The Danish-American Entrepreneurship Summit

Transcription

1 The Danish-American Entrepreneurship Summit Insights Into the US Venture Capital Markets How to Create A Winning Strategy? Clare Fairfield

2 Do Innovation Development Systems Matter? In 2003, venture backed companies: Provided 10.1 million US jobs Had sales of $1.8 trillion Represented huge slice of US economy (10%) Between 2000 and 2003, venture backed companies defied gravity US private sector jobs down 2.3% Venture backed companies grew employees 6.5% Source: Venture Impact 2004 by Global Insight

3 Creation of a Sustainable Venture Development System Does not happen overnight Models do exist Silicon Valley & Southern California Boston & New England Texas DC/Northern Virginia/Maryland Defense spending matters Models cannot be copied verbatim Requires the simultaneous presence of key venture development factors

4 Innovation Factors Opportunity People Education & Training Infrastructure / Community Capital Venture Capital is the Essential Catalyst

5 What is Venture Capital? Venture capital is viewed as a prudent investment class by institutional investors Professionally managed pools of money Active, involved management Equity investment with long term perspective Source of patient capital that is supportive through multiple rounds of investment Commercializer Innovation engine Research magnet Leadership & contacts

6 Private Equity & Venture Capital Private Equity Generally equity investments in non-public companies Venture Capital Leveraged Buyouts Mezzanine Financing Venture Capital Stage Risk Technology Risk Management Risk Market Risk

7 Venture Industry Summary Statistics VC Firms VC Funds ,678 Professionals 1,308 4,345 9,239 Ave. Fund Size $31.6 $53.2 $155.4 Ave. Firm Size $44.8 $89.0 $290.6 NVCA/Thompson Venture Economics

8 Evolution of the US Venture Capital Market 1960 s s & 1970 s 1980 Evolution of the US Venture Industry Size Firms Capital Under Management Venture Capitalists Geographic Concentration Sector Specialization Deal Size Issue of Scale and Compensation Flows of Money Tell the Tale

9 Stages of Investing Pre-Seed Seed Stage Early Stage Expansion Stage Later Stage Pre-seed: seed: Idea Stage, Incorporation Seed: Team Established, Plan Creation, Prototype Development Early: Initial Revenues, Negative cash flow Expansion: Company Expansion, Crossing the Chasm Later: Pre-IPO, Sub-debt, Bonds, etc

10 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Venture Capital Investment By Stage Startup-Seed Early Expansion Later NVCA/Thompson Venture Economics 1980 Percentage of Total VC Invested

11 2005 VC Investments By # , RI 11 CT 25 NJ 50 DE 6 MD 86 DC 7 MA 290 HI 4 51 NVCA/Thompson Venture Economics

12 2005 VC Investments By Millions $ , , , NH 114 MA 2,366 RI 77 CT 209 NJ 830 MD 443 DC 30 HI NVCA/Thompson Venture Economics

13 Per Capita VC Investment By State $450 $400 $350 $300 $250 $200 $150 $100 $50 $- MA WA NH MD UT MN GA PA NC VA HI OK NM KS KY MO WI VT WV IA WY SC ID MS MT NE NVCA/Thompson Venture Economics 2004

14 Current Venture Capital Environment Heavy geographic concentrations 80 / 91.5 / 8.5 Large funds getting larger Early stage venture capital becoming increasingly scarce Globalization Capital base institutionally dominated

15 Investment Capital Sources Private and Public Pension Funds Financial Services & Insurance Firms Endowments & Foundations Corporations Wealthy Individuals Foreign Investors

16 Sources of Venture Funds Pension Funds 42% Financial & Ins 25% Corps (as LPs) 2% Individ & Fam 10% Endow & Found 21% NVCA/Thompson Venture Economics

17 Venture Fund Institutional Investors Heavy use of gatekeepers Balancing desire to invest in name brands with shrinking fund sizes and closed funds Private Equity domination Desire to Manage Risk at Investor Level Strong herd instinct Bias against smaller funds Bias against first time funds

18 Importance of Angel Investing In 2004 Angels Invested $22.5 Billion 87% of Angel Investing Goes Into Seed and Early Stage Companies In 2004 Total Professional Venture Firm Investments in All Stages Was $21 Billion Venture Capital Firms Tend to Dismiss the Importance & Potential of Angel Investors

19 Concerto Factors Angel Investing Blood Sport Investing Pay-to to-play Environment Difficult to Establish Relationships Professional Services Firms Downstream Funding Sources Strategic Institutional Significant Time Commitment Often Resource Strapped Potentially Rich Source of Opportunities

20 University Challenges Bias against profit Ultimate bureaucratic environment Academic vs. Commercial pace Confusing RPM S S with MPH History of counterproductive tech transfer Flawed business model Tech Transfer Commercialization Lack of commercialization experience Venture community has moved the bar Remain source of Innovation Maximize

21 Lessons From the US VC Experience Support the Chemical Reaction Support Innovation Systemically Institutional Investment Support Angel Investment Support Compensation of Venture Capitalists Experience Matters VC s, Entrepreneurs, Educators, Investors Experience & Education are Expensive & Painful Jump In with Commitment to Evolutionary Adaptation Be Honest & Realistic About Universities Public / Private Partnership