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VENGROWTH FUNDS UPDATE

VENGROWTH FUNDS UPDATE. September 15, 2005. Who is VenGrowth What is Venture Capital Building the Next Ottawa Tech Boom How VenGrowth plans to generate returns for shareholders. AGENDA. Founded in 1982 Over $1.2 billion in assets – one of Canada’s largest managers of private equity

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VENGROWTH FUNDS UPDATE

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  1. VENGROWTH FUNDS UPDATE September 15, 2005

  2. Who is VenGrowth What is Venture Capital Building the Next Ottawa Tech Boom How VenGrowth plans to generate returns for shareholders AGENDA

  3. Founded in 1982 Over $1.2 billion in assets – one of Canada’s largest managers of private equity 23 experienced private equity managers and analysts #1 selling LSIF for eight consecutive years Independently owned by employees Toronto-based, with an Ottawa investment office WHO IS VENGROWTH

  4. What: Investments in privately owned companies Size: $400 Billion Who: Institutional (e.g. CPP) & High Net Worth Why: Long-term return potential, Diversification VENTURE CAPITAL INVESTING

  5. UNIQUE INVESTMENT STRUCTURES

  6. THE VENTURE CAPITAL INVESTMENT CYCLE 3-5 years IPO or M&A 3-6 months Strategic partnership agreements Invest in the company Grow the business Introduction to the company Operating milestones

  7. WHAT IS VENTURE CAPITAL? Less Risk More Risk Later-Stage Investing Early Stage Investing Mezzanine Financing Mid-Stage Investing Most Companies require $20 - $50 million and 3 – 5 rounds of financing to go from start-up to exit Industry Tech. Life Sciences Traditional Industries 20% 20% 60%

  8. THE J-CURVE EFFECT • Venture capital fund performance typically takes on the shape of a “J”, declining in early years and rising substantially in the middle and later years of the fund’s life. • Investing in later-stage companies helps lessen the J-Curve Value Time

  9. VC RETURNS BEAT OTHER MARKETS – OVER THE LONG-TERM

  10. STATE OF THE MARKET EXPLAINS SHORT-TERM PERFORMANCE Rolling 5 Year Returns for U.S. Venture Capital Funds 1980 - 2004 45 • UP CYCLE: • Renew demand • for growth • Increased merger and acquisition activity • More IPO’s 40 35 30 25 • DOWN CYCLE: • IPO’s on hold • Few acquisitions • Public Companies • “retrench” 20 Opportunity 15 10 5 U.S. venture capital returns are near 20-year lows 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2002 2003 2001 2004

  11. LSIF TAX CREDITS UNTIL 2010 • Intention to continue the Ontario provincial tax credit for NEW investments in LSIFs until 2011 RSP Season • Does not impact existing shareholders * Combined ON and federal tax credits

  12. VenGrowth Captures 6 of Top 10 Deals in 2005 Meriton Networks Inc. Kanata ON $67,380 Zelos Therapeutics Inc. Ottawa ON $53,030 Celator Technologies Inc. Vancouver BC $49,900 Tropic Networks Inc. Ottawa ON $41,180 Simpler Networks Inc. Dorval QC $31,200 Sandvine Inc. Waterloo ON $18,720 Liquid Computing Inc. Kanata ON $17,470 Cytochroma Inc. Markham ON $15,000 Positron Technologies Inc. Montreal QC $12,500 Nakina Systems Inc. Kanata ON $12,480 TOP 10 VC DISCLOSED DEALS IN 2005 Company City Province CDN $’000 Invested Source: Thomson Macdonald, Q2 2005 VC Report

  13. VENGROWTH FUND FAMILY Maximum Return Potential Most Diversified Most Conservative • VENGROWTH • TRADITIONAL • INDUSTRIES FUND • 30% Tax credits (Ont) • 100% RRSP eligible • Traditional industry • investments • (i.e. manufacturing • & services) • VENGROWTH III • DIVERSIFIED FUND • 30% Tax credits (Ont) • 100% RRSP eligible • Technology, • life sciences & • traditional industries • VENGROWTH • ADVANCED LIFE • SCIENCES FUND • 35% Tax credits (Ont) • 100% RRSP eligible • Diversified life sciences • (i.e. biotechnology, • medical devices, imaging • and diagnostics)

