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Venture Capital investment to promote entrepreneurship in ...

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  • 1. Perspectives on Venture Capital October 11, 2007
  • 2. Today’s Discussion: Perspectives on Venture Capital
      • Impact on US Economy
      • Impact on EU Economy
      • Creating a favorable VC environment
  • 3. Venture Capital Is a Major Force in the US Economy Source: Venture Impact, 2007 – 2005 data 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
  • 4. Venture Capital Drives US Economic Growth By Creating Jobs and Revenue Source: Venture Impact, 2007 Jobs Millions, Venture Backed Companies Revenue USD Trillions, Venture Backed Companies Total US VC investment in 2005 = $23 billion (0.2% of US GDP)
  • 5. Venture Capital Backed Companies Have Outperformed Their Non-Venture Counterparts Note: 2003-2005 GDP growth (nominal) was 13.5% (i.e., 6.5% CAGR) Source: Venture Impact, 2007 Recent Past : Employment and Revenue growth, CAGR 2003-2005 Employment Revenue Venture backed companies All companies
  • 6. 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 Note: 2000-2003 GDP growth (nominal) was 11.7% (i.e., 3.7% CAGR) Source: Venture Impact, 2007
  • 7. Venture Capital is Not Just About Information Technology Source: Venture Impact, 2007
  • 8. 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
  • 9. Today’s Discussion: Perspectives on Venture Capital
      • Impact on US Economy
      • Impact on EU Economy
      • Creating a favorable VC environment
  • 10. Venture Capital Investment in Europe Has Driven Job Creation Source: EVCA Report, November 2005 Total investment in 2004 (€ billions) 10.3 Number of companies funded in 2004 5,557 Europe Venture Capital (2004) 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%
  • 11. Job Growth in Venture Backed Companies Far Exceeded Overall European Job Growth * Estimated based on 2000-2004 data Source: EVCA Report, November 2005 Employment growth, CAGR 1997-2004 Venture backed companies Overall (EU – 25 countries)*
  • 12. Highest Employment Growth in Biotech, Health Care, and Medical Device Industries Employment growth in European venture backed companies, CAGR 1997-2004 Source: EVCA Report, November 2005 Average = 30.5%
  • 13. University Spinoffs Had the Highest Job Growth Employment growth in European venture backed companies, CAGR 1997-2004 Source: EVCA Report, November 2005
  • 14. Venture Funded Firms Have a Strong R&D Focus Employee Mix % of total employees for European venture funded companies R&D Spending R&D expenses, € thousands per employee European VC backed companies are spending ~45% of expenses on R&D Work in R&D functions 33% Are researchers or engineers 26% Have a PhD 13% Source: EVCA Report, November 2005
  • 15. Today’s Discussion: Perspectives on Venture Capital
      • Impact on US Economy
      • Impact on EU Economy
      • Creating a favorable VC environment
  • 16. Many of Today’s Most Innovative Business Models Came From Venture Backed Companies However, raising VC funding remains a challenge in most developing economies
  • 17. How Can Countries Create a More Favorable 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)
    THEMES FOR DISCUSSION
  • 18. Diaspora Can Have a Significant Impact Source: McKinsey Quarterly Leveraging the Diaspora Nature of contributions
      • 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
      • 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
  • 19. 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
  • 20. 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