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Debt & Equity Funding Options Available to SMEs

Debt & Equity Funding Options Available to SMEs. October 24, 2008. Charles Cazabon Vice President, Venture Capital Business Development Bank of Canada. Agenda. Business Development Bank of Canada Balance sheet overview Financing options Venture Capital Conclusion.

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Debt & Equity Funding Options Available to SMEs

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  1. Debt & Equity Funding Options Available to SMEs October 24, 2008 Charles CazabonVice President, Venture CapitalBusiness Development Bank of Canada

  2. Agenda • Business Development Bank of Canada • Balance sheet overview • Financing options • Venture Capital • Conclusion

  3. BDC: Canada’s Development Bank MISSION VISION Help create and develop Canadian small & medium-sized enterprises (SMEs) through financing, investments and consulting Accelerate SME success WHAT WE DO WHO WE ARE • Financing: term loans, subordinate financing, and venture capital (direct and indirect investments) • Consulting services • Practitioner’s perspective: • 60+ years serving Canadian SMEs • Daily interaction with 28,000 clients • 25+ years of data • $1 billion equity in more than 400 businesses since 1984 • Government owned financial institution • Autonomous, operates at arm’s length – Board of Dir. • Pan-Canadian presence • About $11 billion in assets • Self-sustaining and profitable – pay dividend • 76% of clients < 20 empl.

  4. Small niche player with complementary role 3.4% of term financing market ($ outstanding) 94 branches, 1,700 employees Partner with public and private institutions Profitable to address market needs and growth of our clients Self-sustaining – does not receive Government appropriations Must maintain ability to withstand economic downturn Reported $84.6 million net income in fiscal 2008 $156.7 million in dividends to Government of Canada since 1997 BDC Snapshot

  5. Medium to long-term financing for land and building, equipment, working capital Unique client approach based on management ability and commitment to company Client-centric approach: 93% satisfied with BDC services 95% of credit decisions decentralized Price according to risk Secured and unsecured financing Address higher risk segments Manufacturers: 33.4% of BDC’s total dollar portfolio with $3.6 billion outstanding, about 7,000 clients Innovators (R&D, high tech, intangible assets) Cyclical sectors: i.e. tourism and construction Commercialization of research (very early stage & patient investor) Twice as many start-ups than market 10% versus 5% market More fast-growth firms than market 23% versus 13% market The BDC “Difference” 

  6. BDC Venture Capital • Investing since 1975 • Notable successes: Intrawest, Pioneer Chain Saw, Ozite Carpets • 80’s technology focus: Ballard Power, Creo Products, Tundra, Miranda, Sandvine • BDC is major provider of risk capital to companies with high growth potential and promising strategic positions, operating in the high technology and biotech sectors • >$185M committed to 16 specialized funds: VenGrowth, Venture Coaches, Springbank, Waterloo Technology, JL Albright & Ventures West • Invest $100 to $130M/year • As at March 31, 2008 assets totalled approximately $500M

  7. Balance Sheet Assets Liabilities / Equity Accruals Accounts Payable Current Assets Operating Line (W/C) Term Debt Fixed Assets Subordinated Debt Capital Retained Earnings Soft Assets

  8. Financing Options • Accruals • Accounts payable • Operating line • Term debt • Subordinated debt • Retained earnings • FFF • Venture Capital

  9. Venture Capital Terms • Prefs & Debentures • 5 to 15 year hold • Capital gains • Up rounds / down rounds • Double dip • Pay-to-play • Incentives for management

  10. Characteristics of Venture Capital • Low conversion rate • Long lead time: due diligence • 2/6/2 1/5/4 • Exits are essential to success: public issue, M&A, or « put » • Lemons and cherries • More money is almost always needed

  11. Role of VC • $$$ • External relationships with banks, potential customers, other VC’s • Guidance in financial and strategic matters, corporate governance, etc.

  12. « Cons » of Venture Capital • Partnership • Dilution • Management changes • Reporting • Outside board • Providing an exit

  13. Canadian VC Investment Activity Thomson Reuters – 2nd Quarter ending June 2008

  14. Conclusion • Importance of variety of financing sources • Current market conditions • Controlling expenses • Planning for surprises • Self sufficiency

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