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Overview of Canadian Venture Capital Trends and Performance in 2005

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This report provides a comprehensive analysis of the Canadian venture capital landscape as of April 2006, highlighting the stability and performance of investments compared to previous years. It discusses the amount invested, the number of companies financed, and the relative position of Canadian VC compared to the US. Furthermore, it examines trends in IT funding, early-stage investments, and the impact of foreign investments on the Canadian market. Insights from 2005 showcase both challenges and growth opportunities within Canada's private equity industry.

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Overview of Canadian Venture Capital Trends and Performance in 2005

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  1. T H O M S O N F I N A N C I A L IT.CAN RoundtableCanadian Venture CapitalOverviewApril 2006 Darrell PintoDirector, Global PE Performance

  2. Q4 Dollars Rebound From Q3 to Keep Pace With 2004 LevelsDollars Invested and Companies Financed # Companies Financed Amount Invested ($ Millions)

  3. Trend in Year Over Year Dollars Invested Shows StabilityDollars Invested and Companies Financed – Four Quarter Rolling Averages # Companies Financed Amount Invested ($ Millions)

  4. 2005 Activity Finishes on Par with 2004Dollars Invested and Companies Financed $5,930MM $3,748MM $2,647MM $2,616MM $1,836MM $1,829MM $1,674MM 1,015 Co’s 815 Co’s 740 Co’s 687 Co’s 645 Co’s 581 Co’s 591 Co’s 1999 2000 2001 2002 2003 2004 2005

  5. Canada Lags US in Relative TermsDisbursements: Canada & US Amount Invested ($ CDN Billions)

  6. Relatively Greater Number of Companies Financed in CanadaNumber of Companies Funded: Canada & US # Companies Financed

  7. 4 M&A: $130 bil (disclosed deals only) 3 PRIVATE EQUITY: $49 bil 2 EQUITY: $1524 bil 1 BONDS: $867 bil Canada’s Financial Markets in 2004

  8. PRIVATE EQUITY 3 Venture Capital is a Distinct Asset Class Announced Financings (2004 – June 2005) Attributes • Largely Equity • Active • Long Term EQUITY = 75% DEBT = 19% OTHER = 6%

  9. PRIVATE EQUITY 3 Canada’s Private Equity Industry is Young Canadian Funds Segmented by Age

  10. US VC Maturity versus Canada# of VC Funds by Vintage Year

  11. PRIVATE EQUITY 3 Ontario and Quebec are the Main Consumers of VC 2005 VC Dollars Disbursed ($ Millions)

  12. N.A. Context: Ontario and Quebec Finish in 7th and 9th Place2005 VC Disbursements Ranking by Province and State (Cdn$ MM) • Currency conversions made at deal dates – 2005 Exchange rate fluctuated between $1.20 and $1.16 • US data as per the MoneyTree survey conducted by PWC/Thomson Venture Economics/NVCA

  13. Montreal Tops 2005 Canadian VC ActivityDollars Invested by Major Urban Centres 2005 $1.829 Billion 2004 $1.836 Billion

  14. 3.3 Times More Invested in US Firms in 2005 Amounts Invested per Company, Canada & US Amount Invested ($ CDN Millions)

  15. VC Disbursements Relative to GDP Has Stabilized After the Sharp Decline Since 2000 VC Disbursements Relative to GDP Trends • Although this metric has declined uniformly since 2000 across North America, there has been a relative stabilization after 2003 • Quebec ranked first in 2004 with its VC disbursements amounting to 0.237% of its GDP. • Ontario and BC both shared second rank with 0.158% which was only slightly higher than the national average of 0.141%. Source for GDP data: Statscan and US Bureau of Economic Analysis

  16. Overall 2005 Fundraising Activity Surpasses 2004 by One ThirdNew Capital Commitments Amount Raised ($ Millions)

  17. Individuals Pensions Corporations Government Endowments Insurance Other Foreign Sources of Capital Differ Between Canada and the US (2004) CANADA Total VC$ Raised = $1.7 B Total Buyout$ Raised = $1.9 B US Total VC$ Raised = US$17.5 B Total Buyout$ Raised = US$45.5 B

  18. The Global VC Perspective … Patterns Look SimilarVC Invested Canada, US and Europe CANADA (Cdn $ bil) US (US $ bil) Europe (€ bil) TBD

  19. Canada’s Global Ranking in GDP and VC Disbursements Top 10: 2004 GDP by Nation Top 10: 2004 VC Disbursements by Nation 5thRanking 9thRanking All figures in $Cdn bil All figures in $Cdn bil

  20. Canada’s Global Ranking in VC Deal Activity 2004 Number of VC Deals by Nation 2004 Average Deal Sizes by Nation* 3rdRanking 24th Ranking All figures in $Cdn mil • Excludes Nations with < 10 deals in 2004

  21. IT Dollars Invested Down Marginally on Year over Year BasisDollars Invested and Completed Transactions in IT # Financings Amount Invested ($ Millions)

  22. Software, Communications and Networking Lead IT in 2005Dollars Invested in IT by Sub-Sector

  23. VCs Continue Investment into Existing PortfoliosIT Dollars Invested, New vs. Follow-On ($ bil) $4.3 $2.6 $1.7 $1.0 $0.9 $0.8

  24. Half of Disbursements Directed to Early Stage CompaniesIT Dollars Invested, Early vs Late Stage ($ bil) $4.3 $2.6 $1.7 $1.0 $0.9 $0.8

  25. Foreign Investment Sustains Stabilizing Trend in IT Expenditures in CanadaDollars Invested in Canadian Companies ($ billions) IT Domestic Investors $4.3 Foreign Investors $2.6 $1.7 $1.0 $0.8 $0.9 Non-IT Domestic Investors Foreign Investors $1.7 $1.1 $0.9 $0.9 $0.9 $0.8

  26. Most 2005 IT Deals Under $20 MMDistribution of 2005 IT Announced Deals ($ 000s) Entrisphere Inc. Cornice Inc. Meriton Networks Tropic Networks Nextone Communications Simpler Networks BelAir Networks Intellon Corp. JumpTap Inc.

  27. Top 10 (Disclosed) VC Deals of 2005 C&N C&N C&N C&N C&N * Includes foreign participation

  28. VC-Backed IPOs and M&As, Published Examples in Q4 2005

  29. Canadian VC-backed IPO and M&A Exit Trends# of Exits and Average Disclosed Transaction Sizes # VC-Backed Exits IPO Average Disclosed Offering/Transaction Sizes ($ MM) M&A

  30. Canadian PE Investment Returns Net Investment Returns for Periods ended June 30, 2005

  31. Former VC-backed Companies Perform Relatively Better than Non-VC backed Public PeersPost Venture Capital Index versus Other Public Market Benchmarks 1-year returns* 3-year returns* PVCI PVCI * as of January 24, 2006

  32. www.canadavc.com Questions? Darrell PintoDirector, Global PE Performance Email: Darrell.Pinto@thomson.com

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