Karen Wilson from the OECD presented on international perspectives on high growth entrepreneurship. She discussed the OECD's work studying high-growth firms and their importance to job creation. She reviewed framework conditions across countries and differences in business investment, patenting by young firms, and perceptions of entrepreneurial opportunities. Wilson also examined sources of financing for high-growth firms like venture capital and angel investing, noting data and policy issues. She concluded by outlining a range of policy instruments to support entrepreneurial financing.

1. International Perspectives
on High Growth
Entrepreneurship
Karen Wilson
Structural Policy Division
Science, Technology & Industry Directorate, OECD
September 13, 2012
Nordic Growth Entrepreneurship
Helsinki, Finland

2. Agenda
• Overview of current OECD work on HGFs
• Importance of High Growth Entrepreneurship
• Framework conditions and selected data
• Financing HGFs
• The Role of Policy?
2

3. Overview of selected OECD work
• High growth firms and entrepreneurship
– What Drives the Dynamics of Business Growth (Criscuolo and Menon,
2012)
– Role of High-Growth Firms in Catalysing Entrepreneurship and
Innovation (Criscuolo and Wilson, 2012)
– Financing High Growth Firms: The Role of Angel Investors (Wilson,
2011)
– Entrepreneurship Indicators Programme (EIP): Entrepreneurship at a
Glance, 2012
• Other work related to “New Sources of Growth” agenda
– Knowledge-based capital/intangible assets
– Intellectual property rights/patents
– Big data analytics
– OECD Science, Technology and Industry Scoreboard (2011, 2013)
3

4. High Growth Firms are a small share of the firm
population but contribute a greater proportion of
employment growth
Source: OECD, What Drives the Dynamics of Business Growth (Criscuolo and Menon, 2012)

5. Dynamism of Young Businesses
No matter their size, young firms are more dynamic
than older firms
Source: OECD, What Drives the Dynamics of Business Growth (Criscuolo and Menon, 2012)

6. Young firms contribute more
proportionally to job creation
Source: OECD, What Drives the Dynamics of Business Growth (Criscuolo and Menon, 2012)

7. Patenting activity of young firms
2007-2009
Share of patenting firms under 5 years old Share of patents filed by firms under 5 years old
%
50
40
30
20
10
0
Source: OECD STI Scoreboard 2011 based on the Worldwide Patent Statistical Database, EPO, April 2011; and ORBIS©
Database, Bureau van Dijk Electronic Publishing, December 2010; matched using algorithms in the Imalinker system
developed for the OECD by IDENER, Seville, 2011.

8. 5
Economies Differ in their Dynamism
0
Policies can be 3key drivers behind7 these differences11
1 2 4 5 6 8 9 10
Growth interval
European Countries vs US gap along the growth distribution
40 (c) Europe-US Gap
More in
European
Countries
20
0
More in the
-20
US
-40
1
-100 2
-20 3
-15 4
-10 5
-5 -16 7
+1 8
+5 9
+10 10
+20 ∞
11
Growth interval
Fast Shrinking Firms Static firms Fast Growing Firms
Source: Bravo-Biosca, 2010

9. Framework Conditions
(NGER categories)
• The Nordic countries rank relatively well
in most areas, particularly the first two
– Regulatory framework
– Market conditions
– Creation and diffusion of knowledge
– Entrepreneurial culture
– Entrepreneurial capabilities
– Access to finance
9

10. Regulatory & Administrative Barriers to
Entrepreneurship
(2008)
(Scale from 0 to 6 from least to most restrictive)
Index Regulatory and administrative opacity Administrative burdens on startups Barriers to competition
3.0
2.5
2.0
1.5
1.0
0.5
0.0
10
Source: OECD, Product Market Regulation Database, May 2011.

11. A university-based, firm-centered innovation system…
Public research-centered Firm-centered
innovation system innovation system
100 University-
centered
Switzerland public research
90
Denmark
% share of higher education in publicly performed R&D (2008)
Austria Sweden
80 Turkey Canada Ireland
Netherlands
United Kingdom
70 Belgium
Greece Portugal Norway Finland
Italy
60 Chile Spain
Australia
New Zealand Iceland
50 Mexico France Germany Japan
Poland Hungary United States
South Africa Korea
Slovak Republic Czech Republic
40
Slovenia
China
30
20
Russian Federation
Luxembourg Public lab-
centered
10 public research
10 20 30 40 50 60 70 80 90 100
% share of firms in total R&D spending (2008)
In bold are countries that have been already subject of an OECD Review of Innovation Policy
Source: OECD, STI Outlook 2010 based on OECD Main Science and Technology Indicators (MSTI) database, December 2009.

