Strategies for Raising Capital and Securing Financing

Agenda:1. Introduction of the Topic

2. Discussion to determine the type of businesses and outlook for the future (size of business, adding employees, growth of 10%, 20%, 30%, selling globally)

3. “Where We Fit In”

4. Introduction of the panel

5. Mark Usher, Partner, Wellington Financial LP Covering Debt

6. John Marshall, President / CEO Ontario Capital Growth Corporation Government Programs

7. Andrew Wilkes, Managing Director, Management Initiatives Inc Review of Equity

8. Q&A

The Panel:• Mark Usher, Partner, Wellington Financial LP

• John Marshall, President/ CEO at Ontario Capital Growth Corporation

• Andrew Wilkes, Managing Director, Management Initiatives Inc.,and Co-chair, National Angel Capital Organization (NACO)

Where Angels Fit InStage of

Development

Sour

ces

of

Cap

ital

Research & Developme

nt

Prototype Seed Start-up Growth Mature

Funding Intensity

Government and Universities (10K-500K)

Friends and Family (2K – 300K)

Individual Angels (10K – 250K)

Venture Capital (2M – 12M)

M&A/IPO (91.5M/ 79.7 for venture deals)Commercial Banks

Single Angel Groups (250K – 1M)

Angel Group Syndicate & Angel Funds (1M – 5M)

Wisdom Exchange 2012:Strategies for Raising Capital and Securing

Financing

March 29, 2012

Government Programs

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Ontario Emerging Technologies Fund (OETF)• $250M direct co-investment fund, investing into high-potential Ontario-

based companies chosen by private sector qualified investors in:► Clean technology;► Life sciences and advanced health technologies; and► Digital media and information communication technology companies.

• Ease the lack of risk capital available to Ontario’s most promising companies

• Qualified Investors source, assess, and negotiate investments based on market principles

• OETF receives the same equity return as other market based investor► Not a loan or grant

• Currently 27 Qualified Investors and 4 Angel Syndicates

• As of March 26, 2012 OETF has committed $55M in 35 co-investments (both initial and follow-on)

• For more information please visit: www.ontario.ca/ocgc

Strategies for Raising Capital and Securing Financing – Government Programs

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OETF in Action – Qualified Investors

Strategies for Raising Capital and Securing Financing – Government Programs

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OETF in Action - Portfolio Companies

Strategies for Raising Capital and Securing Financing – Government Programs

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Investment Accelerator Fund (IAF)• Helps accelerate the growth of new technology companies being established in

Ontario and positions them for further investment by angels and venture capitalists

• Invests up to $500,000 in companies that have the potential to be global leaders in their field and provide sustainable economic benefits to Ontario

• The IAF program is managed by MaRS and delivered through the Ontario Network of Excellence

• For more information please visit: www.marsdd.com/aboutmars/partners/iaf

Strategies for Raising Capital and Securing Financing – Government Programs

Ontario Network of Excellence (ONE)• ONE is a province-wide team of member organizations with commercialization experts

which include:

• Services and programs:

• For more information please visit: www.oneinnovation.ca

►experienced entrepreneurs ►tech-savvy advisors

►sector-specific organizations ►colleges and universities

►Advisory services►Financing and investors - ONE can steer businesses toward financing programs and opportunities with potential investors

►Industry-academic programs►Customer development►Educational programs

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FedDev• Established in August 2009 to help the southern Ontario economy

mitigate and overcome regional and global economic challenges

• FedDev Ontario supports the competitiveness, innovation, and diversification of southern Ontario's economy by:

► delivering strategic investments to businesses, not-for-profit organizations and communities;

► establishing and strengthening collaborative partnerships with key economic stakeholders; and

► representing the region's interests at the national level.

• Offers a number of programs. One of note is the Investing in Business Innovation - boosts private sector investment in start-up businesses to accelerate the development of new products, processes and practices and bring them to market

• For more information please visit: www.feddevontario.gc.ca

Strategies for Raising Capital and Securing Financing – Government Programs

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Executive SummaryHighlights

• Wellington Financial manages a $450 million investment program.► Canada’s 17th Fastest-Growing company

according to PROFIT Magazine’s 2009 “PROFIT 100” rankings.

► 6 of the 2011 Deloitte Fast 50 – Canada’s fastest growing companies – were Wellington portfolio companies; 10 of 2009/10 Deloitte Fast 50 were also Wellington companies.

• Product Offerings:► Term loans from $2 - $30 million;► No principal amortization.

• Highlights:Senior debt or 2nd charge behind a bank;Venture debt;6 months to 4 year term, inc. renewals;30 days to close a transaction.

• Cost of Capital:Up front fee (2%-3%)Coupon (12%-13%)Warrant CoverageAll in cost – high teens

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$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

Millio

ns

Executive Summary: Target Customer

Target Customer

• Must have meaningful revenue, management, external board members, etc.► Generally greater than $5 million in trailing revenue.

