The International Venture Capital Industry Where are we at? Where are we going?

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The International Venture Capital IndustryWhere
are we at? Where are we going?

• Dr. Gordon Murray
• London Business School

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Where are we at. Where are we going?

• A short review of both practice and contemporary
  issues in the
• International Venture Capital industry

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Where are we at. Where are we going?

• How can one best sum up the way in which
  governments of all complexions and political
  stances are seeing the present growth in the
  importance of the New or Knowledge Economy?

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Were ALL Californians now!
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Descriptives

• A Simple Taxonomy of Venture Capital
• Size
• Growth Trends
• Stage of Investment
• Returns to Investors

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Global Venture Capital Funds in 1999
557.9 billion
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US Capital Commitments
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US Disbursements
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European Capital Commitments ( million)
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European Disbursements ( million)
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US Disbursement by Investment Stage1999
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European Allocation by Investment Stage 1999
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US Disbursements by Technology 1999
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The Attraction of Technology -e.g. UK Venture
Capital Investment in millions inc. MBOs
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Technology Growth in European VC Investments
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The Attractions of High Tech Firms

• (Quality) Employment Growth
• Efficiency of Innovation
• Export Intensity
• Regional Development
• Reciprocal Relationship with Large Firms
• Increase Industry Competitiveness

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FACT for most UK venture capitalists,
technology historically has not been a success
Range of Returns of Mature Funds 1980-95 by
Investment Stage in
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Exceptions - not the rule ...
FIND THE EUROPEAN?
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US Venture Capital Returns to 1998
Source Burgel 2000
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Contemporary Issues

• Relationship Government and VC
• How to manage early-stage investments
• How to understand technology investments
• How to manage a European context
• The academic/investment inter-face
• The Corporate Venturing phenomena
• What happens when the bubble bursts?

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Everyone wants their own Silicon Valley

• Industry policy is back
• Creating enabling environments
• Identification of market barriers
• information
• taxation
• incentives
• Finance a key issue

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Early-stage investment is really important

• SO LONG AS SOMEONE ELSE DOES IT
• ergo several schemes to attract venture capital
  activity
• Government as backer
• Government as underwriter
• Government as syndicate partner
• Government as provider

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Technology Investment Challenges

• Until very recently, European VCs have not had
  the skill sets to be sufficiently technologically
  informed. Issues of
• information asymmetries
• agency costs
• appraisal and monitoring
• technology networks

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European Context

• Venture capital has been/is about networks
• ergo, it has been highly parochial
• The geographical scope is changing
• internationalisation of technology
• weight of money
• integration of economies
• the half-life of technologies

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Academic-Industry- Investor Interface

• Historically separate lives
• US model becoming dominant
• University finances becoming conditional on
  external support esp.. expensive science
• Often fraught relationship
• Government encouraging greater awareness and
  contact. IN UK
• University Challenge Fund
• Science Enterprise Challenge

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The Corporates Cometh

• In 1999, US based corporations invested 9.5
  billion in 1021 investee companies.
• i.e. 20 by value and 28 by volume of total US
  venture capital activity.
• In 6mnths of 2000, corporations placed a further
  7.4 billion into 901 companies.
• This is in excess of a ten fold increase in
  investment activity in three years.

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CVC Activity is growing very, very fast
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Challenges to the VC boundaries?
Corporate Venture Capitalists
Traditional VC Funds
Incubator Funds
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and finally ...

• the VC industry is heavily dependent on stock
  market performance, particularly (volatile) high
  tech stock performance
• we have seen an exception period of bullish
  markets in the 1990s, and in the 2000s?
• VC is investment this year estimated to be 70
  million - a 12 fold increase in 5 years
• Investors are coming to expect 1 year net IRRs of
  62.5
• Is the current rate of growth sustainable?