Content Services at Investment Migration Insider and a six-year veteran of the investment migration industry.

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