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  1. 1. Mayor ’ s Council of Technology Advisors May 19, 2009
  2. 2. Taxonomy of Private Equity – What is Venture? Company Stage of Development Type of Financing Cash Flow Type of Investor Operationally or financially troubled. Turnaround Buyouts Seed Stage Start Up Financing Other Early Stage Expansion Stage Later Stage Bridge Financing Open Market Acquisition Mgmt/ Leveraged Buyout Angel Venture Capital Growth Equity Product development, market research Key mgmt. in place, initial marketing, pre-Sales Product in development or available, first institutional financing Product shipping, funds needed for working capital or plant expansion Stable growth rate, likely to be profitable, cash flow positive. Company to go public in 6-12 months. Company is publicly traded. LBOs, acquisitions, recapitalization Mgmt acquiring a product line or business at any stage of development. + or - “ Venture Capital” “ Buyouts” or “Private Equity” Cash Flow Positive (Generally) Cash Flow Negative
  3. 3. Institutional Investors Investment Private Investors (Angels) Investment Returns Entrepreneurs Venture Capital Firms Investment Adapted from A.T. Kearney The Cycle of Venture Capital Returns Returns
  4. 4. Venture Capital accelerates a company’s growth and ability to innovate <ul><li>On average, 75% of venture capital is spent on payroll </li></ul><ul><li>For every job directly created by venture capital investments, 2.2 jobs are directly created through the “multiplier effect” </li></ul><ul><li>It is estimated that VC-backed companies in Illinois over the past 30 years now account for about 236,000 jobs </li></ul><ul><li>Venture backed companies v. non-VC backed companies have: </li></ul><ul><ul><li>Twice the sales </li></ul></ul><ul><ul><li>Invest three times more in R&D (per $1,000 in assets) </li></ul></ul><ul><li>In the US today, venture backed companies account for: </li></ul><ul><ul><li>10.4 million jobs </li></ul></ul><ul><ul><li>18% of GDP </li></ul></ul><ul><li>One in three Americans is positively impacted by a venture-backed medical innovation </li></ul>Source: IVCA Research Committee, NVCA
  5. 5. Over 50 VC Firms in Illinois -– greatest concentration in the Midwest – dwarfed by Coasts Source: Thomson Reuters
  6. 6. Midwest companies receive about 5% of National VC dollars, Illinois Ranks 11 th in funding Source: Thomson Reuters Midwest Includes : IL, MO, IN, KY, OH, MI, Western PA
  7. 7. Difficult Time for VC Funds to Raise Money with a trend toward fewer, larger funds Source: Thomson Reuters
  8. 8. Quarterly VC investments Trending Down- Midwest Less severely Source: Thomson Reuters Midwest Includes : IL, MO, IN, KY, OH, MI, Western PA
  9. 9. As fundraising dips, so do VC Investments Source: Thomson Reuters
  10. 10. Illinois Venture Capital Q1 2009 Update <ul><li>Fundraising in this environment is very challenging for Venture firms </li></ul><ul><ul><li>Secondary Market is very attractive for some LPs </li></ul></ul><ul><ul><li>Relatively small size of local Venture firms makes them less attractive to large LPs </li></ul></ul><ul><ul><li>Illinois Public LPs do not have a commitment to invest locally </li></ul></ul><ul><li>Economic Slowdown has affected VCs ability to expand portfolio </li></ul><ul><ul><li>Portfolio companies feeling the economic hit, too </li></ul></ul><ul><ul><li>need to invest in fewer companies in order to fund current portfolio </li></ul></ul><ul><li>Longer time returning capital to LPs – holding investments longer </li></ul><ul><ul><ul><li>M&A exits are down </li></ul></ul></ul><ul><ul><ul><li>IPOs virtually non-existent </li></ul></ul></ul><ul><li>What we need to succeed </li></ul><ul><ul><li>Commitment from LPs to </li></ul></ul><ul><ul><ul><li>invest locally </li></ul></ul></ul><ul><ul><ul><li>Anchor/Invest in smaller funds </li></ul></ul></ul><ul><ul><li>Strong Angel Investor community </li></ul></ul><ul><ul><li>Community of “serial” entreprenuers </li></ul></ul>