• High growth private companies that want to delay the dilution of an equity offering.

• Existing users of amortizing venture debt looking to re-fi.

• Public companies needing capital not available at a suitable price or on an appropriate timeline.

• Companies feeling “the pinch” from their 12

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Co-investment example

www.PondBioFuels.com

Angel investors $1,260Commercialization customer 1,300Commercialization grant 1,930Commercialization loan 930Total $5,420

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Types Of Capital Available to Canadian High Growth Companies14-Apr-09

Cost Capital Type of Capital Key Features Use of Capital Capital Providers

SR&ED Tax Credits Zero! Up to 41.5% Credit Eligible R&D Gov't of CanadaRefundable Province of OntarioClaim < 18 Months

Senior Debt P to P+3% First Security Working Capital Chartered Banks"On Demand" Fixed Asset Finance Asset Based LendersAsset Based; Covenants Some AcquisitionsP&I Monthly

Mezz Debt/High Yield 10-15% Junior Secured Acquisitions Hedge FundsMonthly Interest/some PIK LBO / MBO Specialty FinancePrincipal Varies Working Capital Some Chartered BanksBalloon Pymts5 year term

Subordinated Debt 10%-17% Junior Secured Working Capital Merchant BanksWarrants/Success Fee Acquisitions Some Chartered BanksCash flow Coverage Fixed Asset Finance Specialty FinanceP & I Monthly LBO/MBO2-5 year term

Venture Debt 15-20% Junior Secured Typically Event Focused Venture LendersWarrants/Success Fee M&A Specialty Capital FirmsEnterprise value Focus Bridge to Higher ValuationInterest Only Growth CapitalBoard Observer

Convertible Debt 25%+ Unsecured Growth Capital Merchant BanksConvert @ a future date Fund R&D Venture CapitalistsLimited Term/expiry Build out sales force Hedge FundsBoard Seat Working Capital GrowthInterest Capitalized Acquisitions

Preferred Shares 35%+ Liquidation Preferences Business Expansion Venture Capital Outrank Common Fund R&D Merchant BanksTypically 5 year term Build out sales force AngelsRedemption/Retraction Working Capital GrowthBoard Seat AcquisitionsInterest CapitalizedForced Sale processSenior Exec ApprovalAnnual budget approval

Common Shares 40%+ Board Seat Start Up Costs AngelsAnnual budget approval Fund R&D Merchant Banks

Some Venture Capitalists

The Depth of Angel Capital

© National Angel Capital Organization

Where Angels Fit InStage of Development

Sour

ces

of

Cap

ital

Research & Development

Prototype Seed Start-up Growth Mature

Funding Intensity

Government and Universities (10K-500K)

Friends and Family (2K – 300K)

Individual Angels (10K – 250K)

Venture Capital (2M – 12M)

M&A/IPO (91.5M/ 79.7 for venture deals)Commercial Banks

Single Angel Groups (250K – 1M)

Angel Group Syndicate & Angel Funds (1M – 5M)

© National Angel Capital Organization

NACO –The Canadian Angel Association

• Non-profit association (small staff, volunteer Board)• Formal Angel groups and individual members (2000+)• 12th year - best practices in Angel investing

• Networking events, annual Summit• Angel education and standards (Term Sheets, Diligence,

Valuation +++)• Research studies and statistics (info generates $ for NACO)• Advocacy and communications (member value)• Finance (sustainability of NACO and groups)

• www.angelinvestor.ca

© National Angel Capital Organization

Significance of Angel Capital

ANGELS

Invest own $Invest widely

Invest more

© National Angel Capital Organization

Worldwide Trends in Angel Investing!

• Individual Angels banding together • formal group, informal groups

• Matching funds (angels as a catalyst)• customers, tax credits, sidecar funds, government programs, network

development

• Capital milestone - focused - prototype validation →commercialization → global market penetration.

• “Asset allocation in Angel portfolios ”

© National Angel Capital Organization

• Items to consider: • Quality deal flow (executable high growth potential)• Depth of management• Smart money• Defined roles of participating Angels• Due diligence (value proposition, defensible, strong IP) • Deal structure vs. valuation• Scale fast – global business models (Opentext 5/95)

Maximizing Return, Minimizing Risk

© National Angel Capital Organization

Co-investment example

www.PondBioFuels.com

Angel investors $1,260Commercialization customer 1,300Commercialization grant 1,930Commercialization loan 930Total $5,420

Join us in Halifax, Canada!•Date: October 24 – 26, 2012•Location: Marriott Harbourfront, Halifax, Nova Scotia, Canada •Registration: http://2012angelsummit.eventbrite.com/

Q & A