Transcript Amadeus MMI Fund

The Venture Capital
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
– 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
2
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
3
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
4
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
5
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
• 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 $30 million in further financing (‘B’ and ‘C’ Rounds)
-
Sometimes much more than this
• Venture investors are actively engaged in the company
7
Venture investing often fails
• Fewer than half of
venture investments
succeed
Still
private, or
unknown,
35%
• But in aggregate, gains
from successes
outweigh losses from
failures
Went
Public,
14%
Acquired/
Sold, 33%
• And failure is necessary
to generate the
successes
Collapsed,
18%
Source: Outcome study of 11,686 companies, NVCA Yearbook 2013
8
But venture-backed companies also change
the world
Market Cap Revenue
Founded
($bn)
($bn)
Employees
Apple
1976
455
169
72,800
Google
1998
288
56
44,777
Microsoft
1975
263
78
99,000
Cisco
1984
131
49
72,360
Intel
1968
112
52
105,000
Facebook
2004
99
6
5,300
1348
410
399,237
Thailand’s Gross National Income in 2012 was $348bn; Denmark’s was $334bn
Source: Yahoo; Google; World Bank; Company reports
9
In venture investing, annual returns are very
volatile
•
Annualised returns on average US venture funds
326%
50
Annualised return (%)
40
30
20
10
-10
-20
-30
-40
Year ended March 31st
Source: Cambridge Associates 2013
10
But Venture Capital generates long term
returns
• Value of $1 million invested in March 1983 in average
US venture fund
60
50
$ million
40
Over 30 years:
• Average firm returns 13.0%
• Top 25% of firms return >25%
30
20
10
-
Source: Cambridge Associates 2013
At 31st March of year
11
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
12
Impact on the US Economy
• As of 2006, 12.1 million people
worked in venture-backed companies
– 11% of total US employment
• Venture-backed companies had
$2.9 trillion in revenues
• Accounting for 21% of US GDP
Source: IHS, NVCA 2009
13
Significant impact in other areas
• Revenue growth 70% higher
• Job creation eight times faster in venture-backed companies
than in the rest of the economy
• And in some industries, venture-backed employment
dominates
Software
Telecommunications
Semiconductors
Networking and Equipment
Electronics/Instrumentation
Venturebacked
Employment
817,166
736,961
309,437
392,505
271,224
Total
Employment
1,008,929
994,862
418,998
668,058
528,148
Venture-Backed
Companies Share
of Employment
81%
74%
74%
59%
51%
Source: IHS, NVCA 2009
14
Over 80% of the world’s venture investment
is in the US, Europe and Israel
Venture Capital Investment ($bn)
60
50
40
India
China
Israel
Europe
US
30
20
10
0
2006
2007
2008
2009
2010
Source: Ernst and Young; World Economic Forum 2013
15
2011
2012
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 …
16
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
17
A new economic world order
Key economic and demographic shifts has lead to a reconfiguration of the world economic order
18
Where is growth being generated today?
Economies’ share of world GDP (%) - at market exchange rates
100%
Forecast
90%
80%
70%
60%
50%
Developed
40%
Emerging
30%
20%
10%
0%
1990
1995
2000
2005
2010
2015
2020
Emerging economies’ GDP will soon overtake developed economies’
19
Sources: AT Kearney; Bloomberg; BP; dotMobi; Fortune;
IMF; UBS; UN; World Bank; World Steel Association; WTO
Emerging economies’ growth is positively
impacting technology spending
100%
Forecast
90%
80%
70%
60%
50%
Developed
40%
Emerging
30%
20%
10%
0%
1995
2000
2005
2010
2015
Emerging economies’ tech spend has already overtaken developed economies’
20
Sources: IHS Global Insight, World Industry Service
database (2011)
Per Capita Spend on Technology
(US$ 000s)
Consumer spending on technology will
also benefit from economic growth
1st Quintile GNI per capita
Aspiring Economies
3.0
EU
US
2.5
2010
2.0
306
1995
2010
2003
1.5
309
1995
1.0
504
10
20
30
40
Per Capita Gross National Income (US$ 000s)
•
•
50
Population
Population (millions)
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 yrs ago
21
Sources: IHS Global Insight and Amadeus analysis
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?
