How Do You Turn Innovation Into Jobs?
Venture Capital and U.S. Competitiveness
National Academies
April 20, 2007
Karen G. Mills
mills@soleracapital.com
Private equity is beginning to operate as a global business
Sources of Private Equity Capital Operating / Tax Home of Funds & Principals Geography of Investments
U.S.
• State Pension Funds • Endowments • Other Private
U.S.
U.S. based
Europe
Asia Non-U.S. Private
Non-U.S Private Non-U.S. Government
Middle East
Latin America Other Markets
Non-U.S. Government
Return of Capital
Illustrative
2
Investments in Asia are growing but little is venture
Asian Private Equity 2005 January-June ($Billions)
5.6
Venture
5.1
1%
No. of Deals (6) (77)
5.1 Japan 1.5
No. of Deals
14%
34%
(11)
Expansion/ Growth
28%
China .8 Korea .7
(22) (2) (42)
Buyouts 55% growth vs. YAG
58%
65%
(15)
India .5
Other 1.6
(11)
Asia: Funds Raised
Source: Asian Private Equity Review
Asia: Capital Invested
Investment: By Country 3
Over $26 billion of venture money was raised last year
$billions 120
Venture Capital Fund Raising Activity (1995-2005)
10 7 .4
100
80
60
5 7 .1
40
2 9 .9 19 .7
3 8 .0 2 6 .0 17 .9 10 .7 3 .9
20
3 .5 2 .0 5 .3 8 .9 4 .0 10 .2
11.5
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Source: NVCA
2005
4
Venture capital backed companies grow faster and create more jobs
CAGR* 2003 - 2005
+11.3%
+8.5%
+4.1%
+1.3%
Employment
Sales Total Growth
Venture Capital Backed Companies' Growth
*CAGR = Compound Annual Growth Rate Source: National Venture Capital Association; Global Insights study
5
Venture capital funding spurs innovation more powerfully than R&D
VC Spending as a percent of R&D (1983-1992)
3%
Percent of Industrial Innovation* accounted for by VC Backed Firms (1983-1992)
8%
Percent accounted for in 1999
14%
* Innovation is measured by patent production
Source: Samuel Kortum and Josh Lerner, RAND Journal of Economics, Winter 2000
6
How does innovation translate into jobs?
Basic Research
Invention Commercialization
Innovation
Job Creation & Economic Growth
• R&D • Marketing/Product Innovation
• Venture Capital • Small and Midsize Business Clusters
7
Small and medium sized firms are the key to growth and don’t receive enough focus
Large Firms
Small and Medium sized firms
• About half total employment
– Growing share
New Enterprises
• Over 500,000 new firms annually
• About half total employment
• Need to act globally
– Operate in low cost environment
– Be present where the markets are growing
• Need critical mass to attract the resources needed to grow • Hard to help one by one
• Account for 20% of job creation
• A high percentage fail
• Only about 3,000 venture backed each year
8
Only 3,000 new companies receive venture funding each year
Venture Capital Disbursements Number of Deals (In Thousands)
7.8
Venture Capital Disbursements by Industry Number of Deals (2005)
Biotechnology Business Products & Services Computers & Peripherals Consumer Products & Services
360 86 60 68 86 60 71 1 29 1 36 1 63 264 1 60 47 21 6 871 261 1 0 0 200 400 600 800 1 000
80008
70007 60006 50005
5.4 4.5 3.6 3.0 3.1 3.1 2.9 3.0
Electronics/Instrumentation Financial Services Healthcare Services Industrial/Energy IT Services M edia and Entertainment M edical Devices & Equipment Networking & Equipment Retailing/Distribution Semiconductors
40004 30003 20002
2.5 1.8 1.4 1.2 1.3 1.2 1.2
10001
0
1990 1992 1994 1996 1998 2000 2002 2004
Software Telecommunications Other
Source: NVCA
9
Cluster example: Boat Building and Composite Technology
210 Boat Builders/Yards identified as of 1-31-07 over 450 Marine trades/composites companies & growing
Source: Maine’s North Star Alliance, Business Database
10
Maine Built Boats
11
Boat Building cluster forces key collaborations
Research And Development Market Development Capital and Business Support Workforce Development
• University of Maine • Branding Maine Built Boats Maine Composite Technology Center
• Maine Technology Institute
• Venture Capital Access
• Community College • Apprenticeship Programs • Connection to workforce boards
12
Venture capital is one driver of U.S. competitiveness
1. Venture capital is an increasingly globalized industry 2. Entrepreneurial capital and investment expertise will remain a U.S. asset 3. Additional investment beyond venture capital is required to turn America’s innovation into jobs
• Small and medium size businesses
•
Clusters
13