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The Venture C apital Landscape

The Venture C apital Landscape. Simon Cornwell Venture Partner, Amadeus Capital Partners CEO, The Ink Factory ATPAC Conference, Bangkok, August 2013. Simon Cornwell. At European venture firm Amadeus since 2001 P artner and investment committee member from 2005 to 2011

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The Venture C apital Landscape

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  1. The Venture Capital Landscape Simon Cornwell Venture Partner, Amadeus Capital Partners CEO, The Ink Factory ATPAC Conference, Bangkok,August 2013

  2. Simon Cornwell • At European venture firm Amadeus since 2001 • Partner and investment committee member from 2005 to 2011 • Became a venture partner in 2012 after founding The Ink Factory • CEO of The Ink Factory, a media company based in London and Los Angeles • Currently raising its first venture capital round • Previously • CEO of Two Way TV, interactive digital television pioneer • Boston Consulting Group • Refugee work in Thailand • Undergraduate degree from Oxford, Masters from Yale

  3. Amadeus • One of Europe’s largest venture capital investors • $750 million under management • 85 companies backed since it was founded in 1997 • Founded by Hermann Hauser and Anne Glover • Family of funds focused on the technology sector • Amadeus’ newest fund is its Digital Prosperity Fund • Focused on products and services for emerging markets • Cornerstone investor is MTN, world’s #10 mobile operator, based in South Africa • $150 million investment target

  4. My objective today • Paint a picture of venture capital around the world • To suggest why venture capital is important for Thailand • To look at how other countries are approaching national policies around venture capital • And see if there are models or approaches that could be interesting for Thailand

  5. Agenda • What is venture capital? And why is it important? • The emergence of a new world order • Why venture capital is important for Thailand, and where the opportunities may lie • Creating a successful environment for venture capital • The ingredients needed • Clusters • Possible areas of opportunity for Thailand • State backing for venture capital • Conclusions

  6. What is venture capital? • Venture capital firms are professional, institutional managers of risk capital • That capital enables and supports the most innovative and promising companies • This money funds new ideas that • could not be financed with traditional bank financing • threaten established products and services in a corporation • and typically require five to eight years to be launched Source: North American Venture Capital Association, Yearbook 2013

  7. A typical venture capital investment • New technology company with high growth potential • Consumer-oriented • Business-to-business • Entrepreneurial team with skills to reach the market • Often, an innovative business model • Venture capital typically supplies • $1 million to $5 million start-up capital (the ‘A’ Round) • $5 million to $30 million in further financing (‘B’ and ‘C’ Rounds) • Sometimes much more than this • Venture investors are actively engaged in the company

  8. Venture investing often fails • Fewer than half of venture investments succeed • But in aggregate, gains from successes outweigh losses from failures • And failure is necessary to generate the successes Source: Outcome study of 11,686 companies, NVCA Yearbook 2013

  9. But venture-backed companies also change the world Thailand’s Gross National Income in 2012 was $348bn; Denmark’s was $334bn Source: Yahoo; Google; World Bank; Company reports

  10. In venture investing, annual returns are very volatile • Annualised returns on average US venture funds 326% Source: Cambridge Associates 2013

  11. But Venture Capital generates long term returns • Value of $1 million invested in March 1983 in average US venture fund • Over 30 years: • Average firm returns 13.0% • Top 25% of firms return >25% Source: Cambridge Associates 2013

  12. Venture investment and the economy • Venture investment can have a huge impact on the wider economy • The best data comes from the US • More than fifty years of venture capital investing • But much corroboration from Europe as well • In the UK, one third of GDP growth is estimated to come from venture-backed firms • But useful to look at the US as a demonstration of the long term impact of venture capital

  13. Impact on the US Economy • Venture-backed companies had $2.9 trillion in revenues • Accounting for 21% of US GDP • As of 2006, 12.1 million people worked in venture-backed companies • 11% of total US employment Source: IHS, NVCA 2009

  14. Significant impact in other areas • Revenue growth 70% higher • Job creation eight times faster in venture-backed companies than in the rest of the economy • And in some industries, venture-backed employment dominates Source: IHS, NVCA 2009

  15. Over 80% of the world’s venture investment is in the US, Europe and Israel Source: Ernst and Young; World Economic Forum 2013

  16. In summary … • Venture capital is patient risk capital generating long term returns for investors • It can also have a huge impact on economies where there is a lot of venture investing • Venture capital is highly skewed towards the US (in particular), Europe and Israel • With India and China emerging as significant, but still small • But markets are changing …

  17. Agenda • What is venture capital? And why is it important? • The emergence of a new world order • Why venture capital is important for Thailand, and where the opportunities may lie • Creating a successful environment for venture capital • The ingredients needed • Clusters • Possible areas of opportunity for Thailand • State backing for venture capital • Conclusions