12. Business investment in intangible and tangible capital, 2009
(% GDP)
25%
20%
15%
10% Tangible
KBC
5%
0%
Source: Corrado et al. (2012, forthcoming) 12

13. Change by type of business investment, 2006-2009
(percentage points of GDP)
2.0%
1.5%
1.0%
0.5%
0.0%
KBC
-0.5%
Tangible capital
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
Source: Corrado et al. (2012, forthcoming) 13

14. Perceptions of Opportunities vs Capabilities
Entrepreneurial perceptions (2011 or latest year)
Perceived opportunities Perceived capabilities Fear of failure
80
70
60
50
40
30
20
10
0
Source: OECD Entrepreneurship at a Glance, 2012
14

15. Facilitating the Entrepreneurial
Ecosystem
- Strong links between the different types of organizations
- People, trusted networks, connectors
- Local but connected globally
15

16. The Role of Financial Development
Access to finance and financial
development are key for firms that grow
fast especially in sectors that are more
dependent on external finance
– A developed financial market is associated
with higher growth at the top of the
employment distribution and an increase in
the share of high growth firms in the
economy.
Source: OECD, What Drives the Dynamics of Business Growth (Criscuolo and Menon, 2012)

17. Venture Capital: Not for all Firms
• VC is an important source of financing for high growth
firms, however, it is only appropriate for a small
proportion of start-ups
– High growth firms which are usually technology or science
based companies with scalable, high growth business
models.
• VCs invest in a portfolio of firms, knowing that a large
percentage of young high growth firms fail.
– On average 65% of a VC investment portfolio generates
3.8% of the returns, while 4% of the portfolio generates
more than 60% of the returns (Nanda 2010).
17

18. Venture Capital differs Significantly
across and within Countries
• Differences still exist between the US and European VC
industries (experience, investment amounts, etc.)
• Tends to cluster in entrepreneurial ecosystems (Silicon
Valley, Cambridge, London, Munich, etc.)
• Very sensitive to market cycles not only in terms of the
amounts invested but also in terms of the stages of
investment (Lerner 2010).
– In the current market environment, most venture capital funds
are investing in the later stages rather than seed and early stages
where profit expectations are less clear and investment risk is
much higher.
18

19. Venture Capital Investments
U.S., Canada and Europe in 2009
(USD million)
Source: OECD based on industry statistics by EVCA/PEREP Analytics and 19
PricewaterhouseCoopers/National Venture Capital Association MoneyTree Report data.

20. Exits Remain a Key Challenge
European Venture Capital Exits in 2010
20
Source: EVCA/PEREP Analytics 2011

21. Why Angel Investment is Important
• In the U.S. and Europe, currently the largest markets for both VC and angel
investment, the estimated amount of angel investment is
significantly larger than seed and early stage VC.
– Existing government programs, however, focus on VC.
• While VCs have moved to later stages of financing, angel investors have
been filling the growing seed & early stage funding gap through the creation
of syndicates, groups and networks.
Equity Investors at the Seed, Early and Later Stage of Firm Growth
INFORMAL INVESTORS FORMAL INVESTORS
Founders, Friends and Angel Investors Venture Capital Funds
Family (typical investment size: 25- (typical investment size: 3-5M USD)
500K USD)
Seed Stage investments Early Stage Investments Later Stage Investments
Financing Gap 21

22. OECD Angel Financing Publication
www.oecd.org/sti/angelinvestors
Chapter 1: Overview of financing for seed
and early-stage companies
Chapter 2: Angel investment: Definitions,
data and processes
Chapter 3: Trends and developments in the
angel market around the world
Chapter 4: The role of policy in facilitating
angel investment
22

23. Benefits of Angel Finance
• In addition to the money provided, angel investors play a
key role in providing strategic and operational
expertise for new ventures as well as social capital.
• Angel investors traditionally invest locally (within a few
hours’ drive) and in a wider range of sectors than
venture capitalists. This means there is broader
investment coverage than for venture capital investment.
• Companies backed by angel investments have been
important contributors to jobs and economic growth.
– In the US, estimates suggest that approximately 250 000 new jobs were
created in 2009 by firms supported by angel investment, representing
5% of new jobs in the United States. (Sohl 2010).
– Young firms in the US with angel financing have an increased
probability of survival and improved performance and growth of 30 to
50% on average (Kerr, Lerner and Schoar, 2010).
23

