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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 environment. Venture Capital Is a Major Force in the US Economy .
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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 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, 2005 Employment millions Sales billions Media / Entertainment / Retail Biotech / Medical Devices / Equipment Computers and Peripherals Software Industrial / Energy Financial Services 2.0 1.9 1.2 0.9 0.5 0.9 NA 134 466 211 299 268 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 8 Source: Venture Impact, 2007
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 (€ billions) 10.3 Number of companies funded in 2004 5,557 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% 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 venture funded companies R&D expenses, € thousands per employee 33% Work in R&D functions Are researchers or engineers 26% 13% Have a PhD 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
How Can Countries Create a More Favorable Environment for Venture Capital THEMES FOR DISCUSSION • 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 • 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 • 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 18 Source: McKinsey Quarterly
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 20