  18. A new economic world order • Key economic and demographic shifts has lead to a reconfiguration of the world economic order

  19. Where is growth being generated today?Economies’ share of world GDP (%) - at market exchange rates Forecast • Emerging economies’ GDP will soon overtake developed economies’ Sources: AT Kearney; Bloomberg; BP; dotMobi; Fortune; IMF; UBS; UN; World Bank; World Steel Association; WTO

  20. Emerging economies’ growth is positively impacting technology spending Forecast • Emerging economies’ tech spend has already overtaken developed economies’ Sources: IHS Global Insight, World Industry Service database (2011)

  21. Consumer spending on technology will also benefit from economic growth 1st Quintile GNI per capita Aspiring Economies 2010 1995 2010 The Aspiring Economies (excluding China and India) are about to follow The top quintile of Aspiring Economies populations’ have a GNI per capita > EU’s from 1995 to 2003 • The emerging middle class is as large as the US and with average income of EU of only 10 yrsago Sources: IHS Global Insightand Amadeus analysis

  22. In summary, the market is changing • Even though venture capital is highly focused on the US, the market for technology is much broader • Power is with the new economies, leading in both infrastructure investment and consumer adoption • The AEC middle class will be an increasingly important market • This should create opportunity for products and services that originate outside of the old economic powers • But how is Thailand positioned to take advantage of that, and what are the challenges that we face?

  23. Agenda • What is venture capital? And why is it important? • The emergence of a new world order • Why venture capital is important for Thailand, and where the opportunities may lie • Creating a successful environment for venture capital • The ingredients needed • Clusters • Possible areas of opportunity for Thailand • State backing for venture capital • Conclusions

  24. Why venture capital is important to Thailand: the big picture • The World Economic Forum divides the world’s 144 largest economies into five stages • Investment in innovation is key to sustainable development • Over time, must shift the focus of the economy • Competitive advantage based on efficiency will be attacked from below Source: World Economic Forum Global Competitiveness Report 2012-2013

  25. Basic structural evolution is almost completeWhat is next beyond NIC? The Thai economy by sector, 1960-2012 and beyond Services Manufacturing Agriculture Source: World Bank Databank 2013

  26. The next stage is based on innovation Source: World Economic Forum Global Competitiveness Report 2012-2013

  27. Patents and R&D commercialisation • The filing of patents is a key benchmark for assessing the effectiveness of the commercialisation of R&D • Patent filings • Reflect an intent to commercialise • Demonstrate that the researchers were thinking about commercial applications of their technology • And that they were innovating at an international level • A crude measure • Many patents have no value • or are filed as a tactic to frustrate competitors • But a valuable first-pass indicator

  28. Patent filings per million inhabitantsNot exclusively a western phenomenon! Source: World Economic Forum Global Competitiveness Report 2012-2013

  29. Creating an innovation economy requires a new approach in many areas • Culture: a way of looking at the world • Education • Encouragement of questioning and exploration • Excitement about commercial opportunity in the academic community • Commerce: risk-taking and the acceptance of failure • Government: supportive policy and tax environment A long-term, organic process

  30. How can venture capital help? • Where does venture capital fit in supporting the shift to becoming an innovation-based economy? • Venture capital is only one part of the equation • But it is one that can encourage all the other pieces to come together to create an effective whole

  31. Agenda • What is venture capital? And why is it important? • The emergence of a new world order • Why venture capital is important for Thailand, and where the opportunities may lie • Creating a successful environment for venture capital • The ingredients needed • Clusters • Possible areas of opportunity for Thailand • State backing for venture capital • Conclusions

  32. The ingredients for success in venture

  33. Ideas • Technologies, services or business models • May be based on university research • A discovery • A new (better/faster/cheaper) way to solve a problem • From specialist academic centres of excellence • Or from anywhere! • May also just be based on spotting what the market needs and figuring out how to deliver it

  34. Entrepreneurs • Commercialisation of R&D will not happen without entrepreneurs who can connect the idea to the market • These entrepreneurs must combine • The vision of the product and the business model • The patience to build value over time • The willingness to take risk and be different • The experience to deliver • Sources of entrepreneurs • The business community, especially established technology players • The diaspora: key in both China and India

  35. Money • Generally the easiest part of the equation • Variety of sources • Seed capital – ‘friends and family’ • Loans • Grants and incentives • Venture capital • Thailand has a ‘money-friendly’ environment • Good conditions for investment • Good infrastructure for local and international investors • But it’s hard to deploy money effectively without the other ingredients

