BUSINESS DEVELOPMENT BANK OF CANADA PROSPERITY THROUGH INNOVATION MR. JÉRÔME NYCZ SVP, CORPORATE STRATEGY & SUBORDINATE FINANCING APRIL 26, 2012

2 Canada’s Business Development Bank In this presentation: >About the Business Development Bank of Canada (BDC) >The importance of innovation, growth and productivity for Canada >How BDC is supporting innovation: –Venture capital –Subordinate Financing –Information and Communication Technologies (ICTs) strategy 2

3 BDC supports Canadian entrepreneurs 1,900 EMPLOYEES 29,000 SME CLIENTS $3B+ ANNUAL FINANCING ACTIVITY 100 BUSINESS CENTRES ACROSS CANADA $18B ASSETS $230M IN DIVIDENDS PAID TO SHAREHOLDER SINCE 1997 MISSION – Help create and develop Canadian business through financing, venture capital and consulting services, with a focus on small and medium-size enterprises.

4 BDC offers services for various needs FINANCING SUBORDINATE FINANCING VENTURE CAPITAL CONSULTINGSECURITIZATION Term loans with flexible repayment schedules Hybrid instrument combining debt and equity without ownership dilution Direct and indirect equity investments in multiple technology sectors Business consulting, planning and management solutions Debt financing that relies on the pooling of illiquid assets $17B committed 1 2.9% of Canadian term financing market 2 $500M committed 1 $737M committed 1 5% of reported VC transactions ($) in Canada 3 1,927 mandates in F $711M ABS outstanding under CSCF 4 $440M authorized under MSPSO 4 1 As at March 31, Based on 2008 data from Statistics Canada’s survey of SME financing suppliers, Based on BDC authorizations (direct investments only) versus total industry authorizations taken from Thomson Reuters 4 CSCF = Canadian Secured Credit Facility, outstanding as at February 29, 2012; MSPSO = Multi-Seller Platform for Small Originators, authorizations as at March 31, 2012

5 BDC is a Crown corporation >Single Shareholder – the Government of Canada >Mandated to be financially sustainable >Mandated to play a complementary role in the marketplace >BDC supports entrepreneurs, and responds to specific Government requests >The Government looks to BDC for “real-life” insights into the world of entrepreneurs

6 Innovation is a Government priority Prosperity Growth & Productivity Innovation The Canadian Government wants to create value-added jobs by supporting innovation, with a focus on the ability of high-growth and knowledge-based firms to access capital.

7 Capital is always needed for growth >Revenue growth requires capital >Growth firms often lack tangible security >Some also lack management skills in marketing, HR >High growth = high risk to many commercial financial institutions When high-growth Canadian firms fail to seek or secure the financing needed to achieve a certain scale: >They are often acquired by larger U.S. or international companies. >Future domestic and international growth is cut short, as are many benefits to the Canadian economy.

8 VC - More, but smaller, funds Number of GPs per $1 trillion of GDP Average GP fund size CA $ Millions U.S.Canada Assumes exchange rate of 1.21 CAD/USD 2 Average is inflated by larger funds, such as BDC, Growthworks, Vengrowth, and Fonaction Source: McKinsey analysis based on data from Thomson Reuters, Thomson Financial, Funding Venture Capital Deals for High-Growth Companies in Canada

9 VC - The jam is spread too thin Average amount invested/company CA $ millions Source: VC Reporter, Investment Analytics U.S.Canada

10 VC - Less attractive exits Canadian VC-backed companies exiting in the U.S. perform worse than U.S. companies Average exit price , CA $ millions Canadian companies exiting in Canada Canadian companies exiting in U.S. U.S. companies exiting in U.S. Many examples of exhausted funds pushing for early exit Source: McKinsey analysis based on data from Thomson Reuters, Datastream Analysis excludes impact of any Canadian companies not backed by VC

11 BDC’s venture capital model supports innovation and growth DIRECT INVESTMENT INDIRECT INVESTMENT Build and support world-class Canadian venture capitalists STRATEGIC INITIATIVES AND INVESTMENTS Help stimulate VC and innovation ecosystems Build leading Canadian technology businesses Manage and grow diversified portfolio Attract, develop and retain high-potential investment professionals Support objectives with a flexible and responsive organization and an entrepreneurial VC culture

12 > Catalyze emergence of new tech firms > Mentor entrepreneurs and improve their chances of commercialization success > Bridge the seed/early stage gap > Catalyze emerging start-up/innovation clusters Strategic investment strategies to fill the innovation financing gap > Support funds and projects that have compelling national, regional or strategic relevance > Provide an institutional LP presence in the seed/early stage space > Support high-quality teams capable of bridging the financing/mentoring gaps > Identify, groom and grow new GPs in small funds Accelerator Investments Seed/early stage and small fund Strategic Funds This framework includes well-defined investment criteria within the context of a national framework with a regional approach. It is designed to ensure meaningful BDC impact, as well as a sustainable investment model over the long term.