  14. Our Commitment to Advisors and Shareholders: We continue to attract the best investment opportunities in Canada Continue to adhere to a later-stage, conservative investment philosophy to control risk Will continue to work with existing portfolio companies to position them well for successful exits Our primary objective continues to be to generate shareholder returns VENGROWTH MANDATE

  15. THE OVERALL PROCESS Definition Idea /Opportunity Product ‘Beta’ Volume ‘Ship’ Prototype ‘Alpha’ Customer’s Like it 10-30 Employees Customer Traction Spec/ early proto Customer Trials Beta Product Successful trials Mgmt team Got What It Takes Founders Full Biz Plan Buzz Shipping Volume Big Customers, Revenues Complete Team Ah-Ha!! Entrepreneur Idea Early Biz Plan Buzz Angel $ F&F Self Liquidity Zone M&A IPO Capital Seed Round 1 Debt Round 2

  16. MARKET OVERVIEW Companies Needs/ Wants Products/ Services Infrastructure IT Services Software Enterprise Network PC Broadband Internet Network BBerry Living/ Working Servers Cell Phone VoIP Home Network Internet VoIP Communication PC Broadband Shopping Entertainment Digital Cable/S HDTV Home Theater IPTV PS2/Xbox Internet Broadband Growth PC MP3 Digital Camera Security

  17. MARKET OVERVIEW Infrastructure Security IT Services Broadband Internet Network Sonet/ Ethernet Broadband Internet Network Software Enterprise Network Network Software DSL Wireless Servers Cable Optical Network Access Network Cellular Network Compute Servers Storage Networks Chips

  18. MARKET STATS Companies $250B Products/ Services Infrastructure IT Services $220B $42B $200B Software Enterprise Network PC Broadband Internet Network BBerry Servers Cell Phone VoIP $50B $76B $1B Home Network Internet $1B $240B Broadband Shopping $117B $7B Digital Cable/S $5B HDTV Home Theater IPTV $10B PS2/Xbox $6.25Bsw $5.1Bhw MP3 $6B Digital Camera

  19. MARKET STATS $.3B Infrastructure Security $2B $.4B IT Services Sonet/ Ethernet Broadband Internet Network $22B Software Enterprise Network Network Software DSL Wireless Servers Cable Optical Network Access Network $.7B Cellular Network $70B Compute Servers Storage Networks $50B $42B Chips $220B

  20. HOT STUFF • Broadband • Ethernet • Mobility • Gaming • Shopping • Talk-talk-talk or… • - e-mail, v-mail, SMS • - Chat, VoIP, skype, blog… • Chips-chips-chips

  21. MARKET OVERVIEW Companies Products/ Services Infrastructure IT Services Software Enterprise Network PC Broadband Internet Network BBerry SiGe Servers Cell Phone VoIP Home Network Internet VoIP PC Broadband Shopping Digital Cable/S HDTV Home Theater IPTV Dreamcatcher PS2/Xbox Internet Broadband PC MP3 Digital Camera

  22. MARKET OVERVIEW NewStep Syndesis Nakina Infrastructure Critical IT Services Sonet/ Ethernet Broadband Internet Network Software Enterprise Network Network Software DSL Wireless Servers Cable Optical Network BTI, Meriton Access Network Cellular Network Compute Servers Storage Networks Chips Tundra SiGe ENQ

  23. THE STARTUP PIPELINE Definition Idea /Opportunity Prototype ‘Alpha’ Product ‘Beta’ Volume ‘Ship’ Class of 2002 Class of 2003 Class of 2004 Class of 2001 Shipping Volume Big Customers Revenues Complete Team 13 20 20 30 Liquidity Zone M&A IPO 1 Year 3 2 4 5

  24. INDUSTRY SPENDING IS KEY What’s taking so long for the recovery? • Capacity has been there to absorb demand over the past 5 years • Traffic is beginning to ramp up…approaching the wall. • This demand…cell phone, broadband, wireless, PDA, need for speed…will create need for more capacity.

