Enabling Growth and Innovation in SMEs : Think Globally  Act Locally Venture Capital Banking Mario W. Cardullo, P.E. Couns...
Investment Cycle
What is the USA Venture Capital Industry? <ul><li>Fractionated – no large market share leaders </li></ul><ul><li>SME, i.e....
Global Investment Japan
Where are the Economies? <ul><li>Various stages of venture capital growth </li></ul><ul><li>Following a slow growth path <...
Venture Capital Banks   <ul><li>USA VC growth model not efficiently aggressive for other economies. </li></ul><ul><li>Econ...
Issues Faced in Business Creation
Major Management Problems During Growth
Venture Industry in 2004 FFF=family, friends & fools; VC=venture capital; SI=strategic investors; IB=investment bank; B=ba...
SME Venture Fund, LP 30% Government  70% Mngmt & Staff Private $ Private $ Private $ Private $ Private $ Services Services...
Objectives <ul><li>Provide financial returns to its limited partners that significantly exceed what  might be expected fro...
Fund Basics 15% in seed early stage companies, 40% in growth companies, 45% in later stage companies.  Type The Fund contr...
Evolution of the Venture Industry:  What’s Right Seed Early Stage Late Stage Mezzanine Buy-out Venture Capital Corporation...
Benefits <ul><li>Increase in employment </li></ul><ul><li>Increase venture capital investment & FDI  </li></ul><ul><li>Enh...
Impact $10,000,000,000 Seed $1,500,000,000 Growth $4,000,000,000 Later Stage $4,500,000,000 Funds Investment per enterpris...
For Investors <ul><li>Outstanding returns </li></ul><ul><li>Minimized risk </li></ul><ul><li>Management support </li></ul>...
For the Start-up <ul><ul><li>Quicker time to market </li></ul></ul><ul><ul><li>Access to consistent development capital </...
Possible Risk Return Space 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 Perceived Investor Risk (%) Required Average Annu...
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Mario Cardullo_SME Venture Funds.ppt

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Mario Cardullo_SME Venture Funds.ppt

  1. 1. Enabling Growth and Innovation in SMEs : Think Globally Act Locally Venture Capital Banking Mario W. Cardullo, P.E. Counselor, Technology and Entrepreneurism U.S. Department of Commerce Office of the Under Secretary for International Trade Administration
  2. 2. Investment Cycle
  3. 3. What is the USA Venture Capital Industry? <ul><li>Fractionated – no large market share leaders </li></ul><ul><li>SME, i.e. small businesses </li></ul><ul><li>Guild </li></ul><ul><ul><li>Apprenticeship </li></ul></ul><ul><ul><li>Principals – master craft-persons </li></ul></ul><ul><li>Returns may not match risks </li></ul>
  4. 4. Global Investment Japan
  5. 5. Where are the Economies? <ul><li>Various stages of venture capital growth </li></ul><ul><li>Following a slow growth path </li></ul><ul><li>Building on USA model </li></ul><ul><li>Many still have small amount of funds under management </li></ul>
  6. 6. Venture Capital Banks <ul><li>USA VC growth model not efficiently aggressive for other economies. </li></ul><ul><li>Economies should not develop SME style VC industry. </li></ul><ul><li>Managing investments requires size to achieve returns matching risks – “portfolio theory”. </li></ul><ul><li>Economies of scale coupled with professional management and financial concepts is what is needed. </li></ul>
  7. 7. Issues Faced in Business Creation
  8. 8. Major Management Problems During Growth
  9. 9. Venture Industry in 2004 FFF=family, friends & fools; VC=venture capital; SI=strategic investors; IB=investment bank; B=bank Angel FFF SI VC IB VC B IB FFF Angel VC VC Seed Early Stage Late Stage Mezzanine Buy-out
  10. 10. SME Venture Fund, LP 30% Government 70% Mngmt & Staff Private $ Private $ Private $ Private $ Private $ Services Services Institutional Fund Government Portfolio Companies Management Corp. Education Foundation Mezz. Funds by Sector PE Funds by Sector Direct Fund Seed Funds by Sector VC Funds by Sector Portfolio Companies Portfolio Companies Portfolio Companies
  11. 11. Objectives <ul><li>Provide financial returns to its limited partners that significantly exceed what might be expected from more traditional investment vehicles such as publicly-traded equities </li></ul><ul><li>Efficiently allocate capital to promising new and growth companies </li></ul><ul><li>Engage U.S. and other risk capital fund managers to manage the fund and train local managers in making venture capital, larger private equity and mezzanine capital investments in growth companies. </li></ul>
  12. 12. Fund Basics 15% in seed early stage companies, 40% in growth companies, 45% in later stage companies. Type The Fund contributes 10% of net realized gains Ed. Foundation <ul><li>To the Institutional fund until it has received a prioritized payment and a profit participation. </li></ul><ul><li>To the private investors until they have received an amount equal to their contributions </li></ul><ul><li>To the private investors an 8% annual return on contributions </li></ul><ul><li>To the general partner until it has received 20% of all distributions made pursuant to above. </li></ul><ul><li>Thereafter, 80% to the private investors in accordance with their capital contributions and 20% to general partner </li></ul>Distributions Must be over $5 billion USA Offering 10 years from date of initial closing (with possible extensions) Term
  13. 13. Evolution of the Venture Industry: What’s Right Seed Early Stage Late Stage Mezzanine Buy-out Venture Capital Corporation Investment Bank Buy-out
  14. 14. Benefits <ul><li>Increase in employment </li></ul><ul><li>Increase venture capital investment & FDI </li></ul><ul><li>Enhance entrepreneurial culture </li></ul><ul><li>Develop entrepreneurial human capital </li></ul><ul><li>Diversify sources of financing </li></ul><ul><li>Diversify methods of financing </li></ul><ul><li>Provide easier access to start-up tools </li></ul>
  15. 15. Impact $10,000,000,000 Seed $1,500,000,000 Growth $4,000,000,000 Later Stage $4,500,000,000 Funds Investment per enterprise Seed $500,000 Growth $2,000,000 Later Stage $4,000,000 Enterprises Seed 3,000 Growth 2,000 Later Stage 1,125 TOTAL 6,125 Enterprises Jobs TOTAL 792,500 Jobs Seed 30,000 Growth 200,000 Later Stage 562,500
  16. 16. For Investors <ul><li>Outstanding returns </li></ul><ul><li>Minimized risk </li></ul><ul><li>Management support </li></ul><ul><li>Aggressive deal prospecting </li></ul><ul><li>Convenience </li></ul>
  17. 17. For the Start-up <ul><ul><li>Quicker time to market </li></ul></ul><ul><ul><li>Access to consistent development capital </li></ul></ul><ul><ul><li>Access to dedicated sector, operations and market specialists </li></ul></ul><ul><ul><li>Access to established angel networks </li></ul></ul><ul><ul><li>Access to more international markets </li></ul></ul>
  18. 18. Possible Risk Return Space 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 Perceived Investor Risk (%) Required Average Annual Return (%) Banks Entrepreneur FFF Venture Capitalist Angles SME Venture Fund The management of a corporation… The flexibility of a venture capitalist… The risk matching returns…

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