Transcript מיקום של השקעות הון סיכון והשלכות על פער

VC, New Technology, and
Business Development
Dafna Schwartz
Ben-Gurion University, Israel
[email protected]
Regional Economies in a Globalising World
Enhancing Intellectual Capacity and Innovation
Friday 21 November 2008, Cardiff University
1
The Need
Countries implement various policy measures
to encourage the formation of a VC industry for the development of start-ups.
Hypothesis- there may be a market failure:
The high risk that the first entrants into the VC
industry face in a country with limited VCs
The existence of positive externalities in the
VC industry (first entrants into the market
may not be profitable but can help in the
creation of better conditions)
2
Our hypotheses
Government intervention can be effective in
overcoming market failure by supporting the
formation of a VC industry
However, this policy may have an
unintentional negative side effect in terms of
increasing regional inequality
The reason – the special role of the venture
investors in the development of the start-ups
Therefore, a specific public policy for the
spatial distribution of such activities should
be considered.
3
The Objective:
To analyze the Israeli experience
Israel has adopted a policy of supporting
the formation of the VC industry
The emergence of the VC industry in
Israel is considered to be the most
successful example of diffusion of the
Silicon Valley model of VC outside of
North America (Avnimelech & Teubal, 2004a, b; Bresnahan et al., 2001;
Carmell & de Fontaenet, 2004).
Can be used as a case study
4
From start-ups to successful companies
Requires resources that start-ups are frequently
lacking.
Financial resources - difficulty obtaining in the
market. They are characterized by high risk
and lack of tangible assets- therefore debt
financing is usually not an option (Denis, 2004).
Non-financial resources - the founders are
often the innovators who don’t have the
business and managerial skills, experience, or
networks which are more crucial to their
success (Hung et al., 2002).
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Who are venture investors?
Investors (local and foreign) that invest in
start-ups through equity :
–
–
–
–
Venture capital funds
Private investors (angels)
Investment companies
Corporate venture companies
They provide financial and non-financial
resources
6
The role of venture investors
Act as entrepreneurs and managers
Select firms with growth potential
Improve the quality of the firm in
which they invest
Improve accessibility to resources
(own and external) – financial and
other resources (Gompers & Lerner, 1999, 2001, 2005;
Sapienza, 1992; Elango et al., 1995; Sapienza et al., 1995; Jain, 1999;
Van Osnabrugge & Robinson, 2000; Brierly 2001; Allen, 2002; Brancomb
& Auerswald, 2001; Lindstrom & Olofsson, 2001; Helman & Puri, 2002a,
b; Wang et al. 2002; Allen, 2003; Riquelme & Watson, 2002).
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Main factors in the location of start-ups
financed by venture investors
They are part of high-tech - therefore have
a tendency to cluster, primarily around
metropolitan locations and in the satellite
urban ring around the main metropolitan
area (Bar-El &. Parr, 2003; Capello, 2002; Cooke & Schwartz, 2003; Cooke 2004, Cooke 2005,
Cooke & Schwartz, 2008, Frenkel, 2001; Frenkel & Shefer, 2001; Schwartz, 2006; Schwartz& Bar-El, 2007,
Mason & Harrison, 2002).
In addition, their location depends on the
venture investors: capital provider,
entrepreneurs and managers
8
Two main considerations in
the location of venture
investments
Capital is highly mobile
Entrepreneurship & management
– much lower mobility
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Proximity & Focalization are is important
Frequent contacts, cost of distance
Tacit knowledge: venture investors are
viewed as tacit information brokers: they
acquire and create knowledge
Asymmetric information and the need of
control
Cooperation of several investors in each
start-up
Involvement of each investor in several startups
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Consequently, venture investors
prefer to invest close to:
Agglomerations of start-ups
Agglomeration of venture investors
Their own location (residence, office)
The portfolio companies
Other investors’ portfolio companies
Focal Places
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In 1993 - The Yozma Program
Fund of funds– allocated $100 million
10 VC funds were formed,
A partner of a leading Israeli financial
institution with leading foreign venture
investors
The government's share is maximum 40%
Option to buy out the government's share at
a pre-determined price over a period of 5
years
In addition - invest directly in start-ups.
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The Yozma program proved to be
extremely successful
10 VC funds were formed
Major international venture investors
were attracted: USA, Germany, Japan,
Netherlands, Singapore.
9 funds bought out the government's
share
15 direct investments - 9 enjoyed
successful exits – IPOs or M&A
13
Catalyst for the development of the VC industry:
(VC funds and others)
Capital Raised by Israeli VC Funds by Year
$mil
3000
2710
2500
2000
1640
1320
1500
1160
900
1000
640 650
590
500
500
40
200 120 110
1100
300
10
0
1991
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
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Catalyst for the development of young
technology firms – start-ups (SU)
Capital raised by Israeli High3500
Tech Companies
3090
3000
2500
1990
2000
1470
1500
1140
1010
1000
440
500
50
1340
1620
1760
1010
590
290
0
1991 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
No. of Startup Creation
700
573
600
642
565
500
404
400
357347
312
300
200
100
499520 540
124 140
175
231
260
51
0
7E
200
6E
200
5
200
4
200
3
200
2
200
1
200
0
200
9
199
8
199
7
199
6
199
5
199
4
199
3
199
1
199
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Exits: IPO and M&A
Capital Raised in IPOs of Israeli High-Tech Companies
M&As of Israeli High-Tech Companies
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The location pattern of SU backed by
venture investors (Schwartz & Bar-El 2007)
We analyzed the location pattern of SUs in comparison
to that of high-tech activities
Our hypothesis: This policy has an unintentional
negative side effect in terms of regional
inequality
Start-ups backed by VC – heavier concentration
in comaprison with high tech activities. Tend to
concentrate in the metropolitan urban center of
the country in specific focal locations, leaving
the peripheral districts far behind.
