Pooled Development Funds

1. “A new species has been discovered in the financial services industry which is peculiar to Australia. Whilst it may look the same as a number of other species, it has mutated quickly with some distinct differences….. It is in fact a PDF.”

2. Pooled Development Funds Tax effective catalysts for the Australian Venture Capital Industry ?

3. Expanded Habitat “Venture Capital no longer the domain of rich fat cats and institutions. Individual investors are now getting a look in”. The Australian, 14 October 2000 HOW ? WHY ?

4. Govt - part of the PDF food chain “Governments around the world now recognise that by fostering innovation there is a positive flow on in economic activity”

5. Industry Overview ~ Australia THE ECONOMIC IMPACT OF VENTURE CAPITAL SURVEY TOP 100 AUSTRALIAN COMPANIES, 1991 - 1996 Source: 1998 Pricewaterhouse Coopers

6. PDF Genre 1. Seed - business angels, private investors capital 2. “Start ups” - generally <10% of funds 3. Early stage expansion - i.e local expansion 4. Later stage expansion - i.e listing, National, Global

7. Environmental Stimulus - Tax Breaks • For the Entity • 15% tax on capital gain • 25% tax on interest income • Franking credits at company tax rate • For Shareholders Investing in a PDF • * NIL tax on capital gain • * Losses not tax deductible • * Nil tax on dividend income (franked or unfranked) • * Franked dividend income may be treated as accessible to gain advantage of franking credits to offset other income

8. Superannuation funds investing in PDF’s • DIY Funds - 5 or less members • No tax rebates available for the tax paid by the PDF • Larger super funds - 5 or more members • May apply for a tax rebate of the 15% • (paid by the PDF - to allow parity with overseas venture capital funds paying nil CGT - courtesy of the Ralph report). Eg. • Complying super funds • Life assurance companies • Pooled super trusts • Registered organisations ie. trade unions and friendly societies • Complying ADF’s

9. Limitations of the Species • Permitted • Must invest in Australian businesses • Must invest in new issued ordinary shares • - convertible notes and debt instruments must have PDF Board approval • Must invest approximately 10% of investee paid up capital • 65% of capital must be invested within 5 years • Not permitted • Retail • Property development • In companies with assets > $ 50 m • < 30% in any one company • Single investor not to hold > 30% of PDF (exceptions banks, life offices)

10. New Legislation - July 1, 1999 Watershed legislation improves efficiency and attractiveness for fund managers and investors Refer working model

11. Investment and Exit Process Realisation provides progressive liquidity A F C INVESTMENT REALISATION J A I C H B G A B C D E F G H I J D F E Investee Companies 1yr 2 3 4 5 6 7 8 9 10yr Investment Period

12. Working Model - Fund Size $20 million Return of Capital to Shareholders by way of share buy back $ $7m Profit $ $ $ NTA $1 Gross NTA $1.35 $3m $4m $5m $10m out IT. Co. Bio. Co. Soft. Co. Manuf. Co. A B C A Exit 12 mth 18 mth 3 yrs …. 10 yrs 6 mth Investment Time Line

13. Share Buy Back Gross Profit $ 7,000,000 Tax @ 15% $ 1,050,000 Available for distribution $ 5,950,000 plus original investment $ 3,000,000 NTA $ 1.29 Buy Back of Shares @ $ 1.29 $ 8,950,000 $ 1.29 = 6,937,984 shares or 34.68% of original issued capital bought back

14. Industry Overview ~ USA VENTURE ECONOMICS’ PRIVATE EQUITY PERFORMANCE INDEX (PEPI)RETURNS FOR INVESTMENT HORIZONS ENDING 31 DECEMBER Source: National Venture Capital Association NVCA and Venture EconomicsC

15. Industry Overview ~ UK BVCA VENTURE CAPITAL AND PRIVATE EQUITY PERFORMANCE MEASUREMENT SURVEY 1999 SUMMARY OF RESULTS Survey compiled by the WM Company in conjunction with British Venture Capital Association and Westport Private Equity Limited. (Westport).

16. VC Capital under Management 1999-2000 Committed $4.9b $2.6b value in investment vehicles 46% favour unlisted companies $2.3b uncommitted 569 investee companies

17. VC Allocation by Major Super Funds $10b WHY? Performance to 30 June, 2000 Australian Equities11.3% Alternative investments31.3% Commonwealth Super Scheme Public Sector Super Scheme $1b Australia Post 15% $150m 10% Potentially $1b

18. Growth in PDF Investment Total invested in VC industry $1.1b $476 m $20 m 1999 2000 99-2000

19. Industry Successes • Cochlear Ltd • Biota Ltd • Resmed Ltd • Vita Life Sciences Ltd

20. Government requirement on funds 7% plus 10% of profits Government Support for VC Industry • Federal Government • (i) Innovation Investment Funds $130 m 5 VC Co’s. • 2:1 - institutions $70m • (ii) Innovation Investment Funds$90.1 m 4 VC Co’s. • 1:1 - institutions $90m • Queensland Government • National leader in Biotech R &D $33.90 per capita • $270m commit to industry over 10 years • Employment in Biotech industry alone 7,690 • Innovation start up scheme • Specialist venture capital unit • Business Angels Group

21. What is the Habitat of the PDF ? Who should invest in a PDF? • Master Funds or Pooled Superannuation investors • Institutional Funds • DIY Super Funds • Special Situation Component of a Balance Portfolio • High Net Worth Private Investors

22. Why the Growth in Registered PDF’s 124 total 120 80 92 - 99 2000 2001

23. POOLED DEVELOPMENT FUND Biotechnology Information Technology Medical and Healthcare Industrial Energy Harnessingthe Global Trend in Private equity within Australia September 2000