GrowthWorks Reiterates its Superior Process for VenGrowth Shareholders and Responds to Misleading Claims by VenGrowth

TORONTO, ONTARIO--(Marketwire - March 21, 2011) - On March 18, 2011, the VenGrowth Funds Board ("VenGrowth Board") special committee issued a press release responding to GrowthWorks Canadian Fund Ltd.'s ("GrowthWorks" or "GrowthWorks Canadian Fund") solicitation of support for its proposed merger of the VenGrowth Funds into GrowthWorks Canadian Fund, as that proposal may be amended from time to time (the "GrowthWorks Proposal"). Many of the claims made by the VenGrowth special committee are misleading and ignore key facts about the GrowthWorks Proposal and the VenGrowth Board's past conduct.

GrowthWorks Has a Superior Process for Getting VenGrowth Shareholders the Best Deal

The GrowthWorks Proposal is both superior to the previous VenGrowth Board-backed Covington proposal and is designed to ensure VenGrowth Class A shareholders ("VenGrowth Shareholders") get the best deal available going forward. The GrowthWorks Proposal effectively creates a "two horse race" process where the GrowthWorks Proposal is matched against the VenGrowth Board recommended proposal. If the independent "Class A Shareholder Committee" determines that the financial terms of an alternative VenGrowth Board recommended proposal are superior to those of the GrowthWorks Proposal, then GrowthWorks Canadian Fund will stand down. Through this process, VenGrowth Shareholders will get the benefit of the "Superior Proposal". It's just that simple.

The VenGrowth Board wants you to leave the matter solely in their hands again – despite what happened last time. In their process, there is only "one horse" – the horse they pick and recommend to shareholders. Now that the VenGrowth special committee has apparently excluded it, VenGrowth Shareholders won't get the benefit of the GrowthWorks Proposal at all in their process.

GrowthWorks' and its managers' involvement as a "second horse" vying with the VenGrowth Board has already generated significant benefits for VenGrowth Shareholders, including:

• GrowthWorks' manager contributing up to $5million under the GrowthWorks Proposal toward any termination fees required to be paid to the VenGrowth Fund managers. The Covington Fund II manager made a similar offer under the Covington proposal, but only after GrowthWorks Ltd. entered the fray and put this improvement on the table.
• A host of other significantly improved merger terms;
• Exposing the large, previously undisclosed compensation to insiders through the "consulting" fees payable by the manager of Covington Fund II to a numbered company owned by four VenGrowth directors and management principals. That would have paid them millions of dollars per year in ongoing fees for no more than 5 hours a month of work.
• Without GrowthWorks Ltd.'s involvement, the Covington proposal would have completed, generating an ongoing revenue stream for the VenGrowth sponsor and manager principals, who form a majority of the VenGrowth Board, and have presided over such poor results for VenGrowth Shareholders.
• Presenting, in its recently mailed information circular, an alternative "two horse" process designed to bring greater independent oversight and value for VenGrowth Shareholders.

David Levi, CEO of GrowthWorks said, "We believe the "two horse race" process we have presented is clearly better for VenGrowth Shareholders. But to get the benefit of that process, shareholders need to complete and return the Support Agreement we recently mailed to them along with our information circular. We urge shareholders to take action now to better serve their interests and not leave matters solely in the hands of the VenGrowth Board again."

Getting the Facts Straight

Mr. Levi went on to comment, "It was completely predicable that the VenGrowth special committee would produce a litany of concerns about the GrowthWorks Proposal given GrowthWorks Ltd.'s role in bringing to light the troubling aspects of the Covington proposal – which was so strongly backed by the VenGrowth Board. However, the facts are clear that GrowthWorks Canadian Fund: (i) is one of Canada's oldest and largest retail venture capital funds, (ii) has completed more merger transactions than any other RVC fund in Canada, (iii) has skillfully managed liquidity through its peak redemption years and avoided going "off-redemption" – like many other RVC funds, including 3 of the 5 the VenGrowth Funds, and (iv) has a manager with the largest venture capital investment team in Canada (outside of Quebec). GrowthWorks is here for the long term and is committed to improving the situation for VenGrowth Shareholders." 

GrowthWorks Canadian Fund's more detailed responses to the misleading claims of the VenGrowth Board special committee are set out in the Appendix to this release.

