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