22
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
23
Why venture capital is important to Thailand:
the big picture
• The World Economic Forum divides the world’s 144 largest
economies into five stages
Factor-driven
In transition
Efficiencydriven
In transition
Innovationdriven
38 economies
17 economies
33 economies
21 economies
35 economies
Cambodia
Vietnam
Brunei
Philippines
Indonesia
Thailand
Malaysia
Singapore
• 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
24
Basic structural evolution is almost complete
What is next beyond NIC?
The Thai economy by sector, 1960-2012 and beyond
60
Percent of GDP by Sector
Services
50
40
30
Manufacturing
20
10
Agriculture
0
1960
1970
1980
1990
2000
2010
2020
Source: World Bank Databank 2013
25
The next stage is based on innovation
Global
Competitiveness
Ranking
Capacity for
Innovation
Ranking
Singapore
2
Singapore
20
Malaysia
25
Malaysia
25
Brunei
28
Indonesia
30
Thailand
38
Cambodia
65
Indonesia
50
Brunei
68
Philippines
65
Vietnam
78
Vietnam
75
Thailand
79
Cambodia
85
Philippines
86
Source: World Economic Forum Global Competitiveness Report 2012-2013
26
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
27
Patent filings per million inhabitants
Not exclusively a western phenomenon!
Patents filed annually per million
inhabitants
350
300
250
200
150
100
50
0
Source: World Economic Forum Global Competitiveness Report 2012-2013
28
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
29
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
30
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
31
The ingredients for success in venture
Money
Ideas
Entrepreneurs
32
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
33
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
34
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
35
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
36
Clusters
Bringing 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
37
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
38
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 …
39
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!
40
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
41
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
42
The spread of the Cambridge network
Source: Centre for Entrepreneurial
Learning, University of Cambridge
43
Strong personal linkages give it strength
Source: Centre for Entrepreneurial
Learning, University of Cambridge
44
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
45
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?
46
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?
47
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?
48
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
49
Smartphone and service growth
Growth in adoption by Thai consumers
250%
Growth Rate 2012-2013
Japan
200%
US
150%
100%
US
50%
US
0%
Smartphone
Line
Instagram
Source: GfK, company reports
50
Twitter
Facebook
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
51
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
52
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!
53
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
54
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
55
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
56
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 $10 billion from portfolio companies by 2015
– Invest internationally with the goal of bringing manufacturing
and intellectual property to Russia
• To date, Rusnano has fallen significantly short of its
objectives, despite a number of very large investments
– Announced a major restructuring along more market-driven
principles in June 2013
57
Lessons from Rusnano to date
• It takes a long time to grow businesses!
– And it often doesn’t work as expected
• Investment decisions have sometimes been surprising
– Made by government officials without investment backgrounds
– Driven by policy rather than market need
• Central planning almost feels like old Soviet mentality
– Larger number of smaller, more diverse, market-led initiatives
may be more effective
• But the jury is still out: long term commitment may yet
yield good results
58
China: Beijing
• Shanghai has traditionally been the heart of the Chinese tech
industry
• To compete, the city of Beijing has adopted a very hands-on
approach to building a technology cluster
• Led by Vice-Mayor Gou Zhongwen
– Long background in technology management
– Duties as deputy mayor entirely focused on developing Beijing’s
technology base and intellectual property infrastructure
• Core area of focus to date has been display technologies
– Gen 8 fab built: will compete with Koreans and Taiwanese to build
large screen displays
– Multi-$ billion investment
59
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
60
In addition …
• Network of science parks in Beijing with both wellestablished 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 centrallyplanned approach
61
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
62
The Technology Strategy Board
The Board
from industry and the
investment community
Private
enterprise
Investment
Grant funding
Incubators
Other facilities
Research and
development
Key areas for
government support
Nano technology
Plastic electronics
63
Government
Tax policy
Purchasing
policy
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!
64
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!
65
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
66
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
67
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
68
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?
69
Thank you!
• ATPAC and The Ministry of Science and Technology
• Anong Wecharatana
• Professor Mehti Wecharatana
• Wannapid Jarusombat
• Vantana Cornwell
70
Amadeus Capital
Partners
August 2013
71