GrowthWorks Canadian Fund believes it is positioned to provide the best stewardship for the VenGrowth Funds assets going forward for a number of key reasons, including:

• 33% Cross-Holdings - About 33% of the combined NAV of the VenGrowth Funds' venture portfolio are holdings common to GrowthWorks Canadian Fund. These are companies which GrowthWorks knows well and expects to generate strong divestment values from.
• Life Sciences Expertise - About 44% of the combined NAV of the VenGrowth Funds' venture portfolio are life sciences investments. GrowthWorks' manager's investment team has a strong track record and extensive experience in managing life sciences investments.
• Size, Scale & Operating Efficiency - Post-merger with the VenGrowth Funds, GrowthWorks Canadian Fund would have around $550 million in net assets and be the largest RVC fund in Canada outside of Quebec. This size and scale permits the merged fund to not only deliver greater diversification, but also significantly lower operating costs.
• Mature Portfolio - Over half of the post-merger venture portfolio would be at the "mature stage", ready for divestment within the next 2 years. This is expected to generate strong near term cash flows.
• Merger Experience - GrowthWorks has done many more RVC fund mergers than any other RVC fund in Canada. We have a track record of getting these transactions done right and on schedule. That is important to shareholders, investment advisors and dealers.

The GrowthWorks Proposal offers other key benefits for VenGrowth Class A shareholders, including:

• Improved redemption opportunities
• Lower MER
• Lower "Incentive Participation Amount" for the manager
• A manager that has never had a managed fund go off redemption

GrowthWorks Canadian Fund urges VenGrowth Class A shareholders to act now to protect their own interests by signing and returning the Support Agreement mailed to them and also available at www.sedar.com and www.growthworks.ca. VenGrowth shareholders have a choice to make. Do nothing and leave matters with the VenGrowth Board to carry forward again – knowing what happened last time. Or give your support to GrowthWorks and get the better "two horse race" process and better deal by signing and returning the Support Agreement.

The information in this press release is fully qualified by, and is subject to, the more detailed information contained in the Information Circular and Support Agreement sent to VenGrowth shareholders. This press release contains forward looking statements. See "Forward Looking Statements" in the Information Circular. There can be no assurance that the merger contemplated by the GrowthWorks Proposal will be completed on the basis proposed or at all. Commissions, trailing commissions, management fees and expenses all may be associated with investment fund purchases. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.

Appendix

Responses to Misleading Claims made by the VenGrowth Fund Special Committee

Claim: GrowthWorks doesn't have the best offer.

The Facts: The GrowthWorks Proposal is certainly superior to the only other offer that's been made public, the Covington proposal. Six months ago, the VenGrowth Board told you the Covington proposal was the "best deal" available. For who? For the sponsor and managers of the VenGrowth Funds perhaps, but not for Class A shareholders.

The GrowthWorks Proposal is not only better than the VenGrowth Board-backed Covington proposal, it will apply a process to ensure VenGrowth Class A shareholders get the best deal available going forward. The GrowthWorks Proposal effectively creates a "two horse race" process where the GrowthWorks Proposal is matched against the VenGrowth Board recommended proposal. If the independent "Class A Shareholder Committee" determines that the financial terms of an alternative VenGrowth Board recommended proposal are superior to those of the GrowthWorks Proposal, then GrowthWorks Canadian Fund will stand down. Through this process, VenGrowth Shareholders will get the benefit of the "Superior Proposal". It's just that simple.

Claim: GrowthWorks is stripping away future voting rights from VenGrowth shareholders.

The Facts: On the contrary, GrowthWorks Canadian Fund is empowering VenGrowth Shareholders to choose how to best serve their interests. By delivering a Support Agreement to GrowthWorks, VenGrowth Shareholders will be choosing the superior "two horse race" process to enhance the value coming their way. If they choose to do nothing, the only vote they will have is on the single proposal the VenGrowth Board steers their way. In the GrowthWorks process, if an alternative proposal is recommended by the VenGrowth Board and the fully independent Class A Shareholder Committee determines that the financial terms of the alternative proposal are superior to those of the GrowthWorks Proposal, GrowthWorks Canadian Fund will stand down and VenGrowth Shareholders will be entirely free to vote for that proposal.

Claim: GrowthWorks is purposely avoiding having its offer compared to other proposals.

The Facts: The independent Class A Shareholder Committee was established to do exactly that. It will look at the transaction the VenGrowth Board recommends, compare it with the GrowthWorks Proposal, and determine which is superior from a financial point of view.

