National Angel Organization Annual Summit Terry Matthews October 24th, 2005

Who is Wesley Clover? Significant investments in: Next Generation Networks Real Estate Leisure and Golf resorts Founded or funded over 60 hi-tech startups Not as a ‘pump and dump’ investor Most major investments are here in Canada Pretty good run-rate from initial investment to IPO

Significant investments in:

Next Generation Networks

Real Estate

Leisure and Golf resorts

Founded or funded over 60 hi-tech startups

Not as a ‘pump and dump’ investor

Most major investments are here in Canada

Pretty good run-rate from initial investment to IPO

Investment Philosophy Investment decisions based upon ideas and people Innovation is important, but innovation without commercialization is a challenge Use the success to fuel new investments Use stock options as a reward for success and encourage employee share ownership Leverage Government funds where possible Generate an attractive return to all parties

Investment decisions based upon ideas and people

Innovation is important, but innovation without commercialization is a challenge

Use the success to fuel new investments

Use stock options as a reward for success and encourage employee share ownership

Leverage Government funds where possible

Generate an attractive return to all parties

When Is a Good Time to Invest? Now is a good time to start a new venture, the talent is available Technology cycles come in waves Ottawa is a good example of a technology cluster, critical mass has been established here Need to stimulate more early stage investor activity Federal Government must encourage tax breaks for early investors – historically there is evidence of a 6:1 $ benefit to the federal government for every additional dollar invested in R&D intensive companies Investors will reap benefits Our portfolio companies will reap benefits Canadian economy will reap benefits

Now is a good time to start a new venture, the talent is available

Technology cycles come in waves

Ottawa is a good example of a technology cluster, critical mass has been established here

Need to stimulate more early stage investor activity

Federal Government must encourage tax breaks for early investors – historically there is evidence of a 6:1 $ benefit to the federal government for every additional dollar invested in R&D intensive companies

Investors will reap benefits

Our portfolio companies will reap benefits

Canadian economy will reap benefits

A Proof Point 604%+ Direct Return Government Investment in Newbridge

Venture Capital (Canada) Source: OCRI $CAN Millions

Concerns Lack of incentives for startups Ottawa has great technical skills - leadership and commercial pool needs to be improved Cost of Canadian innovation versus China and India In Canada, R&D as a percentage of GDP has declined since 2001 - In Asia (China, Taiwan and India) it is surging From 1995 to 2001, gross R&D spending in China, South Korea and Taiwan increased by about 140%. In Canada and the US it increased by only 65% and 34% respectively Chinese patents filed through the World Intellectual Property Organization 38% last year. Canada dropped 7%. Many new innovations acquired by US Companies - need to maintain a strong base here

Lack of incentives for startups

Ottawa has great technical skills - leadership and commercial pool needs to be improved

Cost of Canadian innovation versus China and India

In Canada, R&D as a percentage of GDP has declined since 2001 - In Asia (China, Taiwan and India) it is surging

From 1995 to 2001, gross R&D spending in China, South Korea and Taiwan increased by about 140%. In Canada and the US it increased by only 65% and 34% respectively

Chinese patents filed through the World Intellectual Property Organization 38% last year. Canada dropped 7%.

Many new innovations acquired by US Companies - need to maintain a strong base here

Summary Innovation is our life blood and we must strive for continued improvement It requires support from Government, Industry and Academia This is not a time to be complacent! It is a time for this country to be involved and not just a participant I continue to be involved and will be for a long time to come

Innovation is our life blood and we must strive for continued improvement

It requires support from Government, Industry and Academia

This is not a time to be complacent!

It is a time for this country to be involved and not just a participant

I continue to be involved and will be for a long time to come

Thank you...

The Telecom Nuclear Winter Telecom industry is a $150B industry – but came down from a peak of $250B+ It is a global market and Ottawa/Canada is one of the centres of excellence The market will evolve and new technologies will be adopted – it is a matter of time Bold investments will return handsomely Technology change causes churn in Telco and enterprise capital expenditures (typical industry cycles and technology waves)

Telecom industry is a $150B industry – but came down from a peak of $250B+

It is a global market and Ottawa/Canada is one of the centres of excellence

The market will evolve and new technologies will be adopted – it is a matter of time

Bold investments will return handsomely

Technology change causes churn in Telco and enterprise capital expenditures (typical industry cycles and technology waves)

