Perspectives on Venture Capital October 11 2007 Today’s Discussion Perspectives on Venture Capital  Impact on US Economy  Impact on EU Economy  Creating a favorable VC enviro

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Perspectives on Venture Capital October 11 2007 Today’s Discussion Perspectives on Venture Capital  Impact on US Economy  Impact on EU Economy  Creating a favorable VC enviro Powered By Docstoc
					Perspectives on Venture Capital
October 11, 2007
Today’s Discussion: Perspectives on Venture Capital


     Impact on US Economy
     Impact on EU Economy
     Creating a favorable VC environment




                                                      2
Venture Capital Is a Major Force in the US Economy


     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


                                                                             3
Source: Venture Impact, 2007 – 2005 data
Venture Capital Drives US Economic Growth By Creating
Jobs and Revenue
                               Jobs                               Revenue
  Millions, Venture Backed Companies               USD Trillions, Venture Backed
                                                   Companies




                   Total US VC investment in 2005 = $23 billion (0.2% of US GDP)
                                                                                   4
Source: Venture Impact, 2007
Venture Capital Backed Companies Have Outperformed
Their Non-Venture Counterparts

  Recent Past: Employment and Revenue growth, CAGR 2003-2005

                                                      Employment   Revenue



    Venture backed
    companies




    All companies




                                                                             5
Note: 2003-2005 GDP growth (nominal) was 13.5% (i.e., 6.5% CAGR)
Source: Venture Impact, 2007
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




                                                                             6
Note: 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
      VC backed companies,        Employment    Sales
      2005                          millions   billions

        Media / Entertainment /      2.0         299
        Retail
        Computers and                1.9         466
        Peripherals
        Industrial / Energy          1.2         268

        Financial Services           0.9         134

        Software                     0.9         211

        Biotech / Medical            0.5         NA
        Devices / Equipment

                                                            7
Source: Venture Impact, 2007
 VC Job Creation Relative To Non-Venture Counterparts is
 Even More Pronounced in Specific Industries
  Employment 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




                                                      9
Venture Capital Investment in Europe Has Driven Job
Creation
  Europe Venture Capital (2004)

  Total investment in 2004                             10.3
  (€ billions)


  Number of companies funded in 2004                   5,557



  Total employment in all venture funded companies     ~1.0
  (# of employees, millions)


  Employment in venture funded companies as            ~5%
  proportion of employment in DJ STOXX 600 companies

                                                               10
Source: EVCA Report, November 2005
 Job Growth in Venture Backed Companies Far Exceeded
 Overall European Job Growth

    Employment growth, CAGR 1997-2004


      Venture backed
      companies


      Overall
      (EU – 25 countries)*




                                                       11
* Estimated based on 2000-2004 data
Source: EVCA Report, November 2005
 Highest Employment Growth in Biotech, Health Care, and
 Medical Device Industries
  Employment growth in European venture backed companies, CAGR 1997-2004




                                                       Average =
                                                        30.5%              12
Source: EVCA Report, November 2005
 University Spinoffs Had the Highest Job Growth
  Employment growth in European venture backed companies, CAGR 1997-2004




                                                                           13
Source: EVCA Report, November 2005
Venture Funded Firms Have a Strong R&D Focus

                       Employee Mix                   R&D Spending
  % of total employees for European         R&D expenses, € thousands per
  venture funded companies                  employee

  Work in R&D functions               33%


  Are researchers or
                                      26%
  engineers


  Have a PhD                          13%




         European VC backed companies are spending ~45% of expenses on R&D
                                                                             14
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




                                                      15
Many of Today’s Most Innovative Business Models Came
From Venture Backed Companies




    However, raising VC funding remains a challenge in most
                     developing economies                     16
                                                                       THEMES
How Can Countries Create a More Favorable                           FOR DISCUSSION

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)
                                                                                 17
Diaspora Can Have a Significant Impact
     Nature of contributions                      Leveraging the Diaspora

   Remittances and investment                    Create emigrant networks
      – In 1999, 70% of China FDI came from           –Professional
             Chinese people living abroad             –Economic
          – Silicon Valley Indians “seeding”          –Educational
             startups in Bangalore & Hyderabad        –Social
   Knowledge and intellectual capital            Facilitate information flow
       – Advise to government (e.g., policy to        – Communication infrastructure
             encourage venture capital,
             deregulation of industries)              – E.g., database of expats, information
                                                       on investment opportunities
          – Financing of elite educational
             institutions                         Provide incentives
          – Business internships and exchange         – Financial: E.g. Foreign currency
             programs                                  deposits, removing restrictions on
                                                       profit repatriation
                                                     – Other: High profile awards
Source: McKinsey Quarterly                                                                      18
Leveraging Diaspora for Entrepreneurship: TiE Example
         The Indus Entrepreneurs (TiE): world's largest not-for-profit
         organization for entrepreneurs
 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
                                                                                        19
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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