Perspectives on Venture CapitalOctober 11, 2007

Today’s Discussion: Perspectives on Venture Capital

Impact on US Economy

Impact on EU Economy

Creating a favorable VC environment

2

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

3

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) 4

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

5

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

6Note: 2000-2003 GDP growth (nominal) was 11.7% (i.e., 3.7% CAGR)Source: Venture Impact, 2007

Venture Capital is Not Just About Information Technology

Source: Venture Impact, 20077

VC Job Creation Relative To Non-Venture Counterparts is Even More Pronounced in Specific IndustriesEmployment Growth in Leading Industry Sectors, CAGR 2003-2005

Financial Services Biotechnology Electronics / instrumentation

Source: Venture Impact, 2007 8

Today’s Discussion: Perspectives on Venture Capital

Impact on US Economy

Impact on EU Economy

Creating a favorable VC environment

9

Venture Capital Investment in Europe Has Driven Job Creation

Source: EVCA Report, November 200510

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%

Job Growth in Venture Backed Companies Far Exceeded Overall European Job Growth

* Estimated based on 2000-2004 dataSource: EVCA Report, November 2005

Employment growth, CAGR 1997-2004

Venture backed companies

Overall (EU – 25 countries)*

11

Highest Employment Growth in Biotech, Health Care, and Medical Device Industries

12

Employment growth in European venture backed companies, CAGR 1997-2004

Source: EVCA Report, November 2005

Average =30.5%

University Spinoffs Had the Highest Job Growth

13

Employment growth in European venture backed companies, CAGR 1997-2004

Source: EVCA Report, November 2005

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&D14

Work in R&D functions 33%

Are researchers or engineers

26%

Have a PhD 13%

Source: EVCA Report, November 2005

Today’s Discussion: Perspectives on Venture Capital

Impact on US Economy

Impact on EU Economy

Creating a favorable VC environment

15

Many of Today’s Most Innovative Business Models Came From Venture Backed Companies

16

However, raising VC funding remains a challenge in most developing economies

How Can Countries Create a More Favorable Environment for Venture Capital

Provide tax incentives

– Encourage long term holding

– Keep it simple

– Unsuccessful attempts to learn from: Australia, South Africa

Educate investors, particularly foreign investors

– India example

Create critical mass

– Investment in university based research (e.g., on campus incubation)

– Immigration laws

– “Ok to fail” mindset

– “VC zones” with supporting systems (e.g., Silicon Valley, Research Triangle Park)

17

THEMES FOR DISCUSSION

Diaspora Can Have a Significant Impact

Source: McKinsey Quarterly

Leveraging the Diaspora

18

Nature of contributions

Remittances and investment

– In 1999, 70% of China FDI came from Chinese people living abroad

– Silicon Valley Indians “seeding” startups in Bangalore & Hyderabad

Knowledge and intellectual capital

– Advise to government (e.g., policy to encourage venture capital, deregulation of industries)

– Financing of elite educational institutions

– Business internships and exchange programs

Create emigrant networks

–Professional

–Economic

–Educational

–Social

Facilitate information flow

– Communication infrastructure

– E.g., database of expats, information on investment opportunities

Provide incentives

– Financial: E.g. Foreign currency deposits, removing restrictions on profit repatriation

– Other: High profile awards

Leveraging Diaspora for Entrepreneurship: TiE ExampleThe Indus Entrepreneurs (TiE): world's largest not-for-profit organization for entrepreneurs

19

Founded in 1992 in Silicon Valley by a group of successful entrepreneurs, corporate executives, and senior professionals with roots in the Indus region

Currently 12,000 members in 45 chapters across 10 countries

Mission: foster entrepreneurship globally through mentoring, networking, and education

Achievements:

–Largest pool of intellectual capital anywhere

–Brand globally synonymous with entrepreneurship

–Annual conference, TiECon, regarded largest entrepreneurial forum in the world

–Helped boost the economies of the communities in which it operates

–Economic wealth creation estimated at $200 billion

–Significant involvement in social entrepreneurship

–Influenced liberalization of key economic sectors in India and Pakistan

Final Thoughts

Venture Capital is a local business

– Critical mass is key

– It is not technology

Leverage Diaspora

– Build networks

– Facilitate information flow

– Provide incentives

20