1 October 24, 2008 Debt & Equity Funding Options Available to SMEs Charles Cazabon Vice President, Venture Capital Business Development Bank of Canada

2 Agenda Business Development Bank of Canada Balance sheet overview Financing options Venture Capital Conclusion

3 BDC: Canada’s Development Bank Help create and develop Canadian small & medium-sized enterprises (SMEs) through financing, investments and consulting Financing: term loans, subordinate financing, and venture capital (direct and indirect investments) Consulting services Practitioner’s perspective: –60+ years serving Canadian SMEs –Daily interaction with 28,000 clients –25+ years of data –$1 billion equity in more than 400 businesses since 1984 WHO WE ARE MISSION Government owned financial institution Autonomous, operates at arm’s length – Board of Dir. Pan-Canadian presence About $11 billion in assets Self-sustaining and profitable – pay dividend 76% of clients < 20 empl. Accelerate SME success VISION WHAT WE DO

4 BDC Snapshot Small niche player with complementary role 3.4% of term financing market ($ outstanding) 94 branches, 1,700 employees Partner with public and private institutions Profitable to address market needs and growth of our clients  Self-sustaining – does not receive Government appropriations  Must maintain ability to withstand economic downturn  Reported $84.6 million net income in fiscal 2008  $156.7 million in dividends to Government of Canada since 1997

5 The BDC “Difference” The BDC “Difference” Medium to long-term financing for land and building, equipment, working capital Unique client approach based on management ability and commitment to company Client-centric approach: –93% satisfied with BDC services –95% of credit decisions decentralized Price according to risk –Secured and unsecured financing Address higher risk segments –Manufacturers: 33.4% of BDC’s total dollar portfolio with $3.6 billion outstanding, about 7,000 clients –Innovators (R&D, high tech, intangible assets) –Cyclical sectors: i.e. tourism and construction –Commercialization of research (very early stage & patient investor) Twice as many start-ups than market 10% versus 5% market More fast-growth firms than market 23% versus 13% market SECURITY SHORTFALL F08 AUTHORIZATIONS 100 % Co-Vision 39% Productivity Plus 100% Innovation Financing 25% All Loans (excl. Sub Fin)

6 BDC Venture Capital Investing since 1975 Notable successes: Intrawest, Pioneer Chain Saw, Ozite Carpets 80’s technology focus: Ballard Power, Creo Products, Tundra, Miranda, Sandvine BDC is major provider of risk capital to companies with high growth potential and promising strategic positions, operating in the high technology and biotech sectors >$185M committed to 16 specialized funds: VenGrowth, Venture Coaches, Springbank, Waterloo Technology, JL Albright & Ventures West Invest $100 to $130M/year As at March 31, 2008 assets totalled approximately $500M

7 Balance Sheet (W/C) Subordinated Debt Capital Current Assets Fixed Assets Soft Assets AssetsLiabilities / Equity Accruals Accounts Payable Operating Line Retained Earnings Term Debt

8 Financing Options Accruals Accounts payable Operating line Term debt Subordinated debt Retained earnings FFF Venture Capital

9 Venture Capital Terms Prefs & Debentures 5 to 15 year hold Capital gains Up rounds / down rounds Double dip Pay-to-play Incentives for management

10 Low conversion rate Long lead time: due diligence 2/6/2 1/5/4 Exits are essential to success: public issue, M&A, or « put » Lemons and cherries More money is almost always needed Characteristics of Venture Capital

11 Role of VC $$$ External relationships with banks, potential customers, other VC’s Guidance in financial and strategic matters, corporate governance, etc.

12 « Cons » of Venture Capital Partnership Dilution Management changes Reporting Outside board Providing an exit

13 Canadian VC Investment Activity Thomson Reuters – 2 nd Quarter ending June 2008

14 Conclusion Importance of variety of financing sources Current market conditions Controlling expenses Planning for surprises Self sufficiency