Venture Capital in Canada History –No early stage capital prior to 1987 in Ontario –Still well behind the U.S. in the amounts, sophistication and involvement –Only just established sector specific funds B.C. Capital – Telecom MDS Capital – biotech XDL Capital – Internet

Current Venture Capital Activity $669 million invested in Venture Capital in Canada in 1995 $6.3 Billion invested in Canada in 2000 Has not been a 10 fold increase in the quality of products, business plans, management teams in that same time frame In 2001 a significant reduction reflecting the economic uncertainty

Types of Financing Angel Investors –High net worth individuals –Usually with business experience –Better business people than investors There’s a reason they are called angels Seed Capital Funds –Small amounts $250,000 to $1 million –Many small investments looking for 50:1 –A few winners have to cover a lot of losses

Types of Financing Venture Funds –Vary as to size and stage of development –Usually after the product is in the market –$1 million to $10 million is sales –Funds are for further product development and expansion –Want 15 to 45% of the business, a position on the board of directors and a veto on ALL major decisions –Target return in the 40-50% IRR – historical – 23-27%

Types of Financing Mezzanine financing –Will invest by way of debt –Want interest, bonus interest and free or cheap shares For expansion of established businesses, –With positive cash flow –The ability to pay the money back –Target 25-35% returns –Done well over the past several years

Venture Financing What they want –Product – surprising amount of emphasis here –Management –Market –How will you get to market –Competition

Business Plan –Goal of the plan is to get their interest not to tell them every operating detail –12-20 pages –Emphasis on what the management has done –Delineate what the goals the money will allow you to accomplish. Set out the use of proceeds in 3-4 areas only –Acknowledge weak areas and how you plant to address them

Attracting Financing What a difference a year makes –Flight to more established businesses –Tried and true business model –Investing in teams that they have made money with before