GrowthWorks Canadian Fund presented its merger proposal to the VenGrowth Board in December 2010, and to its special committee again on March 14^th. GrowthWorks declined to sign the highly restrictive legal agreement that VenGrowth required as a condition to considering the GrowthWorks Proposal. That agreement would have prevented GrowthWorks from communicating with VenGrowth Shareholders, their investment advisors or the press. It would have empowered the VenGrowth Board to control the information that can flow to Class A shareholders. Remember this is the same board that recommended the Covington proposal and failed to disclose material compensation payable to VenGrowth insiders.

GrowthWorks Canadian Fund has a comprehensive public disclosure record and has gone public with its merger proposal. GrowthWorks has on several occasions advised the VenGrowth Board that it stands ready to engage in meaningful discussions about the GrowthWorks Proposal.

Claim: GrowthWorks' financial position requires serious scrutiny.

The Facts: The GrowthWorks Canadian Fund information circular (the "Circular") mailed to VenGrowth shareholders and available at www.sedar.com and www.growthworks.ca contains prospectus-level disclosure about GrowthWorks Canadian Fund. GrowthWorks Canadian Fund is a full reporting issuer of long standing. Its audited Financial Statements and MRFPs are available at www.sedar.com and www.growthworks.ca. GrowthWorks Canadian Fund has offered to discuss with the VenGrowth Board special committee any further information they may require for their review beyond the extensive public record.

It's clear that VenGrowth and GrowthWorks have taken very different approaches to managing fund liquidity and redemptions. The VenGrowth Board has taken funds off-redemption while allowing the VenGrowth managers to charge full fees. This is a lucrative outcome for the managers but a poor outcome for Class A shareholders. On the other hand, GrowthWorks and its manager have successfully managed fund liquidity and redemptions over time and past peak redemption periods.

The reality is that a combination of skills is involved in managing RVC fund liquidity, including assessing actual investor behavior (based on lengthy historical data), grooming external sources of financing to be drawn on if needed, and excellent divestment skills. The VenGrowth Board special committee claims that on August 31, 2010, shares of GrowthWorks Canadian Fund representing 63% of NAV were eligible for redemption. The actual figure is 25% lower after taking into account shares issued in connection with past mergers that remain subject to significant redemption restrictions. GrowthWorks knows from lengthy past experience that shareholder redemption patterns are consistent and reliable. 

GrowthWorks develops external sources of financing to manage short and medium-term liquidity needs. The $15 million standby credit facility referred to in the VenGrowth Special Committee's news release was never drawn upon but was available, out of prudence, to ensure GrowthWorks Canadian Fund could fulfill redemptions during the peak redemption period in 2010. The Roseway participation agreement, as reported in GrowthWorks' press release in May 2010, provided additional capital for follow-on financings of some of the most promising companies in GrowthWorks Canadian Fund's venture portfolio, and provided additional financial flexibility. Since that transaction closed in May 2010, GrowthWorks Canadian Fund and Roseway have combined to make over $15 million in follow-on investments at attractive metrics. Under the GrowthWorks Proposal, VenGrowth shareholders will specifically not be impacted by any costs of the Roseway transaction.

Here the facts speak for themselves. Who do you trust more on this matter? GrowthWorks, one of Canada's oldest and largest RVC funds with a track record of successfully meeting redemptions through its peak redemption years. Or the VenGrowth Board, which has taken three of its five funds off-redemption?

Claim: GrowthWorks' past actions reveal that its interest is for the GrowthWorks managers -- not shareholders.

The Facts:

