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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

Debt & Equity Funding Options Available to SMEs

October 24, 2008

Charles CazabonVice President, Venture CapitalBusiness Development Bank of Canada

agenda
Agenda
  • Business Development Bank of Canada
  • Balance sheet overview
  • Financing options
  • Venture Capital
  • Conclusion
bdc canada s development bank
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.
bdc snapshot
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
the bdc difference
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” 
bdc venture capital
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
balance sheet
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

financing options
Financing Options
  • Accruals
  • Accounts payable
  • Operating line
  • Term debt
  • Subordinated debt
  • Retained earnings
  • FFF
  • Venture Capital
venture capital terms
Venture Capital Terms
  • Prefs & Debentures
  • 5 to 15 year hold
  • Capital gains
  • Up rounds / down rounds
  • Double dip
  • Pay-to-play
  • Incentives for management
characteristics of venture capital
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
role of vc
Role of VC
  • $$$
  • External relationships with banks, potential customers, other VC’s
  • Guidance in financial and strategic matters, corporate governance, etc.
cons of venture capital
« Cons » of Venture Capital
  • Partnership
  • Dilution
  • Management changes
  • Reporting
  • Outside board
  • Providing an exit
canadian vc investment activity
Canadian VC Investment Activity

Thomson Reuters – 2nd Quarter ending June 2008

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