Venture Capital investment to promote entrepreneurship in ...

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Venture Capital investment to promote entrepreneurship in ...

  1. 1. Perspectives on Venture Capital October 11, 2007
  2. 2. Today’s Discussion: Perspectives on Venture Capital <ul><ul><li>Impact on US Economy </li></ul></ul><ul><ul><li>Impact on EU Economy </li></ul></ul><ul><ul><li>Creating a favorable VC environment </li></ul></ul>
  3. 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. 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. 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. 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. 7. Venture Capital is Not Just About Information Technology Source: Venture Impact, 2007
  8. 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. 9. Today’s Discussion: Perspectives on Venture Capital <ul><ul><li>Impact on US Economy </li></ul></ul><ul><ul><li>Impact on EU Economy </li></ul></ul><ul><ul><li>Creating a favorable VC environment </li></ul></ul>
  10. 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. 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. 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. 13. University Spinoffs Had the Highest Job Growth Employment growth in European venture backed companies, CAGR 1997-2004 Source: EVCA Report, November 2005
  14. 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. 15. Today’s Discussion: Perspectives on Venture Capital <ul><ul><li>Impact on US Economy </li></ul></ul><ul><ul><li>Impact on EU Economy </li></ul></ul><ul><ul><li>Creating a favorable VC environment </li></ul></ul>
  16. 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. 17. How Can Countries Create a More Favorable Environment for Venture Capital <ul><ul><li>Provide tax incentives </li></ul></ul><ul><ul><ul><li>Encourage long term holding </li></ul></ul></ul><ul><ul><ul><li>Keep it simple </li></ul></ul></ul><ul><ul><ul><li>Unsuccessful attempts to learn from: Australia, South Africa </li></ul></ul></ul><ul><ul><li>Educate investors, particularly foreign investors </li></ul></ul><ul><ul><ul><li>India example </li></ul></ul></ul><ul><ul><li>Create critical mass </li></ul></ul><ul><ul><ul><li>Investment in university based research (e.g., on campus incubation) </li></ul></ul></ul><ul><ul><ul><li>Immigration laws </li></ul></ul></ul><ul><ul><ul><li>“ Ok to fail” mindset </li></ul></ul></ul><ul><ul><ul><li>“ VC zones” with supporting systems (e.g., Silicon Valley, Research Triangle Park) </li></ul></ul></ul>THEMES FOR DISCUSSION
  18. 18. Diaspora Can Have a Significant Impact Source: McKinsey Quarterly Leveraging the Diaspora Nature of contributions <ul><ul><li>Remittances and investment </li></ul></ul><ul><ul><ul><li>In 1999, 70% of China FDI came from Chinese people living abroad </li></ul></ul></ul><ul><ul><ul><li>Silicon Valley Indians “seeding” startups in Bangalore & Hyderabad </li></ul></ul></ul><ul><ul><li>Knowledge and intellectual capital </li></ul></ul><ul><ul><ul><li>Advise to government (e.g., policy to encourage venture capital, deregulation of industries) </li></ul></ul></ul><ul><ul><ul><li>Financing of elite educational institutions </li></ul></ul></ul><ul><ul><ul><li>Business internships and exchange programs </li></ul></ul></ul><ul><ul><li>Create emigrant networks </li></ul></ul><ul><ul><ul><li>Professional </li></ul></ul></ul><ul><ul><ul><li>Economic </li></ul></ul></ul><ul><ul><ul><li>Educational </li></ul></ul></ul><ul><ul><ul><li>Social </li></ul></ul></ul><ul><ul><li>Facilitate information flow </li></ul></ul><ul><ul><ul><li>Communication infrastructure </li></ul></ul></ul><ul><ul><ul><li>E.g., database of expats, information on investment opportunities </li></ul></ul></ul><ul><ul><li>Provide incentives </li></ul></ul><ul><ul><ul><li>Financial: E.g. Foreign currency deposits, removing restrictions on profit repatriation </li></ul></ul></ul><ul><ul><ul><li>Other: High profile awards </li></ul></ul></ul>
  19. 19. Leveraging Diaspora for Entrepreneurship: TiE Example The Indus Entrepreneurs (TiE): world's largest not-for-profit organization for entrepreneurs <ul><ul><li>Founded in 1992 in Silicon Valley by a group of successful entrepreneurs, corporate executives, and senior professionals with roots in the Indus region </li></ul></ul><ul><ul><li>Currently 12,000 members in 45 chapters across 10 countries </li></ul></ul><ul><ul><li>Mission: foster entrepreneurship globally through mentoring, networking, and education </li></ul></ul><ul><ul><li>Achievements: </li></ul></ul><ul><ul><ul><li>Largest pool of intellectual capital anywhere </li></ul></ul></ul><ul><ul><ul><li>Brand globally synonymous with entrepreneurship </li></ul></ul></ul><ul><ul><ul><li>Annual conference, TiECon, regarded largest entrepreneurial forum in the world </li></ul></ul></ul><ul><ul><ul><li>Helped boost the economies of the communities in which it operates </li></ul></ul></ul><ul><ul><ul><li>Economic wealth creation estimated at $200 billion </li></ul></ul></ul><ul><ul><ul><li>Significant involvement in social entrepreneurship </li></ul></ul></ul><ul><ul><ul><li>Influenced liberalization of key economic sectors in India and Pakistan </li></ul></ul></ul>
  20. 20. Final Thoughts <ul><ul><li>Venture Capital is a local business </li></ul></ul><ul><ul><ul><li>Critical mass is key </li></ul></ul></ul><ul><ul><ul><li>It is not technology </li></ul></ul></ul><ul><ul><li>Leverage Diaspora </li></ul></ul><ul><ul><ul><li>Build networks </li></ul></ul></ul><ul><ul><ul><li>Facilitate information flow </li></ul></ul></ul><ul><ul><ul><li>Provide incentives </li></ul></ul></ul>

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