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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

The Venture Capital Landscape

Simon Cornwell

Venture Partner, Amadeus Capital Partners

CEO, The Ink Factory

ATPAC Conference, Bangkok,August 2013

simon cornwell
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
amadeus
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
my objective today
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
agenda
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
what is venture capital
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

a typical venture capital investment
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
venture investing often fails
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

but venture backed companies also change the world
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

in venture investing annual returns are very volatile
In venture investing, annual returns are very volatile
  • Annualised returns on average US venture funds

326%

Source: Cambridge Associates 2013

but venture capital generates long term returns
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

v enture investment and the economy
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
impact on the us economy
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

significant impact in other areas
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

over 80 of the world s venture investment is in the us europe and israel
Over 80% of the world’s venture investment is in the US, Europe and Israel

Source: Ernst and Young; World Economic Forum 2013

in summary
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 …
agenda1
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
a new economic world order
A new economic world order
  • Key economic and demographic shifts has lead to a reconfiguration of the world economic order
where is growth being generated today economies share of world gdp at market exchange rates
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

emerging economies growth is positively impacting technology spending
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)

consumer spending on technology will also benefit from economic growth
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

in summary the market is changing
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?
agenda2
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
why venture capital is important to thailand the big picture
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

basic structural evolution is almost complete what is next beyond nic
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

the next stage is based on innovation
The next stage is based on innovation

Source: World Economic Forum Global Competitiveness Report 2012-2013

patents and r d commercialisation
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
patent filings per million inhabitants not exclusively a western phenomenon
Patent filings per million inhabitantsNot exclusively a western phenomenon!

Source: World Economic Forum Global Competitiveness Report 2012-2013

creating an innovation economy requires a new approach in many areas
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

how can venture capital help
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
agenda3
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
ideas
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
entrepreneurs
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
money
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
the good news you can start small
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
clusters bringing people ideas and money together
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
examples of clusters
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
the cambridge cluster
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 …
how did the cluster start
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!
professor sir richard friend
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
professor andy hopper
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
the spread of the cambridge network
The spread of the Cambridge network

Source: Centre for Entrepreneurial Learning, University of Cambridge

strong personal linkages give it strength
Strong personal linkages give it strength

Source: Centre for Entrepreneurial Learning, University of Cambridge

institutional support for the cluster
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
how do you create a cluster
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?
great opportunities for thailand
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?
building on an established base optoelectronics
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?
t ech savvy connected consumers mobile services
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

smartphone and service growth growth in adoption by thai consumers
Smartphone and service growthGrowth in adoption by Thai consumers