  36. The good news: you can start small • One or two people usually make all the difference • Apple, Microsoft, Intel, Hewlett-Packard, Facebook, Google, Yahoo • Were founded by a total of a dozen people • Working from their bedrooms or their university labs • With start-up capital of a few hundred thousand to a few million each • But they were surrounded by a world which supported what they were doing • A technology cluster

  37. ClustersBringing people, ideas and money together • Over time, the most successful environments for venture investing are clusters • Typically emerge around academic centres of excellence • Intellectual property • Entrepreneurs • Money • Support services • An environment where people learn by example • Silicon Valley was the first technology cluster, but others are following

  38. Examples of clusters • Silicon Valley • Sandhill Road: ‘I won’t invest in a company I can’t walk to’ • The Homebrew Computer Club • Boston/Route 128 • Stockholm/Kista • Mumbai • Berlin • Cambridge (England) • A good example to explore in a bit more detail

  39. The Cambridge Cluster • Today the Cambridge cluster has over • 1,500 companies • (of which just 66 have direct university shareholdings) • With a total of $20 billion in revenues in 2012 • And employing around 57,000 people • Five Cambridge companies have so far passed $1 billion in stock market capitalisation • Including ARM, world leader in microprocessors • This year will see 10 billion ARM-based chips shipped • Without ARM, no smartphones, no tablets, no digital cameras • But thirty years ago, there was no cluster …

  40. How did the cluster start? • Led by Hermann Hauser, Austrian physicist • Doing post-doctoral research at the Cavendish Laboratory • With support from the university • Designed the Acorn computer • Adopted by UK schools as the BBC Micro • Acorn was sold to Olivetti, and then to Fujitsu • Made the team wealthy • but also created the foundations for the next generation of companies • The core of the cluster was born • ARM – the Acorn RISC machine • Virata – the Acorn modem team • Element 14 – the other half of the Acorn modem team!

  41. Professor Sir Richard Friend • Cavendish Professor at Cambridge; Tan Chin Tuan Centennial Professor at the National University of Singapore • Research into light-emitting semiconductors has led the world • Led team that invented the OLED display; now world leader in flexible display and semiconductor technology • Laureate of the IEE Faraday Medal and the Technion Harvey Prize • But also founder of Plastic Logic, and of Cambridge Display Technology, and on the board of several other companies

  42. Professor Andy Hopper • Professor of Computer Technology and Head of the University of Cambridge Computer Laboratory • Inventor of the technology that led to ATM • Core to broadband data delivery • But also a serial founder of businesses • Worked with Hermann Hauser at Acorn • Founded Virata, Adaptive Broadband, Cambridge Broadband, Real VNC and others

  43. The spread of the Cambridge network Source: Centre for Entrepreneurial Learning, University of Cambridge

  44. Strong personal linkages give it strength Source: Centre for Entrepreneurial Learning, University of Cambridge

  45. Institutional support for the cluster • Enlightened university intellectual property policy • IP created at the university belongs to the university But • If the IP is sold, income is split with the inventor • The inventor can set up a company to exploit the intellectual property, and the university then typically gets 15% of the income generated from the IP • Cambridge Enterprise, which provides proactive support for the commercialisation of intellectual property • Practical support services • Seed investment of up to $200,000

  46. How do you create a cluster? • You cannot teach people to be entrepreneurs! • But you can create or replicate conditions that have led to successful cluster formation elsewhere • Identification of interesting market opportunities, and development of expertise around them • Active encouragement of university spin-outs • Encouragement for academics working with companies • Attracting multinational corporate R&D centres • How could Thailand think about creating clusters?

  47. Great opportunities for Thailand • Good access to global markets • Already a highly export-oriented market and culture • The coming of the Asean Economic Community • Tariff-free access to a market as exciting as China’s • Some established technology industry expertise • The emergence of tech-savvy, connected domestic consumers • Thai consumers arguably lead ASEAN in technology usage • Can we turn this into competitive advantage?

  48. Building on an established base: Optoelectronics • Thailand has world leadership in the manufacturing of optoelectronics • High precision devices combining electronics and optics • Used in telecoms networking and in consumer electronics • But • Thailand’s lead is based on manufacturing skill • No fundamental intellectual property developed or owned here • Process changes will shrink Thailand’s advantage • Question: should Thailand look to own or create fundamental optoelectronic IP?

  49. Tech-savvy, connected consumers: Mobile services • Thailand’s fixed line internet penetration is low and slow • But smart phone penetration is growing meteorically, helped by the rollout of 3G and aggressive pricing • 25 million smartphones in Thailand, and 5 million tablets • Market growing at 70% per year • Will reach more than 50% of the population during 2014 • Thailand leads ASEAN in smartphones • Along with Indonesia • But locally-developed services are lagging behind Source: Ericsson, GfK

  50. Smartphone and service growthGrowth in adoption by Thai consumers Japan US US US Source: GfK, company reports

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