financing of nh's entrepreneurial ventures
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Financing of NH’s Entrepreneurial Ventures
Jeffrey E. Sohl
Professor of EntrepreneurshipDirector, Center for Venture Research
University of New Hampshire
NetworkNH White PaperApril, 2005
Center for Venture Research - University of New Hampshire
Alexander Graham Bell – 1874
“Well informed people know it is impossible to transmit the voice over wires, and were it possible to do so, the thing would be of no practical value” Boston Post
Gardiner Green Hubbard, Thomas Sanders
Center for Venture Research - University of New Hampshire
Thomas Edison – 1878
Debut – Paris Exhibition
“When the Paris Exhibition closes, electric light will close with it and no more will be heard of it” E. Wilson, Oxford Professor
J.P. Morgan and Spencer Trask
Center for Venture Research - University of New Hampshire
The Early Stage Market
Linear
vs.
Systemic
Center for Venture Research - University of New Hampshire
Center for Venture Research - University of New Hampshire
Linear
INNOVATOR ENTREPRENEUR INVESTOR
Center for Venture Research - University of New Hampshire
Center for Venture Research - University of New Hampshire
Systemic
INNOVATOR ENTREPRENEUR
INVESTOR
Center for Venture Research - University of New Hampshire
Business Angels
• 2004: 225,000 angels, invest approximately $22.5 billion in 48,000 ventures
• 2003: $18.1 billion in 42,000 ventures,
220,000
• 2002: $15.7 billion in 36,000 ventures, 200,000
Center for Venture Research - University of New Hampshire
Angel Yield Rates# of deals funded / # proposals presented
• 1997: 12.00%• 1998: 14.00%• 2000: 23.26%• 2001: 10.79%• 2002: 7.10%• 2003: 10.3%• 2004: 18.5% 0%
5%
10%
15%
20%
25%
1997 1998 2000 2001 2002 2003 2004
Center for Venture Research - University of New Hampshire
Angel investor population:
Individual growth rate : 15-20% annual
Latent angel membership•2004: 55%•2003: 48%•2002: 40%•2001: 41%•2000: 36%•1998: 32%
Center for Venture Research - University of New Hampshire
Angel Deals
Sector 2003 2004Software 26% 22%Telecommunications 5% 6%Electronics/Hardware 12% 5%Life Sciences 13% 16%Biotechnology 11% 10%Manufacturing 12% 11%IT Services na 8%Financial Services na 8%
Center for Venture Research - University of New Hampshire
NH Business Angels
• 2003/2004: $12-16 million in 30-40 ventures
• 150 active angels
• 4 active angel groups, 70 members
• Yield rate: 17%
National Venture Capital Association
Venture Capital Funds Year Total Deals per Deal
1999 $55.1 billion 5,686 $9.7 million
2000 $106.6 billion 8,221 $13.0 million
2001 $41.3 billion 4,711 $8.8 million
2002 $21.2 billion 3,011 $7.0 million
2003 $18.2 billion 2,715 $6.7 million
2004 $20.9 billion 2,876 $7.3 million
National Venture Capital Association
Venture Capital Funds - NHYear Total Deals per Deal
1999 $211 million 28 $7.5 million
2000 $726 million 55 $13.2 million
2001 $280 million 32 $8.8 million
2002 $208 million 35 $5.9 million
2003 $161 million 32 $5.0 million
2004 $149 million 24 $6.2 million
National Venture Capital Association
The Truth About Early Stage
Seed and Start-up financing –VC
1999 $3.3 b (6.0%) 809 deals (14.2%)
2000 $3.2 b (3.0%) 663 deals (8.0%)
2001 $798 m (2.0%) 249 deals (5.1%)
2002 $303 m (1.4%) 148 deals (4.9%)
2003 $354 m (2.0%) 166 deals (6.0%)
2004 $346 m (1.7%) 171 deals (6.0%)
National Venture Capital Association
The Truth About Early Stage
Seed and Start-up financing –VC - NH
1999 $17 m (8.1%) 5 deals (17.9%)
2000 $22 m (3.0%) 6 deals (10.9%)
2001 $0 m (0%) 0 deals (0%)
2002 $0.75 m (0.3%) 1 deal (2.9%)
2003 $2 m (1.2%) 2 deals (6.3%)
2004 $5 m (3%) 1 deal (4%)
Center for Venture Research - University of New Hampshire
NH Start-ups 2003
• 4600 start-ups, 3.6 per 1000 pop
• Highest per capita rate in NE
• Business churning: starts & failures as a % of existing firms
• NH: 23.4% US: 19.0%
Center for Venture Research - University of New Hampshire
The Gaps
Center for Venture Research - University of New HampshireCenter for Venture Research - University of New Hampshire
StageEarly LaterSeed/ Start-Up
SourceFDRS FFF Angels Venture Funds
Demand$25K $100K $500K $2,000K
Supply ------------------------------------------------------------------
Funding Gap
Equity Capital for EntrepreneursPre Seed
Center for Venture Research - University of New Hampshire
The Gap Dilemma
200443% angel : seed and start-up44% angel : post seed and start –up
2003 2002seed and start-up 52% 50%post seed and start –up 35% 33% (25% increase since 2000)
Center for Venture Research - University of New HampshireCenter for Venture Research - University of New HampshireCenter for Venture Research - University of New Hampshire
StageEarly LaterSeed/ Start-Up
SourceFDRS FFF Angels Venture Funds
Demand$25K $100K $500K $2,000K
Supply ------------------------------------------------------------------
Funding Gap
Equity Capital for EntrepreneursPre Seed
Capital Gap
Center for Venture Research - University of New Hampshire
The Gap Dilemma for NH
Start-up activity
+ angel activity
+ VC investments in later stage
+ funding gaps
= $75 to $165 million seed/start-up funding gap in NH
Give me a lever long enough and a place to
stand and I will move the earth
Center for Venture Research - University of New Hampshire
Archimedes Fund
Angel downside risk protection• a $10 million pool of private/public
sector capital for angels to draw from to complete a deal
• 3 to 1 match
• Self sustaining fund
Center for Venture Research - University of New Hampshire
Supply side
For Entrepreneurs:
• a central place to submit business plans and gain feedback and possible investments
Education
• investor ready education
• latent angel education