Financing of NH's Entrepreneurial Ventures

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Financing of NH's Entrepreneurial Ventures

  1. 1. Financing of NH’s Entrepreneurial Ventures Jeffrey E. Sohl Professor of Entrepreneurship Director, Center for Venture Research University of New Hampshire NetworkNH White Paper April, 2005
  2. 2. <ul><li>Alexander Graham Bell – 1874 </li></ul><ul><li>“Well informed people know it is impossible to transmit the voice over wires, and were it possible to do so, the thing would be of no practical value” Boston Post </li></ul><ul><li>Gardiner Green Hubbard, Thomas Sanders </li></ul>
  3. 3. <ul><li>Thomas Edison – 1878 </li></ul><ul><li>Debut – Paris Exhibition </li></ul><ul><li>“When the Paris Exhibition closes, electric light will close with it and no more will be heard of it” E. Wilson, Oxford Professor </li></ul><ul><li>J.P. Morgan and Spencer Trask </li></ul>
  4. 4. The Early Stage Market <ul><li>Linear </li></ul><ul><li>vs. </li></ul><ul><li>Systemic </li></ul>
  5. 6. Linear INNOVATOR ENTREPRENEUR INVESTOR
  6. 8. Systemic INNOVATOR ENTREPRENEUR INVESTOR
  7. 9. Business Angels <ul><li>2004: 225,000 angels, invest approximately $22.5 billion in 48,000 ventures </li></ul><ul><li>2003: $18.1 billion in 42,000 ventures, </li></ul><ul><li>220,000 </li></ul><ul><li>2002: $15.7 billion in 36,000 ventures, 200,000 </li></ul>
  8. 10. Angel Yield Rates <ul><li># of deals funded / # proposals presented </li></ul><ul><li>1997: 12.00% </li></ul><ul><li>1998: 14.00% </li></ul><ul><li>2000: 23.26% </li></ul><ul><li>2001: 10.79% </li></ul><ul><li>2002: 7.10% </li></ul><ul><li>2003: 10.3% </li></ul><ul><li>2004: 18.5% </li></ul>
  9. 11. <ul><li>Angel investor population: </li></ul><ul><li>Individual growth rate : 15-20% annual </li></ul><ul><li>Latent angel membership </li></ul><ul><li>2004: 55% </li></ul><ul><li>2003: 48% </li></ul><ul><li>2002: 40% </li></ul><ul><li>2001: 41% </li></ul><ul><li>2000: 36% </li></ul><ul><li>1998: 32% </li></ul>
  10. 12. Angel Deals Sector 2003 2004 Software 26% 22% Telecommunications 5% 6% Electronics/Hardware 12% 5% Life Sciences 13% 16% Biotechnology 11% 10% Manufacturing 12% 11% IT Services na 8% Financial Services na 8%
  11. 13. NH Business Angels <ul><li>2003/2004: $12-16 million in 30-40 ventures </li></ul><ul><li>150 active angels </li></ul><ul><li>4 active angel groups, 70 members </li></ul><ul><li>Yield rate: 17% </li></ul>
  12. 14. Venture Capital Funds <ul><li>Year Total Deals per Deal </li></ul><ul><li>1999 $55.1 billion 5,686 $9.7 million </li></ul><ul><li>2000 $106.6 billion 8,221 $13.0 million </li></ul><ul><li>2001 $41.3 billion 4,711 $8.8 million </li></ul><ul><li>2002 $21.2 billion 3,011 $7.0 million </li></ul><ul><li>$18.2 billion 2,715 $6.7 million </li></ul><ul><li>$20.9 billion 2,876 $7.3 million </li></ul>
  13. 15. Venture Capital Funds - NH <ul><li>Year Total Deals per Deal </li></ul><ul><li>1999 $211 million 28 $7.5 million </li></ul><ul><li>2000 $726 million 55 $13.2 million </li></ul><ul><li>2001 $280 million 32 $8.8 million </li></ul><ul><li>2002 $208 million 35 $5.9 million </li></ul><ul><li>$161 million 32 $5.0 million </li></ul><ul><li>$149 million 24 $6.2 million </li></ul>
  14. 16. The Truth About Early Stage <ul><li>Seed and Start-up financing –VC </li></ul><ul><li>$3.3 b (6.0%) 809 deals (14.2%) </li></ul><ul><li>2000 $3.2 b (3.0%) 663 deals (8.0%) </li></ul><ul><li>$798 m (2.0%) 249 deals (5.1%) </li></ul><ul><li>$303 m (1.4%) 148 deals (4.9%) </li></ul><ul><li>$354 m (2.0%) 166 deals (6.0%) </li></ul><ul><li>2004 $346 m (1.7%) 171 deals (6.0%) </li></ul><ul><li> </li></ul>
  15. 17. The Truth About Early Stage <ul><li>Seed and Start-up financing –VC - NH </li></ul><ul><li>1999 $17 m (8.1%) 5 deals (17.9%) </li></ul><ul><li>2000 $22 m (3.0%) 6 deals (10.9%) </li></ul><ul><li>2001 $0 m (0%) 0 deals (0%) </li></ul><ul><li>2002 $0.75 m (0.3%) 1 deal (2.9%) </li></ul><ul><li>2003 $2 m (1.2%) 2 deals (6.3%) </li></ul><ul><li>2004 $5 m (3%) 1 deal (4%) </li></ul><ul><li> </li></ul>
  16. 18. NH Start-ups 2003 <ul><li>4600 start-ups, 3.6 per 1000 pop </li></ul><ul><li>Highest per capita rate in NE </li></ul><ul><li>Business churning: starts & failures as a % of existing firms </li></ul><ul><li>NH: 23.4% US: 19.0% </li></ul>
  17. 19. The Gaps
  18. 21. The Gap Dilemma <ul><li>2004 </li></ul><ul><li>43% angel : seed and start-up </li></ul><ul><li>44% angel : post seed and start –up </li></ul><ul><li> 2003 2002 </li></ul><ul><li>seed and start-up 52% 50% </li></ul><ul><li>post seed and start –up 35% 33% </li></ul><ul><li>(25% increase since 2000) </li></ul>
  19. 23. The Gap Dilemma for NH <ul><li>Start-up activity </li></ul><ul><li>+ angel activity </li></ul><ul><li>+ VC investments in later stage </li></ul><ul><li>+ funding gaps </li></ul><ul><li>= $75 to $165 million seed/start-up funding gap in NH </li></ul>
  20. 24. Give me a lever long enough and a place to stand and I will move the earth
  21. 25. Archimedes Fund <ul><li>Angel downside risk protection </li></ul><ul><li>a $10 million pool of private/public sector capital for angels to draw from to complete a deal </li></ul><ul><li>3 to 1 match </li></ul><ul><li>Self sustaining fund </li></ul>
  22. 26. Supply side <ul><li>For Entrepreneurs: </li></ul><ul><li>a central place to submit business plans and gain feedback and possible investments </li></ul><ul><li>Education </li></ul><ul><li>investor ready education </li></ul><ul><li>latent angel education </li></ul>

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