• Since the Covington proposal was announced, the GrowthWorks manager has invested substantial resources in pursuing a better outcome for VenGrowth Shareholders, with no guarantee that the GrowthWorks Proposal will be successful.
• If the GrowthWorks manager had not intervened, the Covington proposal would have completed, preserving an ongoing revenue stream for the VenGrowth sponsor and manager principals. 8 of 10 members of the VenGrowth Board are current or past executives with the VenGrowth managers or sponsor.
• The VenGrowth managers are not just contracted managers of the VenGrowth Funds, they effectively control the VenGrowth Board. We believe the VenGrowth Funds' manager dominated governance structure led to the VenGrowth Board recommending the manager - and sponsor-friendly Covington proposal. In contrast to the VenGrowth Funds' governance structure, out of 12 GrowthWorks Canadian Fund directors, only David Levi is an executive officer of the manager of GrowthWorks Canadian Fund.
• Since GrowthWorks' current manager began managing it in 2002, GrowthWorks Canadian Fund has delivered performance well above the RVC peer group average and operating MER well below the average operating MERs of the VenGrowth Funds and the main other RVC funds operating in Ontario. See Appendix D and Appendix E to the GrowthWorks Canadian Fund Circular.
• It is standard industry practice for venture capital funds to provide their portfolio manager a "carried interest" in the fund's venture investment portfolio. The minimum venture portfolio return threshold that governs the GrowthWorks manager's carried interest, called an "Incentive Participation Amount", is higher than those adopted by the VenGrowth Funds, making it more difficult for the GrowthWorks manager to generate carried interest payments. The GrowthWorks manager did receive the referenced carried interest payments during a period when the annualized internal rate of return on the Fund's venture portfolio was 18%. Further, the GrowthWorks manager has agreed to reduce its carried interest by 25% in respect of venture investments acquired from the VenGrowth Funds.
• Given the volume of company specific knowledge and relationships at work in a venture portfolio, a shareholder-approved termination of the GrowthWorks Canadian Fund management agreement would take effect five years after the approval date to permit transition and portfolio wind-down. This contrasts with the management agreements for the VenGrowth Funds, which shareholders cannot in reality terminate, leaving the funds at the mercy of the VenGrowth managers who were to extract $28 million in "termination" fees in connection with the Covington proposal and agreed to that figure knowing their principals would also receive millions of dollars of ongoing fees from the Covington manager.

Claim: GrowthWorks' proposal has 11 conditions, which means that GrowthWorks has lots of outs and won't necessarily follow through on its promises.

The Facts: The GrowthWorks Proposal is subject to a number of customary conditions that are similar to those found in most merger transactions, including the Covington proposal. The VenGrowth Fund circular for the Covington proposal listed 20 conditions, at least 6 of which were for the direct or indirect benefit of the VenGrowth managers or sponsor. GrowthWorks' manager has a history of closing 8 prior RVC fund mergers with similar kinds of conditions.

The VenGrowth Board has repeatedly let Class A shareholders down by:

• presiding over losses that have generally been worse than the peer group average;
• choosing to manage liquidity by taking 3 of the 5 VenGrowth Funds off redemption (while still allowing the manager to charge full fees);
• agreeing to pay the VenGrowth managers over $28 million in termination and other fees without any independent financial analysis;
• recommending the Covington proposal which was clearly not the best offer available; and
• failing to disclose to shareholders the multi-million dollar "consulting" fees that would be paid to the principals of the VenGrowth managers in connection with the Covington proposal.

In contrast, the GrowthWorks manager has delivered on its promises to VenGrowth Shareholders to:

• take action against the Covington proposal; and
• come forth with a significantly better deal for VenGrowth Shareholders.

Claim: GrowthWorks' has refused to meet or to provide crucial financial information.

The Facts: The Circular mailed to VenGrowth shareholders and available at www.sedar.com and www.growthworks.ca contains prospectus-level disclosure about GrowthWorks Canadian Fund. GrowthWorks Canadian Fund is a full reporting issuer of long standing. Its audited Financial Statements and MRFPs are available at www.sedar.com and www.growthworks.ca. GrowthWorks Canadian Fund has offered to discuss with the VenGrowth Board special committee any further information they may require for their review beyond the extensive public record. Over the past two years, GrowthWorks has on several occasions offered to meet with representatives of the VenGrowth Funds to discuss potential merger transactions and, most recently, to discuss the GrowthWorks Proposal. GrowthWorks has yet to receive an unconditional offer from the VenGrowth Special Committee to do the same.

Claim: GrowthWorks' is trying to scare off other bidders.

The Facts: We know the Canadian retail venture capital business as well as any group in Canada and strongly believe that GrowthWorks Canadian Fund is the best candidate to acquire the VenGrowth Funds' assets. The GrowthWorks Proposal provides for independent scrutiny of any alternative proposal recommended by the VenGrowth Board. This key element of the GrowthWorks Proposal is needed because we believe the VenGrowth Board has proven to be incapable of placing the interests of Class A shareholders ahead of the interests of the VenGrowth managers and sponsor.

Claim: VenGrowth shareholders will be presented with a transaction in a matter of weeks.

The Facts: The VenGrowth Board's so-called "strategic" review process has lasted for years. Last time they said the Covington proposal was the "best deal", when clearly it was not. VenGrowth Class A shareholders deserve a better deal. The GrowthWorks Proposal has a "two horse race" process designed to get them the benefit of the best deal available.