How Do You Turn Innovation Into Jobs? Karen G. Millsmills@soleracapital.comNational AcademiesApril 20, 2007Venture Capital and U.S. Competitiveness2Private equity is beginning to operate as a global businessSources of Private Equity CapitalOperating /Tax Home of Funds & PrincipalsGeography of InvestmentsNon-U.S. GovernmentNon-U.S PrivateU.S.•State Pension Funds•Endowments•Other PrivateNon-U.S. GovernmentNon-U.S. PrivateU.S. basedOther MarketsLatin AmericaMiddle EastAsiaEuropeU.S.Return of CapitalIllustrative31%65%34%Asia:Capital Invested5.1(6)(77)(15)No. of DealsInvestments in Asia are growing but little is ventureAsian Private Equity2005 January-June ($Billions)58%28%14%VentureExpansion/GrowthBuyouts 55% growth vs. YAGAsia: Funds Raised5.6Source:Asian Private Equity ReviewOther 1.6India .5Korea .7China .8Japan 1.5Investment: By Country5.1No. of Deals(11)(22)(2)(42)(11)43.52.05.34.08.910.211.519.729.957.1107.438.03.910.717.926.0020406080100120199019911992199319941995199619971998199920002001200200320042005Source: NVCAOver $26 billion of venture money was raised last year $billionsVenture Capital Fund Raising Activity (1995-2005)5Venture capital backed companies grow faster and create more jobsSource:National Venture Capital Association; Global Insights study*CAGR = Compound Annual Growth RateCAGR* 2003 -2005EmploymentSalesVenture Capital Backed Companies' GrowthTotal Growth+4.1%+1.3%+11.3%+8.5%6Venture capital funding spurs innovation more powerfully than R&D* Innovation is measured by patent productionSource:Samuel Kortum and Josh Lerner, RAND Journal of Economics, Winter 2000VC Spending as a percent of R&D(1983-1992)Percent of Industrial Innovation*accounted for by VC Backed Firms (1983-1992)Percent accounted for in 19993%8%14%7How does innovation translate into jobs?Basic ResearchInventionInnovationCommercializationJob Creation & Economic Growth•R & D•Marketing/Product Innovation•Venture Capital •Small and Midsize Business Clusters8Small and medium sized firms are the key to growth and don’t receive enough focusLarge FirmsSmall and Medium sized firmsNew Enterprises •About half total employment•Need to act globally–Operate in low cost environment–Be present where the markets are growing•About half total employment–Growing share•Need critical mass to attract the resources needed to grow•Hard to help one by one•Over 500,000 new firms annually•Account for 20% of job creation•A high percentage fail•Only about 3,000 venture backed each year9Only 3,000 new companies receive venture funding each year102618712164716026416313612971608668608636002004006008001000OtherTelecommunicationsSoftwareSemiconductorsRetailing/DistributionNetworking & EquipmentMedical Devices &EquipmentMedia and EntertainmentIT ServicesIndustrial/EnergyHealthcare ServicesFinancial ServicesElectronics/InstrumentationConsumer Products &ServicesComputers & PeripheralsBusiness Products &ServicesBiotechnologySource: NVCA1.41.21.31.21.21.82.53.03.65.47.84.53.12.93.03.10123456781990199219941996199820002002200480007000600050004000300010002000Venture Capital DisbursementsNumber of Deals (In Thousands)Venture Capital Disbursements by IndustryNumber of Deals (2005)10210 Boat Builders/Yards identified as of 1-31-07over 450 Marine trades/composites companies & growingSource: Maine’s North Star Alliance, Business DatabaseCluster example: Boat Building and Composite Technology11Maine Built Boats12Boat Building cluster forces key collaborationsResearchAndDevelopmentMarketDevelopmentCapital andBusiness SupportWorkforce Development•University of MaineMaine CompositeTechnology Center•Branding Maine Built Boats•Maine Technology Institute•Venture CapitalAccess•Community College•Apprenticeship Programs •Connection to workforce boards13Venture capital is one driver of U.S. competitiveness1.Venture capital is an increasingly globalized industry2.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