perspectives on venture capital october 11, 2007
TRANSCRIPT
Perspectives on Venture CapitalOctober 11, 2007
Today’s Discussion: Perspectives on Venture Capital
Impact on US Economy
Impact on EU Economy
Creating a favorable VC environment
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Venture Capital Is a Major Force in the US Economy
Source: Venture Impact, 2007 – 2005 data
Total revenue of Venture Capital backed companies: 16.6% of US GDP
Total employment of Venture Capital backed companies: 9.0% of US Private Sector employment
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Venture Capital Drives US Economic Growth By Creating Jobs and Revenue
Source: Venture Impact, 2007
Jobs
Millions, Venture Backed Companies
Revenue
USD Trillions, Venture Backed Companies
Total US VC investment in 2005 = $23 billion (0.2% of US GDP) 4
Venture Capital Backed Companies Have Outperformed Their Non-Venture Counterparts
Note: 2003-2005 GDP growth (nominal) was 13.5% (i.e., 6.5% CAGR)Source: Venture Impact, 2007
Recent Past: Employment and Revenue growth, CAGR 2003-2005
Employment Revenue
Venture backed companies
All companies
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Venture Backed Firms Have Driven Revenue and Employment Growth Even During Economic Slowdowns
Economic Slowdown: Employment and Revenue growth, CAGR 2000-2003
Employment Revenue
Venture backed companies
All companies
6Note: 2000-2003 GDP growth (nominal) was 11.7% (i.e., 3.7% CAGR)Source: Venture Impact, 2007
Venture Capital is Not Just About Information Technology
Source: Venture Impact, 20077
VC Job Creation Relative To Non-Venture Counterparts is Even More Pronounced in Specific IndustriesEmployment Growth in Leading Industry Sectors, CAGR 2003-2005
Financial Services Biotechnology Electronics / instrumentation
Source: Venture Impact, 2007 8
Today’s Discussion: Perspectives on Venture Capital
Impact on US Economy
Impact on EU Economy
Creating a favorable VC environment
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Venture Capital Investment in Europe Has Driven Job Creation
Source: EVCA Report, November 200510
Total investment in 2004 (€ billions)
10.3
Number of companies funded in 2004 5,557
Europe Venture Capital (2004)
Total employment in all venture funded companies(# of employees, millions)
~1.0
Employment in venture funded companies as proportion of employment in DJ STOXX 600 companies
~5%
Job Growth in Venture Backed Companies Far Exceeded Overall European Job Growth
* Estimated based on 2000-2004 dataSource: EVCA Report, November 2005
Employment growth, CAGR 1997-2004
Venture backed companies
Overall (EU – 25 countries)*
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Highest Employment Growth in Biotech, Health Care, and Medical Device Industries
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Employment growth in European venture backed companies, CAGR 1997-2004
Source: EVCA Report, November 2005
Average =30.5%
University Spinoffs Had the Highest Job Growth
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Employment growth in European venture backed companies, CAGR 1997-2004
Source: EVCA Report, November 2005
Venture Funded Firms Have a Strong R&D Focus
Employee Mix
% of total employees for European venture funded companies
R&D Spending
R&D expenses, € thousands per employee
European VC backed companies are spending ~45% of expenses on R&D14
Work in R&D functions 33%
Are researchers or engineers
26%
Have a PhD 13%
Source: EVCA Report, November 2005
Today’s Discussion: Perspectives on Venture Capital
Impact on US Economy
Impact on EU Economy
Creating a favorable VC environment
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Many of Today’s Most Innovative Business Models Came From Venture Backed Companies
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However, raising VC funding remains a challenge in most developing economies
How Can Countries Create a More Favorable Environment for Venture Capital
Provide tax incentives
– Encourage long term holding
– Keep it simple
– Unsuccessful attempts to learn from: Australia, South Africa
Educate investors, particularly foreign investors
– India example
Create critical mass
– Investment in university based research (e.g., on campus incubation)
– Immigration laws
– “Ok to fail” mindset
– “VC zones” with supporting systems (e.g., Silicon Valley, Research Triangle Park)
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THEMES FOR DISCUSSION
Diaspora Can Have a Significant Impact
Source: McKinsey Quarterly
Leveraging the Diaspora
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Nature of contributions
Remittances and investment
– In 1999, 70% of China FDI came from Chinese people living abroad
– Silicon Valley Indians “seeding” startups in Bangalore & Hyderabad
Knowledge and intellectual capital
– Advise to government (e.g., policy to encourage venture capital, deregulation of industries)
– Financing of elite educational institutions
– Business internships and exchange programs
Create emigrant networks
–Professional
–Economic
–Educational
–Social
Facilitate information flow
– Communication infrastructure
– E.g., database of expats, information on investment opportunities
Provide incentives
– Financial: E.g. Foreign currency deposits, removing restrictions on profit repatriation
– Other: High profile awards
Leveraging Diaspora for Entrepreneurship: TiE ExampleThe Indus Entrepreneurs (TiE): world's largest not-for-profit organization for entrepreneurs
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Founded in 1992 in Silicon Valley by a group of successful entrepreneurs, corporate executives, and senior professionals with roots in the Indus region
Currently 12,000 members in 45 chapters across 10 countries
Mission: foster entrepreneurship globally through mentoring, networking, and education
Achievements:
–Largest pool of intellectual capital anywhere
–Brand globally synonymous with entrepreneurship
–Annual conference, TiECon, regarded largest entrepreneurial forum in the world
–Helped boost the economies of the communities in which it operates
–Economic wealth creation estimated at $200 billion
–Significant involvement in social entrepreneurship
–Influenced liberalization of key economic sectors in India and Pakistan
Final Thoughts
Venture Capital is a local business
– Critical mass is key
– It is not technology
Leverage Diaspora
– Build networks
– Facilitate information flow
– Provide incentives
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