Taking Risks, Building Fast:

Industry experts look at Ontario’s thriving Venture Capital space.

October 2013

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Michelle McBane

Investment Director

Investment Accelerator Fund

Suresh Bhat

Venture Capital Associate

Extreme Venture Partners

Moderator:

Mark Evans

ME Consulting — Owner

Panelists:

Ian Carew

Director

Northleaf Capital Partners

Simon Chong

Managing Director

Georgian Partners

David Unsworth

Partner

RBC Venture Capital

Participants

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Introduction

Invest in Ontario brought together 5 top venture capital specialists for a

roundtable discussion about Ontario’s capital fund climate for new start-

up companies. A key component of the discussion was how the Ontario

Venture Capital Fund (OVCF) and the Ontario Emerging Technologies

Fund catalyzed the industry and is helping innovators to attract

investment.

The following Q & A provides the perspective from the VC panelists and

what they believe is working to support more successful starts-ups in

Ontario.

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How is the current Ontario Venture Capital

landscape conducive to a new business start-up?

• In 2008, the Ontario Venture Capital Fund (OVCF) was established

to provide capital funds to start-ups – making the availability of

capital much easier.

• The $250 million Ontario Emerging Technologies Fund invests in 3

key sectors;

• Cleantech

• Life Sciences and Advanced Health Technologies

• Digital Media and Information/Communication Technologies

• Today, seed capital and angel investors are available, along with

larger fund amounts for expansion capital

• Now there is a range of funding available across all financial stages

for a company -- from seed capital through to growth and expansion.

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In what ways has the Ontario landscape changed

that would benefit my business?

• Our whole ecosystem is better at the early and seed-stage investing

• Ontario has become a lot better at getting very young, very

aggressive and very talented entrepreneurs coming out of our

engineering programs and getting their companies through that first

initial stage of financing.

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What unique opportunities does Toronto offer a

start-up?

• Ontario is known for enterprise software and has had big outcomes

with companies such as Algorithmics

• Toronto specifically has every single financial service, so you know

how to deal with enterprise software in terms of engineering support,

sales, retail, oil and gas, manufacturing, everything. “You are selling

to BIG companies.”

• Access to the best and brightest talent pool with over 40 top

universities and over 30,000 graduates in computer science

engineering each year.

• For example, BumpTop’s founder created a desktop user application

that was spun out of his Masters thesis at University of Toronto.

When he graduated he got commercial funding and eventually was

acquired by Google.

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How many funds are available in Canada?

• In Canada you don’t need 50 or 100 funds, only 10 or 20 that are

really focused on the best investment opportunities.

• There’s a pool of $205 million ($90 million from Ontario and $115

million from other institutional capitals) of leveraged capital.

• These funds span across seed funds, early stage investors, late

stage funds – a nice mix to generate returns.

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• The OVCF has a third party manager that can make decisions to

allocate the money to the best funds based on returns potential.

• Through longer term support. It is going to take five to eight years to

generate returns.

• However, the funds need to invest their capital, they need to

generate returns, as that's what's going to drive other investors into

the asset class. This longer-term support is critical to giving the

industry a chance to mature and grow.

How do the federal and provincial government

programs support Ontario start-ups?

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As an entrepreneur, what funding does Ontario

offer me?

• Funds such as the Investment Accelerator Fund from Ontario

provides active seed funds (over 65 deals in the last 4 years).

• Follow-on funds can be up to 5 times the amount for a seed-stage

fund for high quality companies.

• Many of the successful angels and entrepreneurs coming out of the

ecosystem come back, create new companies and reinvest – thus

the ecosystem loop effectively churns out more successful

companies, wiser entrepreneurs, and second, third, and fourth type

entrepreneurs.

• Ontario programs offer opportunities to work closely with other

entrepreneurs and bring other eyes, mentors and high quality advice

to the companies – increasing their chance of success.

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What amounts of funds are available?

• Accelerator programs for extreme start-ups provide mentorship and

from $50,000 - $200,000 right away without a lot of due diligence if

the start-up has a good team, are working on something that’s really

interesting, and there's a big market opportunity – they get a chance

right away.

• For every dollar reinvested, there’s been almost $30 in follow-on.

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What type of financial incentives are available in

Ontario?

• Access to funds through the BDC (Business Development Bank of

Canada) -- one of the most aggressive and most active venture

capitalists in Canada – and a Crown Corporation.

• Access to funds from OVCF, which has been key in all deals raising

funds of critical mass in Ontario in the last 5 years.

• Very generous tax credit programs.

• The R&D tax credit offers for every dollar spent on an accredited

activity in technology development, the company gets up to $.35

back.

• No interest payment loans. The FedDEV Investing in Business

Innovation (a $175 million fund) offers companies a loan, with no

interest payment terms over 60 months.

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How does Ontario VC funding compete with USA?

• Very favourably. The OVCF program has 8 funds; each of them

have deep domain expertise, deep operating expertise and are

competitive on a North American basis.

• These investments are made because these are the best companies,

not because they have to focus on local markets.

• An example from the Ontario portfolio is Fixmo. This started as 2

people working on mobile security. It was seeded here in Ontario

initially and when they reached a point where they could scale, they

got really good interest from the Valley and Kleiner Perkins invested.

• Fixmo started off small here in Canada, and then

investors helped scale it with an investment of $40 million.

• Fixmo is an example of how something can be built here, but

can then access investors outside of Canada, to go to the next

level.

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Is the growth capital handled domestically or

syndicated with US Venture Capitalists?

• It depends on the amount of funds required

• If you need $15-$25 Million, then the fund has to be more than $300

million.

• For example, RBC Venture Partners has 2 funds focused on

enterprise software that could provide all the funds, but it’s in the

best interest in many cases to bring in a US syndicate partner to lead

that growth equity and to get diversification because they bring

expertise to help the company expand into the US.

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What other advantages does Ontario offer start-ups

versus the USA?

• Talent! “Toronto is a better place than the Valley for initial start-ups

because in his mind (Canadian data entrepreneur) we had better and

cheaper technical talent.”

• The University of Toronto and University of Waterloo have a

mentality of building companies. The university doesn't take a portion

of the company and the invention. Whatever comes out is taken by

the entrepreneur, with the intent that they will give back to the

university.

• As well, U of T has very strong tech transfer and software

engineering programs and are building really great pools of people.

(Continued)

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What other advantages does Ontario offer start-ups

versus the USA?

• The support network and the ecosystem, (both provincial and

privately funded programs) educate the next generation of

entrepreneurs and take them to that next level -- to expand what's

going on in universities to a practical level.

• Availability of accelerators (i.e. Extreme, JOLT, and HYPERDRIVE)

to provide a really good opportunity to learn how to build a company.

• Loyalty/Retention of talent:

• It's rare that people leave a company after three or four months --

versus the jumping around that you often hear about in the Valley.

• People are here for the long haul and they're very loyal to the

company that they're building.

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Why Ontario?

• Because your dollars go a lot further -- at that very critical early

stage when you’re not generating any revenue and you don’t have

cash flow to keep going.

• Ontario helps companies take risks, build fast, and to get to that

validation stage where they can bring key investors to the table.

• If you would like to talk to a representative immediately about

expansion opportunities in Ontario, please call 1-800-819-8701 in

North America or 1-416-313-3469 internationally.

(Available: 8:30 - 16:30 EST)

• You can also email us at info@investinontario.com. A representative

will contact you within two business days.