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Database
Start-up information:*)
All the start-ups that were financed by
venture investors, 1995-2004.
1,239 start-ups, 30,000 employees, $11B
Employment data:**)
total employment in all sectors (ET)
employment in high-tech sectors (EHT)
Sources: *) IVC information base **)CBS
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Districts and sub-districts
6 districts:
• 2 periphery: Southern, Northern
• 4 centers: Tel Aviv, Central, Haifa,
Jerusalem
 The core: Tel-Aviv is the
metropolitan urban center; The
Central district is the ring around it.
15 sub-districts (8 – centers, 7 – periphery)
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The Spatial distribution:
For each district i we calculated its
share:
in total employment (%ETi)
in employment in high-tech
(%EHTi)
in employment in start-ups
backed by venture investors
(%ESUi).
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Location quotients,
For each district i the ratio of:
The share of employment in high-tech
with that of total employment
(%EHTi/%Eti)
The share of employment in start-ups
with the share in high-tech
(%ESUi/%EHTi)
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Distribution and location measures by districts
% ET
% EHT
% ESU
%EHT/
%ET)
%ESU/
%EHT
Southern
12.2
9.5
2.3
Northern
13.7
9.6
8.8
Central
21.9
32.6
37.1
0.78
0.70
1.49
0.25
0.91
1.14
Tel Aviv
27.7
29.9
36.5
Jerusale
m
10.9
7.4
8.0
Haifa
13.7
11.0
7.3
1.08
0.68
0.80
1.22
1.09
0.67
100
100
100
(50%)
(63%)
(74%)
Total
Central+T.A
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High tech and SU Concentration
Heavy concentration of high-tech in and
around a metropolitan districts, low levels
in the peripheral districts
The distribution of venture investments
is even more concentrated than that of
high-tech activity
Districts with the relatively higher activity
of high tech enjoy an even higher level of
concentration of start-ups.
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A special pattern of concentration
Highest relative attraction of venture
investments to urban centers in the proximity
of Tel Aviv (Tel Aviv + Central districts):
73% of all start-up employment compared to:
 63% for high-tech
50% for total employment.
But not necessarily to all main centers
(Jerusalem, Haifa)
Venture investments refrain from locating in
peripheral regions, but not necessarily from
all of them
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The concentration of start-ups is
distributed in a few focal points
We divide the districts into their sub-district
and apply the same parameters to the
smaller geographical units
The concentration of start-ups is
distributed in a few focal points, mostly in
the center of the country.
Sub districts with relatively high share of
start ups: Petah Tikva and Tel Aviv,
Rehovot, Sharon, Hadera and Yizre'el.
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Distribution by sub-districts
% ET
% EHT
%
ESU
LQ(EHT/ET)
LQ(ESU/
EHT)
Jerusalem
10.9
7.4
8.0
0.68
1.09
Zefat,Kin,Golan
3.7
1.4
0.2
0.37
0.18
Yizre’el
5.0
4.5
7.3
0.90
1.62
Akko
4.9
3.7
1.2
0.76
0.31
Haifa
10.4
10.2
5.4
0.98
0.52
Hadera
3.3
0.8
2.0
0.23
2.68
Sharon
4.2
2.2
5.6
0.52
2.57
Petach-Tiqva
8.1
14.4
22.1
1.79
1.53
Ramla
3.8
8.7
3.6
2.26
0.42
Rehovot
5.8
7.4
5.8
1.26
0.78
Tel Aviv
27.7
29.9
36.5
1.08
1.22
Ashkelon
5.4
3.8
0.9
0.71
0.23
Beer-Sheva
6.8
5.7
1.5
0.84
0.26
26
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Summary and Conclusion
We tested the effectiveness of
government policy in encouraging the
formation of VC industry. The findings
show:
Yes – It is possible!
Such policy is effective and may act as
a catalyst for the creation of VC
industry and for the development of
start-ups.
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The policy has an unintentional negative
result - increase in the regional gap
Heavy concentration of venture
investments in comparison to high-tech
activity
– Pattern of concentration in a few focal places,
with no necessary continuum between them.
This location behavior may lead to changes
in the future geographical mapping of hightech activity and possibly to the increase of
regional gaps.
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The Location Factors
When making a location decision, every firm
considers the macro-regional factors and its
micro-business specific needs
Start-ups are high-tech activities, and are
influenced by the same macro-regional
factors that lead to concentration
The location considerations of start ups are
influenced also by their investors – since their
role is not merely a financial capital provider:
they also play an important role in
entrepreneurship and management of the
start-ups
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Policy implications
Still, focal places in the periphery may under
certain conditions offer a potential for SU activity
The existence of externalities generated by SU
activity justifies the involvement of public policy:
– Joint public programs with venture capital
investors,
– with a focus on specific concentrated
locations in the periphery that have a
potential of growth.
– Examples of programs that may be
considered: regional venture capital fund,
technological incubators
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