13 BDC Subordinate Financing also supports innovation and growth BDC Subordinate Financing: >An approach based on trust, full business partnership >A pioneer in the field for over 10 years >BDC offers experience: –Without dilution or conversion –Preset output –Less expensive –Non-interventionist >Fast & effective process >Flexible repayments schedule >Variable return structure

14 Flexible financing for growth firms What we finance >Company Transition –Inter-generations –Existing direction (MBO) –New team (MBI) >Growth –Cash flow funding –New markets –New product launch –Improving efficiency –Foreign development >Acquisitions What we offer >Subordinate Debt >Quasi-Equity >Synthetic Equity >Mezzanine >Equity >For an amount of 250k$ to 12M$ >Over 3 to 7 years 14 What we look for >Passionate entrepreneurs executing their plan >Solid management >Clear and defined market position >Established line of credit

15 Too few entrepreneurs use ICT use software for enterprise resource planning or customer relationship management use the Internet to sell their products and services online Source: NetPME Use of ICT by Canadian SMEs (Cefrio) October 2011 – 2,000 SMEs surveyed 17% 25%

16 >Adoption rate of enterprise resource planning software packages in Canadian SMEs Scale matters: the larger the SME, the more likely they are to adopt ICT Source: NetPME Use of ICT by Canadian SMEs (Cefrio) October 2011 – 2,000 SMEs surveyed EMPLOYEES EMPLOYEES 33.3% 51.9% 5-19 EMPLOYEES 19.4%

17 Entrepreneurs are constrained by limited money, expertise and time LACK OF COMPETENT OR SPECIALIZED PERSONNEL LACK OF TIME 18.7% 10.4% INADEQUATE ACCESS TO FUNDING 23.2% Source: NetPME Use of ICT by Canadian SMEs (Cefrio) October 2011 – 2,000 SMEs surveyed > Barriers to ICT Adoption

18 Entrepreneurs must adopt ICTs to improve productivity > In support of the Government’s Digital Economy Strategy, BDC is helping SMEs to understand and implement ICT solutions. 25%-30% Labour productivity gap between Canada – U.S., increasing since th Canada’s rank among OECD countries, output per hour 60% Canadian ICT investment per worker compared to U.S. “A key... fact that emerged from the diagnosis of Canada’s labour productivity gap with the U.S. is the much lower level of ICT investment and capital stock per worker in Canada relative to the U.S.” –Centre for the Study of Living Standards, February 2010

19 BDC’s ICT strategy has three phases, supported by various tools >Internet strategy >System selection >Social media −Presence −Coaching −Monitoring >e-Marketing >ICT financing >Other solutions being considered Consideration Adoption Awareness >Smart Tech site −e-Book −Ask a PRO −One pagers −Success stories/ testimonials −Website Assessment −ICT Assessment >Marketing campaign >External webinar >Speaking engagements >Website diagnostic >Online sale >ICT essentials >ICT diagnostic

20 The ICT strategy is seeing results BDC’s ICT Financing: >Up to $50,000 at preferential interest rates >Reimbursed over 4 years >Simplified and accelerated process >Term financing to cover investments in ICT: –Hardware –Software –Consulting Services –Internet Since the launch in October 2011: 381 ICT loans approved $40M approximate value 33,700 visitors to Smart Tech 14,865 Web assessments 485 ICT assessments 551 e-Books downloaded

INFO BDCwww.bdc.ca Theodore Homa Senior Partner, International Consulting Service 1 (514) Thank You For further information: Jérôme Nycz SVP Corporate Strategy & Subordinate Financing

22 Back-up Slides

23 Testimonial: Educator Supplies Limited >A national retailer of educational toys and teaching materials for schools, daycares, teachers and parents with 25 retail stores across Canada and multiple catalogues and web sites >Subordinate financing of $1M and term loan of $350K >Financing needed to upgrade technology/web presence, including ICT hardware/software, to: –re-engineer its web sites and generation capabilities –enhance ability to use social media in marketing –enable better marketing, customer communication and feedback –install computer kiosks in its stores for searching entire product catalogue This clientanticipatesincreased salesand improvedability tocommunicatewith customers

24 Testimonial: tappeques.com “BDC provided me a web diagnostic that will really make a difference in improving my online bookstore and reaching more customers in the unique market I am targeting … the diagnostic provided a clear sense of direction as to where I should take my business and make it successful. The final report was also very well-structured. Overall, the online experience was amazing. It truly was a great solution for my website.” – Celina Gutierrez,