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BUSINESS DEVELOPMENT BANK OF CANADA PROSPERITY THROUGH INNOVATION

BUSINESS DEVELOPMENT BANK OF CANADA PROSPERITY THROUGH INNOVATION MR. JÉRÔME NYCZ SVP, CORPORATE STRATEGY & SUBORDINATE FINANCING. APRIL 26, 2012. Canada’s Business Development Bank. In this presentation: About the Business Development Bank of Canada (BDC)

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BUSINESS DEVELOPMENT BANK OF CANADA PROSPERITY THROUGH INNOVATION

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  1. BUSINESS DEVELOPMENT BANK OF CANADA PROSPERITY THROUGH INNOVATION MR. JÉRÔME NYCZSVP, 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 MISSION – Help create and develop Canadian business through financing, venture capital and consulting services, with a focus on small and medium-size enterprises. 1,900EMPLOYEES 29,000SME CLIENTS $3B+ANNUAL FINANCING ACTIVITY 100BUSINESS CENTRES ACROSS CANADA $18BASSETS $230MIN DIVIDENDS PAID TO SHAREHOLDER SINCE 1997

  4. BDC offers services for various needs 1 As at March 31, 2012 2 Based on 2008 data from Statistics Canada’s survey of SME financing suppliers, 2009 3 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 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 sizeCA $ Millions 1 2 U.S. Canada 1 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/companyCA $ millions U.S. Canada Source: VC Reporter, Investment Analytics

  10. VC - Less attractive exits Canadian VC-backed companies exiting in the U.S. perform worse than U.S. companiesAverage exit price 2000-2009, CA $ millions Many examples of exhausted funds pushing for early exit Canadian companies exiting in Canada Canadian companies exiting in U.S. U.S. companies exiting in U.S. Source: McKinsey analysis based on data from Thomson Reuters, DatastreamAnalysis excludes impact of any Canadian companies not backed by VC

  11. BDC’s venture capital model supports innovation and growth

  12. Strategic investment strategies to fill the innovation financing gap Accelerator Investments Seed/early stage and small fund StrategicFunds • 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 • 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 • Support funds and projects that have compelling national, regional or strategic relevance 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 Whatweoffer • Subordinate Debt • Quasi-Equity • Synthetic Equity • Mezzanine • Equity • For an amount of 250k$ to 12M$ • Over 3 to 7 years Whatwe look for • Passionate entrepreneurs executing their plan • Solid management • Clear and defined market position • Established line of credit 14

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

  16. Scale matters: the larger the SME, the more likely they are to adopt ICT • Adoption rate of enterprise resource planning software packages in Canadian SMEs 19.4% 5-19 EMPLOYEES 33.3% 20-99 EMPLOYEES 51.9% 100-499 EMPLOYEES Source: NetPME 2011 - Use of ICT by Canadian SMEs (Cefrio) October 2011 – 2,000 SMEs surveyed

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

  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 1984 “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 15th Canada’s rank among OECD countries, output per hour 60% Canadian ICT investment per worker compared to U.S.

  19. BDC’s ICT strategy has three phases, supported by various tools Adoption Awareness Consideration • Internet strategy • System selection • Social media • Presence • Coaching • Monitoring • e-Marketing • ICT financing • Other solutions being considered • 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 approximatevalue 33,700 visitors toSmart Tech 14,865 Web assessments 485 ICT assessments 551 e-Books downloaded

  21. Thank You For further information: Jérôme Nycz SVP Corporate Strategy & Subordinate Financing Theodore Homa Senior Partner, International Consulting Service 1 (514) 283-8742 Theodore.homa@bdc.ca 1 888 INFO BDC www.bdc.ca

  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 email 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 client anticipates increased sales and improved ability to communicate with 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, www.tappeques.com

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