Japan

US

US

US

Source: GfK, company reports

mobile services areas to consider
Mobile services: areas to consider
  • Online payment systems and e-banking
    • Biggest single barrier to the adoption of e-commerce and other services
  • E-commerce
    • Very underdeveloped in Thailand
    • Maybe because of lack of payment systems, maybe for other reasons
  • Facebook applications
  • Entrepreneurs can ask what has worked elsewhere, and why, and whether we can do it in Thailand in a Thai way
another area of competitive strength media
Another area of competitive strength: Media
  • Thailand has a strong film, TV and commercials infrastructure
    • Creatively world class
    • Solid technical and executional foundation
    • Open environment that encourages innovation
  • High bandwidth mobile data is opening the opportunity for new media services
    • Fastest growing area of the internet
  • Another area for consideration
in summary1
In summary
  • Creating a successful environment for venture includes many things besides money
  • The key is supporting, in all ways, the individuals who have ground breaking ideas and who bring them to market
  • Clusters provide that supportive environment
  • Thailand has a number of candidate sectors for cluster formation
  • And you can start small!
agenda4
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
what is the role of the state
What is the role of the state?
  • Many governments want to create a venture culture
  • Numerous models in place around the world, involving
  • Direct investment
    • The establishment of sovereign investment funds
    • Direct investment by the state into enterprises
    • Investment into venture capital funds
  • Indirect support
    • Funding of advanced research facilities (alongside industry)
    • Tax incentives for investment in research and development
    • Tax incentives for venture investors
    • Commitment of a proportion of government budgets to SMEs
  • Key is to pick the model that will work best for Thailand
three different examples
Three different examples
  • Russia
    • Rusnano
  • China
    • Beijing municipality
  • The UK
    • Integrated approach
  • Note that the US, accounting for over 70% of global venture investment, has no national level strategy
    • In-Q-tel, the CIA’s venture fund, is its only state-backed fund
russia rusnano
Russia: Rusnano
  • Rusnano was founded in 2007 by the Russian state
    • Anatoly Chubais is its driving force and its CEO
    • Former finance minister and deputy prime minister, led Russian privatisation in the 1990s
  • Vision: turn Russia into the global centre for nanotechnology
    • Generate sales of $10 billion from portfolio companies by 2015
    • Invest internationally with the goal of bringing manufacturing and intellectual property to Russia
  • To date, Rusnano has fallen significantly short of its objectives, despite a number of very large investments
    • Announced a major restructuring along more market-driven principles in June 2013
lessons from rusnano to date
Lessons from Rusnano to date
  • It takes a long time to grow businesses!
    • And it often doesn’t work as expected
  • Investment decisions have sometimes been surprising
    • Made by government officials without investment backgrounds
    • Driven by policy rather than market need
  • Central planning almost feels like old Soviet mentality
    • Larger number of smaller, more diverse, market-led initiatives may be more effective
  • But the jury is still out: long term commitment may yet yield good results
china beijing
China: Beijing
  • Shanghai has traditionally been the heart of the Chinese tech industry
  • To compete, the city of Beijing has adopted a very hands-on approach to building a technology cluster
  • Led by Vice-Mayor Gou Zhongwen
    • Long background in technology management
    • Duties as deputy mayor entirely focused on developing Beijing’s technology base and intellectual property infrastructure
  • Core area of focus to date has been display technologies
    • Gen 8 fab built: will compete with Koreans and Taiwanese to build large screen displays
    • Multi-$ billion investment
investment in intellectual property
Investment in intellectual property
  • As with Rusnano, a key objective has been acquisition and creation of intellectual property
  • Approach has been to partner with western universities
    • Offering major contribution to research facilities
    • In return for commitment to bring manufacturing but also research and development to Beijing
  • Protracted negotiations with Cambridge about partnering on display technologies
    • Other partnerships already underway
  • Patient, long-term approach contrasts with Rusnano
in addition
In addition …
  • Network of science parks in Beijing with both well-established tech companies and start-ups
    • Companies include Lenovo and Baidu
    • A number of NASDAQ-listed tech companies
    • A growing number of start-ups, many started by former employees of established tech companies
  • Successful in attracting top international venture funds
    • Led by Sequoia, whose investments include Apple, Google, Yahoo, Youtube, Instagram, WhatsApp and many, many others
  • Well on the way to creating a world-class cluster
    • But with huge levels of investment and a very centrally-planned approach
the uk
The UK
  • Smaller-scale, market led approach
  • Three core elements
    • The Technology Strategy Board
    • Investment in venture
    • Tax incentives for companies and investors
  • Longer term, a commitment to sourcing part of government purchasing from SMEs in all sectors
    • Slow progress as departments and local authorities value the ability to source as they wish
uk government strategy
UK government strategy
  • Allocation of circa $200 million annually to venture capital investment
    • Given to asset managers who then pick the best venture capital partnerships
    • No government involvement in investment decision-making or no restrictions on geography or sector
  • Soft loans to support smaller ‘seed stage’ funds
  • Tax rebate for companies on all R&D expenditure
  • Tax rebates for investors in start-ups
  • Eventually, a commitment to sourcing from SMEs!
summary
Summary
  • There are many different approaches to state support for venture
  • Large scale, impatient national plans don’t necessarily deliver results
  • Smaller-scale, market-led strategies may be more effective
    • Also pragmatically more achievable
    • Again, it’s fine to start small!
agenda5
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
conclusions
Conclusions
  • Venture capital is patient, long-term capital that historically has yielded good returns
  • It has also had a big effect on people and on economies
    • The world would be a different place without venture capital!
  • Creating a successful environment for venture could be a key ingredient in Thailand’s future
conclusions 2
Conclusions (2)
  • Gradual, organic change is needed in many areas to support the growth of a venture culture
  • But good prospects exist for Thailand
    • Some existing areas of excellence
    • The coming of the AEC will open big opportunities
  • Supporting cluster formation is key
  • Government policy should be lightweight, flexible and focused on supporting small-scale real-world initiatives
    • Using balance sheet as well as budget
what it will take is a champion
What it will take is a champion
  • One or two world-class entrepreneurs
    • Thailand has many
  • Academics committed to seeing research become reality
    • Sir Richard Friend, Andy Hopper
  • But also a champion for venture
    • Hermann Hauser, Anatoly Chubais, Gou Zhongwen
    • Committed to driving through the initiatives to support venture
    • History shows that one person can make a real difference
  • Maybe someone in this room?
thank you
Thank you!
  • ATPAC and The Ministry of Science and Technology
  • AnongWecharatana
  • Professor MehtiWecharatana
  • WannapidJarusombat
  • Vantana Cornwell