Presented by Doyletech Corporation Presented by Doyletech Corporation Building World Class Canadian High Technology Companies Making Technology Happen TM

Canada has a good infrastructure for creating high technology companies but very few of them become world class multinational companies. A high percentage of them get sold to foreign buyers who integrate them into their world wide operations.

Buyers fall into two categories: Strategic buyers - companies that are in the same line of business. Financial buyers - companies that buy and sell other companies. Canada does not have enough buyers of either type. The most common exit for early investors is to sell to strategic buyers. Strategic buyers - companies that are in the same line of business. Financial buyers - companies that buy and sell other companies. Canada does not have enough buyers of either type. The most common exit for early investors is to sell to strategic buyers.

Our commercialization agenda should include the building of world class international companies with headquarters in Canada. It will require the building of a financial industry that includes financial buyers.

The “hollowing-out” debate must be improved. ● The “hollowing-out” debate must be improved. ●We need better data on the dynamics of foreign ownership. ●A “head office” must be defined.

The Organization of a Truncated Company - Before

The Organization of a Truncated Company - After

Is there a linkage between truncation and productivity measurement? * The branch continues to do R&D but it is now in the Cost of Sales line because R&D is its only deliverable to the parent company. Income Statements for a Truncated Branch Plant and an Integrated Company Before Takeover After Takeover Sales 10,000 Cost of Sales 5,0009,000 Gross Profit 5,0001,000 Operating Expenses Sales & Marketing 1,5000 R&D 1,5000 * General & Admin. 800 Total Operating Expenses 3, Profit before tax 1, Tax Profit after tax Employment 5080 Sales per employee Profit per employee

Canadian companies may not be properly launched in the first place Average Venture Capital Deal Size Source: Macdonald & Associates

Sell controlling interest to a strategic investor Unfortunately, Canada has very few large high-tech companies that can play this role. Sell controlling interest to a financial buyer While Canada does have financial institutions that are capable of playing this role, they are more comfortable with investing in companies outside the high-tech sector. Sell controlling interest to current management and employees This usually requires an investment by a venture capital company whose mandate allows it to buy secondary shares. LSVCC’s are only allowed to buy treasury shares. An initial public offering (IPO) of its shares Most investors are very cautious about IPOs because of the length of time required for them to liquidate their holdings on a Canadian stock exchange. Sell controlling interest to a strategic investor Unfortunately, Canada has very few large high-tech companies that can play this role. Sell controlling interest to a financial buyer While Canada does have financial institutions that are capable of playing this role, they are more comfortable with investing in companies outside the high-tech sector. Sell controlling interest to current management and employees This usually requires an investment by a venture capital company whose mandate allows it to buy secondary shares. LSVCC’s are only allowed to buy treasury shares. An initial public offering (IPO) of its shares Most investors are very cautious about IPOs because of the length of time required for them to liquidate their holdings on a Canadian stock exchange. Liquidity Options for Canadian Investors

Total Private Equity Capital under Management (2002) Total Private Equity Capital under Management (2002) Source: Macdonald & Associates, Venture Economics, McKlosey and Company

Recommendations ●Improve the debate on the subject ●Define a head office more precisely ●Encourage the formation of large pools of buyout capital ●Find ways of using the Canadian stock exchanges as exit vehicles ●Do not restrict foreign ownership, but encourage Canadians to be foreign owners too