Mary Macdonald November 2005

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1 Overview of Venture Capital in Canada Investment Saskatchewan Leaders Forum Mary Macdonald November 2005

2 Private Equity Data Comprehensive information available on venture capital activity = detailed trend analysis Mezzanine and buyout data harder to come by = aggregate data only for mezz and buyout Investment activity in Saskatchewan covers full spectrum of private equity activity 2

3 Trend in Year-over-Year VC Invested Has Stabilized VC Invested and Companies Financed Four Quarter Rolling Averages Amount Invested ($ Millions) $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $890 $1,234 $1,325 $1,218 $902 $657 $553 $458 $435 $497 $434 $425 $1,053 $1,473 $1,288 $936 $754 $650 $496 $418 $472 $456 $ # Companies Financed $0 0 Q1'00 Q3'00 Q1'01 Q3'01 Q1'02 Q3'02 Q1'03 Q3'03 Q1'04 Q3'04 Q1'05 Q3'05 $ Invested # Companies 3

4 US Venture Market Also Looking Stable VC Investment in US Amount Invested ($ Billions) $30 $25 $20 $15 $10 $5 $28 $28 $26 $ $ $ $8 $7 $8 $ $5 683 $4 710 $4 679 $5 717 $5 695 $6 757 $5 $5 $ $5 $5 $6 $ ,500 2,000 1,500 1, # Companies Financed $0 0 Q1'00 Q3'00 Q1'01 Q3'01 Q1'02 Q3'02 Q1'03 Q3'03 Q1'04 Q3'04 Q1'05 Q3'05 $ Invested # Companies 4

5 Canada-US Investment Following Similar Trend Lines for $$ Disbursements: Canada & US Amount Invested ($ CDN Billions) $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $ * US CDN x 10 * First 9 Months - Annualized 5

6 Gap Persists in # of Firms Funded Number of Companies Funded: Canada & US 12,000 10,000 US CDN x 10 8,000 # Companies Financed 6,000 4,000 2, * * 2005 Annualized 6

7 YTD 3.8X More Invested in US Firms Amounts Invested per Company, Canada & US $30 Amount Invested ($ CND Millions) $25 $20 $15 $10 $5 $3.2 $18.3 $5.8 $24.8 $5.1 $16.8 $3.8 $13.2 $2.6 $11.4 $3.1 $11.3 CDN US $10.2 $2.7 $ YTD September

8 Absence of Mega-Deals Drive Down Average Financing Size Average Amount Invested per Company Average Amount Invested ($ Millions) $6 $5 $4.1 $4.1 $3.7 $4 $3 $2 $1 $0 Q1'00 $5.4 $3.4 $4.7 Q2'00 Q3'00 Q4'00 Q1'01 Q2'01 Q3'01 Q4'01 Q1'02 Q2'02 Q3'02 $3.6 $3.6 $3.6 $2.2 $2.6 $3.0 $1.6 $1.3 $2.5 $2.5 $2.0 $1.9 $3.0 Q4'02 Q1'03 Q2'03 Q3'03 Q4'03 Q1'04 Q2'04 Q3'04 Q4'04 $2.2 $1.9 $3.0 $1.6 Q1'05 Q2'05 Q3'05 Average -- $2.9MM 8

9 Ontario and Québec Primary Focus Dollars Invested by Region 37% 2% 12% 4% 2% BC AB Prairies 35% 2% 14% 1% 3% ON QC 43% Atlantic Provinces 45% YTD 2005 $1,231 Million 2004 $1,825 Million 9

10 VC Activity Concentrated on Major Centres Dollars Invested by Major Urban Centres 17% 11% Vancouver Kitchener-Waterloo 22% 9% 3% 1% 3% 4% Calgary-Edmonton Ottawa 4% 16% GTA 23% 25% Montréal 14% YTD 2005 $1,231 Million Québec City Rest of Canada 2004 $1,825 Million 25% 10