24. Differences between Angels and VCs
Characteristics Angel Investors Venture Capitalists
Background Former entrepreneurs Finance, consulting, some from
industry
Investment approach Investing own money Managing a fund and/or investing
other people’s money
Investment stage Seed and early stage Range of seed, early stage and later
stage but increasingly later stage
Investment instruments Common shares Preferred shares
Deal Flow Through social networks and/or angel Through social networks as well as
groups/networks. proactive outreach
Due Diligence Conducted by angel investors based Conducted by staff in VC firm
on their own experience. sometimes with the assistance of
(more cost efficient) outside firms (law firms, etc.)
(more costly)
Geographic proximity of Most investments are local (within a Invest nationally and increasingly
investments few hours drive). internationally with local partners
Post investment role Active, hands-on Board seat, strategic
Return on Investment Important but not the main reason Critical. The VC fund must provide
for angel investing decent returns to existing investors
to enable them to raise a new fund
(and therefore stay in business)
Source: OECD, adapted from EBAN 2006 referencing Wong 2002 and Ibrahim 2010
24

25. Data Issues & Market Size Estimates
• Definitions
– Definitions of angel investors can vary,
which complicates data analysis.
– It is generally understood that angel
investment excludes investments made
by family and friends. Visible Market
(BBAA BANs)
• Lack of data
Rest of Visible
– The majority of data available is that Market
collected by angel associations from
angel groups and networks.
– It can be supplemented with additional
data obtained through tax and co-
investment programmes.
Inv isible Market
– However, this data only represents a
fraction of the market termed the Source: Harrison & Mason 2010
“visible” market.
– The “invisible” market, which is
estimated to be much greater than the
“visible” market, is extremely difficult
to measure.
25

26. Market Estimates vs “Visible” Data
• This table is meant to demonstrate the magnitude of difference between
total estimated market size and what is currently measurable.
• Methods for estimating total market size vary tremendously and currently are
more art than science.
“Visible” angel market size Estimated size of angel
Total VC* market in 2009
(share of total market) in 2009 market in 2009
in USD million
in USD million in USD million
United States 469 (3%) 17 700 18 275
Europe 383 (7%) 5 557 5 309
United Kingdom 74 (12%) 624 1 087
Canada 34 (9%) 388 393
*Note: VC market size includes VC investments in all stages: i) seed, ii) start-up, iii) early, iv) expansion, and v) later stage.
Source: OECD based on estimates by the Centre for Venture Research (CVR), EBAN (The European Trade Association for Business Angels, Seed Funds,
and other Early Stage Market Players), and Canada's National Angel Capital Organisation (NACO). VC data based on industry statistics by EVCA/
PEREP_Analytics andPricewaterhouseCoopers/National Venture Capital Association MoneyTree Report and Canada's National Angel Capital Organization.

27. BAN and VC Seed Investments in
Europe: 2005-09
(EUR Million)
Business angel network VC seed
350
300
250
200
150
100
50
0
2005 2006 2007 2008 2009
Source: OECD based on industry statistics by EVCA/PEREP Analytics for 2007-2009;
EVCA/Thomson Reuters/PwC for previous years; and business networks surveyed by EBAN (The
European Trade Association for Business Angels, Seed Funds, and other Early Stage Market Players) 27

28. Equity Financing Cycle
What is the role of policy?
Institutional
Investors
(LPs: private and
public)
Entrepreneurial Regulatory
Ecosystem (growth Environment
& exit/returns)
High growth
firms Funds &
investors (GPs:
(Portfolio VCs, angels)
Companies)
Financial
Instruments

29. Range of Policy Financing
Instruments
• Grants, Loans and Guarantees
– Grants (including SBIR type)
– Loans
– Guarantee schemes
• Fiscal/tax incentives
– Young innovation company schemes (YIC)
– Tax incentives on investment (“front-end”)
– Tax incentives on capital gains (“back-end”)
• Equity funds (VC and angel)
– Public
– Fund of funds
– Public/private co-investment funds

30. Financing Policy Caveats
• Often the issue is the demand side, not the supply side.
– Yet most government action is focused on supplying finance.
• Policy should focus on leveraging (not replacing) private
funding.
– Creating incentives for institutional investors, funds, firms and
individuals to invest in high growth firms.
– Ensuring that investment decisions are made by experienced
professional investors.
– Public money should never be more than 50%.
• Policy financing instruments are difficult to structure
appropriately.
– Creating the proper incentives (and avoiding unintended consequences)
and for the targeted stage of investment.
– Time lags
30
The OECD is conducting further work on financing instruments

31. For further information or
questions contact:
Karen Wilson
Structural Policy Division
Science, Technology & Industry Directorate,
OECD
Karen.Wilson@oecd.org