The emperor's new cloth   earley
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The emperor's new cloth earley

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    The emperor's new cloth   earley The emperor's new cloth earley Presentation Transcript

    • The Emperor’s New Clothes The Role of VC in Financing Early Stage Technology Companies 30 May2011
    • The Creation of New Technology Based Firms
      • Theory
        • Idea
        • Research
        • Concept
        • Development of a product/service
        • Prototype
        • Marketing
        • Business development
    • The Creation of New Technology Based Firms
        • THEORY
      STAGE TYPE OF FINANCE SOURCE
        • Research
      Grants PUBLIC
        • Concept
      Proof of Concept PUBLIC/PRIVATE Development of a product/service Seed VC
        • Prototype
      Start Up VC
        • Marketing
      Early Stage VC
        • Business development
      Development Capital VC
      • Venture Capital IS Important
        • “ High growth, innovative companies are disproportionately important for economic growth in the UK. Venture Capital is an important source of finance for these companies ..” (Nesta 2010)
        • EVCA/CMBOR 2002
          • Some 95% of the companies replying to the survey stated that, without venture capital investment, they could not have existed or would have developed more slowly
          • Almost 60% said that the company would not exist today without the contribution of venture capital
          • An average of 46 additional jobs were created by each responding company following the venture capital investment.
      • Hence Governments and Commentators Regard it Highly
    • The Reality (?)
      • The Emperor’s New Clothes
        • (with apologies to Hans Christian Anderson)
      • Does VC deliver? Or does the promise keep us all enthralled and convinced?
    • The industry today?
      • Declining investment
      • 2005 -09
        • Seed and start-up -50%
        • Early stage -30%
        • Later stage -18%
    • The industry today?
      • Declining funds raised
        • Venture 50% reduction since 2006
        • But similar fall for small MBO and development
    • The industry today?
      • Why is fundraising difficult?
        • Cycle?
        • Or other (rational) reluctance from investors?
    • The industry today?
      • Why might investors be reluctant?
        • Proportionate over-allocation
        • Returns
          • UK Venture returns lower than private equity (LBO)
          • UK Venture returns volatile (IRR 21% to -7.6%)
        • Disenchantment with the model on offer
    • The industry today?
      • Quality and consistency of fund managers
        • Range of fund performance
        • And no consistently top performers?
          • But probably consistent under-performers?
      Vintage year 1997 1999 2000 2001 Top quartile 18.6% 3.6% 2.8% 0.2% Bottom quartile -8.6% -13.1% -18.6% -16.8%
    • The Role for Government
      • Because of Investor Reluctance and the Potential Economic Returns, there is a Case for Government Intervention – currently even at later stages
      • How (?)
        • Cornerstone Funds
        • Co-Invest
        • Tax Relief
        • Subordinate Investor
        • Leverage (Yozma, SBICs, ECFs)
        • But Industry Must not Become Reliant !
    • The industry today?
      • The (common) model
        • Hard to put money to work and illiquid
        • Timing
          • 10 + 2 year funds
            • But average holding periods 7-8 years (+IRR impact)
        • Economics
          • 2(+)% fees
            • On commitments for 5 (?) years, not money-at-work
          • Monitoring, Directors, arrangement fees
            • Damaging to investee companies?
          • 20% carried interest
            • Disappearing rather than collapsing hurdles?
    • The industry today?
        • Transparency
          • UK data amongst the best in the world
          • But everybody is top quartile !
          • Too many great technology stories – not enough great returns
        • Scale
          • Small, inefficient funds Vs US model
    • The industry today?
      • BUT !
        • UK has the conditions for a very successful industry
          • Great science
          • Growing entrepreneurial culture
          • Technologists becoming investors
          • Experience and expertise in investing
          • The City
          • Transatlantic links
      • Thank You