11 Traditional Sector Businesses Have Regained Some Favour Dollars Invested by Sector 100% 90% 80% 70% 60% 50% 40% 30% 10% 0% Q1'00 Q2'00 Q3'00 Q4'00 Q1'01 Q2'01 Q3'01 Q4'01 Q1'02 Q2'02 Q3'02 Q4'02 Q1'03 Q2'03 Q3'03 Q4'03 Q1'04 Q2'04 Q3'04 Q4'04 Q1'05 Q2'05 Q3'05 Life Sciences IT Other Technologies Traditional 11

12 New IT Deals Tough to Finance Amount Invested in IT by New vs. Follow-On $1,410 MM $4,225 MM $2,614 MM $1,695 MM $874 MM $940 MM $902 MM* 100% 80% 60% 40% 0% Sep-05 New Follow -on * First 9 Months - Annualized 12

13 Most Deals Now $1 million+ IT Deals by Size 378 Fing s 637Fing s 484 Fing s 341 Fing s 303 Fing s 266 Fing s 200Fing s 100% 90% 80% 70% 60% 50% 40% 30% 10% 0% Sep-05 a. <$500K b. $500K-$999K c. $1000K-$4999K d. >=$5000K 13

14 U.S. Investors Have Been Big Players in IT Share of Amount Invested in IT by Investor Type $1,410 MM $4,225 MM $2,614 MM $1,695 MM $874 MM $940 MM $904 MM* 100% 90% 80% 70% 60% 50% 40% 30% 10% 0% * Corporate Government Institutional Retail Private Independent Foreign Other * First 9 Months - Annualized 14

15 Life Sciences Activity Declines in Q3 Dollar Invested and Deals Done in Life Sciences Amount Invested ($ Millions) $350 $300 $250 $200 $150 $100 $50 $0 $ $ $ $ $ $ $ $176 $85 $ Q1'00 Q2'00 Q3'00 Q4'00 Q1'01 Q2'01 Q3'01 Q4'01 Q1'02 $ $ $87 41 $60 45 $73 33 $ $ Q2'02 Q3'02 Q4'02 Q1'03 Q2'03 Q3'03 Q4'03 Q1'04 $70 43 $60 $ Invested # Financings 31 $ $36 26 Q2'04 Q3'04 Q4'04 Q1'05 Q2'05 Q3'05 $166 $ # Financings 15

16 Canadian Life Science $$ Below Average $ Invested and # of Companies in Life Sciences $859 MM $688 MM $455 MM $502 MM $437 MM $470 MM Historical Average $543 MM $390 MM* 139 Co s 175 Co s 148 Co s 153Co s 115 Co s 117 Co s 114 Co s* YTD 2005* New Follow-On * 2005 Annualized 16

17 So Share to Life Sciences Down $ Invested by Sector; Canada $5,841 MM $3,728 MM $2,595 MM $1,662 MM $1,816 MM $962 MM 100% 90% 80% 12% 2% 8% 3% 11% 4% 18% 3% 19% 5% 18% 5% 70% 60% 50% 71% 70% 65% 53% 50% 56% 40% 30% 10% 15% 19% 19% 26% 27% 0% H 2005 Life Sciences IT Other Technologies Traditional 17

18 Vancouver Leads the Pack for Life Sciences This Year Life Science Disbursements by City 2% 7% Vancouver 16% 9% 21% 30% Victoria GTA 5% 17% Ottawa 2% 21% 15% 2% First Three Quarters, 2005 $242 Million Calgary- Edmonton Montréal Québec City All Other 24% 3% 4% 2004 $470 Million 22% 18

19 Activity in Saskatchewan Has Fluctuated Dollars Invested and Companies Financed in Saskatchewan $50 $45 $40 $17 $18 $24 $24 $21 $13 $47 24 $23 $31 $ Dollar Invested ($ Millions) $35 $30 $25 $20 $15 $10 $ # Companies Financed $ YTD Q $ Invested # Companies 19

20 Saskatchewan Maintains 10% Share of Western VC Disbursements $484 MM $868 MM $621 MM $461 MM $238 MM $331MM $222 MM Dollar Invested ($ Millions) 100% 90% 80% 70% 60% 50% 40% 30% 13% 5% 62% 2% 5% 66% 2% 7% 76% 4% 10% 66% 12% 10% 46% 7% 9% 75% 4% 10% 65% 10% 0% 32% 27% 21% 15% 8% Sep-05 AB BC SA MA 20