  25. THE TECH RECOVERY WILL OCCUR BECAUSE OF RISING DEMAND Source: the Diffusion Group as of Jan. 25, 2005 Source: The Diffusion Group as of Jan. 25, 2005 Source: IDC Source: Pyramid Research. Data released March 2005

  26. IT SPENDING WILL RETURN DUE TO NETWORK BOTTLENECKS An aggressive build-out for computer network capacity occurred in the late 1990’s which resulted in massive IT spending. That capacity is now used up = more IT spending required. Network capacity in the 1990’s Network capacity today

  27. INDUSTRY SPENDING: TREND IS POSITIVE Seeds of recovery are being planted in many sectors of the telecom industry • Industry spending to grow from $720.5 billion in 2003 to $1 trillion in 2007. Telecommunications Market Review and Forecast. • Spending on broadband services in the U.S. expected to grow to $25 billion by 2007. • Non-U.S. telecom spending will grow at a compounded rate of 10.6% between 2004 and 2008 to more than $2 trillion by 2008. • Wireless spending in the U.S. will rise from $134.5 billion in 2003 to $190.8 billion in 2007

  28. SOME PROTFOLIO COMPANIES • Neterion • BelAir • SiGe Semiconductor • BTI Photonics • Nakina Systems • Sandvine • Symbium • Liquid Computing

  29. VENGROWTH INVESTEES ARE GROWING THEIR BUSINESSES “A few companies are quite mature, with IPOs possible in the next 12 months…several companies, such as SiGe Semiconductor (VG I, VGII), Quake Technologies (VG I, VG II), and Neterion (VG II), could pursue public offerings…” “Private Canadian Semiconductor Companies”, April 8, 2005 - Wellington West Capital Markets Inc. Big Partners Great Products

  30. Worldwide demographic trends: “28% of population will be above 60 years of age by 2025” Crucial need for better diagnostics and treatments for all major diseases AND on an outpatient basis Majority of treatments approved in the last 6 years originated from venture capital backed life sciences companies: Biotech industry is well established as the industry of innovations Biotech model is compatible with drug development trends aimed at targeting diseases with “smart drugs” (i.e. cutting off the blood supply to cancerous cells attacking the lung) MAJOR THEMES DRIVING LIFE SCIENCES INVESTING

  31. LIFE CYCLE OF DRUG DEVELOPMENT Before human trials Large sample patient testing Check safety - healthy volunteers Small samplepatient testing - dosage Concept and Proof-of-Principle Phase 1 Phase 2 Phase 3 Pre-Clinical NDA Market 4-5yrs 1yr1.5yrs 2yrs3-4yrs 1yr 100 5 1-2 • DRUG DEVELOPMENT • Management in place • Right timing for strategic partnerships • Right timing for Acquisitions and IPO’s • DRUG DEVELOPMENT • No management • Pharma and Biotech uninterested partners

  32. IPO/ M&A LIFE CYCLE OF DRUG DEVELOPMENT Concept and Proof-of-Principle Phase 1 Phase 2 Phase 3 Pre-Clinical NDA Market 4-5yrs 1yr1.5yrs 2yrs3-4yrs 1yr 100 5 1-2 DRUG DISCOVERY DRUG DEVELOPMENT

  33. CONCLUSIONS • Markets varied, but… • Absolutely understand underlying tech themes • Have deep expertise to pick and nurture winners • Portfolio companies play in established and emerging markets • Invest where companies have global, winning solutions • Many companies in our portfolio have done it • On the tech front • Starting to see ramp on the sales side • Must stay in the game to win • Next 18 months will start to see exits in the portfolio and with them, increasing return potential

  34. Established Industry Leader # 1 in fund raising; # 1 most active national VC investor Later-Stage Venture Capital Focus Conservative investment style to control risk Most Experienced Management Team Two decades specializing in venture capital and private equity Strongest Proprietary Deal Flow Reputation, value-added and success attracts premium opportunities Most Successful Track Record Over $300 million received from exit events WHY VENGROWTH?

  35. Thank You

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