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Venture Capital and US Competitiveness

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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

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