A Dollar Here versus a Dollar There Value of a dollar in our economy versus in their economy Capital gain (tax) Capital spend Operational expenditure (rent, professional fees) Salary base Consumption taxes Intellectual capital and our centre of excellence Knock on effect - $1 invested generates $10 of economic activity

Value of a dollar in our economy versus in their economy

Capital gain (tax)

Capital spend

Operational expenditure (rent, professional fees)

Salary base

Consumption taxes

Intellectual capital and our centre of excellence

Knock on effect - $1 invested generates $10 of economic activity

Net Benefits Flowing to Government from Newbridge $ Billions in exports over the life of the company $ Hundred Millions invested in R&D Thousands new high tech jobs in Ottawa alone New tax revenues of over $Hundreds Millions Anchor company for high tech cluster (affiliate program) Development of several hundred local supplier jobs Strong relationships with local universities 2,000 hrs/employee of training - increasing local skill base

$ Billions in exports over the life of the company

$ Hundred Millions invested in R&D

Thousands new high tech jobs in Ottawa alone

New tax revenues of over $Hundreds Millions

Anchor company for high tech cluster (affiliate program)

Development of several hundred local supplier jobs

Strong relationships with local universities

2,000 hrs/employee of training - increasing local skill base

Stimulate R&D Investment through Private Sector (VC/Angel/private equity) Funding Sources

Let’s Encourage Early Stage Investment Angel community needs encouragement now!! VC’s are in the process of returning funds to investors (ie. They are NOT investing the money they have today!) Capital Gain tax holiday for early stage investor cost only 1.5% ($88) of the net-net proceeds of the $5,783 additional taxes reaped from the program Not in the analysis A profitable operating company (value to the economy of $30k - $50k per job - based on incentives paid to attract investment) Economic benefit from wealth creation through employee option plan (beyond salary driven accelerator effect) – Value to economy of a higher ratio of Disposable Income per Job Created? Wealth creation in the hands of the Angels Reinvestors in economic Activity!!

Angel community needs encouragement now!!

VC’s are in the process of returning funds to investors (ie. They are NOT investing the money they have today!)

Capital Gain tax holiday for early stage investor cost only 1.5% ($88) of the net-net proceeds of the $5,783 additional taxes reaped from the program

Not in the analysis

A profitable operating company (value to the economy of $30k - $50k per job - based on incentives paid to attract investment)

Economic benefit from wealth creation through employee option plan (beyond salary driven accelerator effect) – Value to economy of a higher ratio of Disposable Income per Job Created?

Wealth creation in the hands of the Angels

Venture Capital (Ottawa) Source: OCRI

Summary Early stage investment is a significant driver for the economy We should be investing when the price is low so we can reap when the price is high Two significant actions: TCG exemption for early stage investors to get things rolling ESOP tax exemption to retain our best and brightest

Early stage investment is a significant driver for the economy

We should be investing when the price is low so we can reap when the price is high

Two significant actions:

TCG exemption for early stage investors to get things rolling

ESOP tax exemption to retain our best and brightest

Enterprise gateways and IP Telephony and Applications Advanced desktop applications Hosted key systems Session Border Controllers XML Routing Rapid new service creation and deployment Peer to peer policy management Carrier class media processing platforms Digital Video Recording Solutions Policy Management Solutions

Enterprise gateways and IP Telephony and Applications

Advanced desktop applications

Hosted key systems

Session Border Controllers

XML Routing

Rapid new service creation and deployment

Peer to peer policy management

Carrier class media processing platforms

Digital Video Recording Solutions

Policy Management Solutions

Present Value Impacts on Tax System $1,000 Early Stage + $5,000 Follow-on Investment Capital gains $528 Early stage $88 ($113 five years out) Later Stage $440 ($565 three years out) Salary taxes $1,282 Downstream activities $6,123 Corporate income taxes $389 Transactional taxes $1,947 Salary taxes $3,787 Costs (ITC’s and PV of future loss carry forward) $2,150 Net-Net – Each $1,000 Early stage investment yields $5,783 in Taxes

Capital gains $528

Early stage $88 ($113 five years out)

Later Stage $440 ($565 three years out)

Salary taxes $1,282

Downstream activities $6,123

Corporate income taxes $389

Transactional taxes $1,947

Salary taxes $3,787

Costs (ITC’s and PV of future loss carry forward) $2,150