21 Unlike Rest of Canada, New Financings Capture Larger Share in Saskatchewan Dollar Invested in Saskatchewan by New VS Follow-On $24 MM $21 MM $13 MM $47 MM $23 MM $31 MM $22 MM Dollar Invested ($ Millions) 100% 90% 80% 70% 60% 50% 40% 30% 10% 0% Sep-05 New Follow-on 21

22 Firms In Traditional Sector Capture Largest Share of $$ Dollar Invested in Saskatchewan by Sector $ 24 MM $ 21 MM $13MM $47 MM $23 MM $ 31MM $ 22 MM 100% 90% 80% Dollar Invested ($ Millions) 70% 60% 50% 40% 30% 10% 0% Sep-05 Life Sciences IT Other Technologies Traditional 22

23 Modest Deal Sizes Typical in Province Dollar Invested in Saskatchewan by Deal Size $24 MM $21 MM $13MM $47 MM $23 MM $31MM $22 MM 100% 90% Dollar Invested ($ Millions) 80% 70% 60% 50% 40% 30% 10% 0% Sep-05 <$500K $500K-$999K $1000K-$4999K >=$5000K 23

24 Early Stage Companies Get Good Chunk of $$ Dollar Invested in Saskatchewan by Stage $ 24 MM $ 21 MM $13MM $47 MM $23 MM $ 31MM $ 22 MM 100% 90% 80% Dollar Invested ($ Millions) 70% 60% 50% 40% 30% 10% 0% Sep-05 Early Stages Later Stages 24

25 Retail and Government Funds Dominate VC Landscape Dollar Invested in Saskatchewan by Investor Type $24 MM $21 MM $13MM $47 MM $23 MM $31MM $22 MM 100% 90% Dollar Invested ($ Millions) 80% 70% 60% 50% 40% 30% 10% 0% Sep-05 Corporate Government Institutional Retail Private Independent Other 25

26 Retail Funds A Staple; Private Independent Increasingly Important Capital Raised in Saskatchewan by Investor Type Dollar Raised ($ Millions) $60 $55 $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 $54MM $31MM $30MM $32MM $25MM $26MM Government Private Independent Corporate Retail 26

27 2005 Disclosed Private Equity Deals In Saskatchewan Name Arlington Animal Big Sky Farms Inc. Churchill Energy Inc. Comco Financial Connex Trading Contential E.M. Welding Ltd. Frontier et al Hill Country Phenomenome Discoveries Inc. Saskcan Pulse Trading Inc. Solido Design Automation Inc. Sweeprite Mfg. Inc. Walker Seeds Ltd. Investors BDC Investment Saskatchewan Inc. and others Not disclosed Golden Opportunities Fund Inc. and others BDC BDC BDC BDC BDC Golden Opportunities Fund Inc. SaskWorks Venture Fund BDC and others Not disclosed FCC Ventures 27

28 Sources of Capital Differ Between Canada and the US Fundraising in 2004 C A N A D A Total VC$ Raised = $1.7 B 3% 4% 4% 7% 67% 15% Total Buyout$ Raised = $1.9 B 7% 3% 17% 22% 10% 41% Individuals Pensions Corporations Government U S Total VC$ Raised = US$17.5 B 9% 17% Total Buyout$ Raised = US$45.5 B 9% 19% Endowments Insurance Other 17% 9% 17% 7% Foreign 10% 12% 18% 16% 22% 28

29 PE-Backed Exit Success Since 1999 Canadian Exit Values Sizes Compared to Cumulative VC Investment* 89 IPOs 250 M&As 6% 4% 8% 5% 5% 5% 22% Greater than x20 52% Between x10 and x20 Between x5 and x10 NA Less than x5 NA *Disclosed data only 29

30 Canadian PE Investment Returns December 31, 2004 Investment Category Cumulative-since-Inception Horizon Results Results (pooled average) Periods in Years Upper Low er Quartile Median Quartile Early Stage Venture Capital Balanced Venture Capital Later Stage Venture Capital All Venture Capital Buyout & Mezzanine All Venture Capital and Private Equity

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