Transcript Slide 1
Dixon Doll
Chairman-elect US National Venture Capital
Association;
Cofounder and General Partner, DCM
35 years of US Venture Capital —
A Historical Perspective for China
2007 CVCA Annual Meeting
& China Venture Capital/Private Equity Summit
November 2, 2007
Agenda
Evolution
of U.S. VC industry, why a flourishing
VC industry is important for China
Proper
role of public policy
Putting
U.S. lessons learned in context for China
going forward – key messages
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US Venture Capital Investment in Perspective
US GDP $12.5 trillion annually
Hedge fund intake $1.5 trillion over last 3 years estimated
Mutual fund intake $158 billion in 2006
Buyout intake $103 billion in 2006
Venture capital intake $28.6 billion in 2006
• Venture capital fundraising & investment Is 0.2% of total GDP
Source: BLS website, Investment Company Institute, Thomson Financial, NVCA
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Venture-Backed Employment
VC-Backed US Jobs (millions)
As a % of total US Pvt Jobs in 2006
VC-Backed
Jobs = 9%
Outpaces 2003 - 2006
Total US Job Growth
Source: Venture Impact 2006 by Global Insight
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Global Insight Study
In 2006, venture backed companies:
•
Provided 10.4 million U.S. jobs
•
Had sales of $2.3 trillion
Represents 17.6% of GDP
Still dominated venture-created sectors
•
56% of biotech revenue
•
78% of computer and peripherals revenue
•
94% of computer and peripherals jobs
•
88% of software sector jobs
Outgrew the economy 2003-2006 in every sector
Source: Venture Impact 2006 by Global Insight
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“Buy Low… Sell High” Is Easier if You
Really Buy Low!
Company
Cisco
eBay
Amazon.com
Apple
YouTube
Google
JetBlue
WebVan
Total Venture
Investment $M
Recent Market
Cap/ Acq Price
$M (4/2007)
3
7
8
9
12
40
173
441
163,000
45,890
18,640
78,000
1,650
150,000
2,000
0
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Financial
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VC Investment Peaked in 2000;
Recently 20-23% of Peak; 2006 Was Higher
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Financial
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IPO Levels Jumped in 2004 but not Sustained;
New Hope in 2007?
Source: Thomson Financial/National Venture Capital Association
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State of Venture Capital – at Steady State
Deal Flow and Equity into Venture-Backed Companies
$87.7
Dollars Raised by U.S. VC Funds ($B)
Amount Invested ($B)
$46.3
$36.4
$22.2
$9.2
$11.2
$12.5
Source: PricewaterhouseCoopers – NVCA Moneytree™ report,
Data: Thomson Financial
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$19.7
$22.5
$24.0
$26.7
Key U.S. VC Building Blocks…
Capital formation
Prudent man rule – enabled pension investment
• LP laws
• Capital gains tax reduction
•
Empowered entrepreneurs
•
Capital gains tax reductions
• Stock options/team building tools
• Reasonable bankruptcy laws
Protect companies – IP laws
Abundant customers willing to do business with SMEs
Exit markets – the NASDAQ
Face-to-face investing/proximity
Cultural acceptance
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Building Blocks of the U.S.
Venture Capital Industry
Unparalleled university research
High quality universal education
Proximity to talented entrepreneurs and engineers
Deep, liquid transparent capital markets
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The Number of U.S. VC Firms has
Peaked . . . Thankfully
At Year End
# Venture
Firms
Capital
Under Mgt
1970
1980
1990
2000
2001
2006
28
89
395
881
946
798
$1B
$4B
$30B
$228B
$255B
$235B
Source: 2007 NVCA Yearbook, prepared by Thomas Financial
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Number of Active IT VC Firms Declining
United States
Europe
Israel
- 56% Since 2000
- 60% Since 2000
- 65% Since 2000
974
2206
376
862
299
1767
661
556
1364
1157
420
1012 960
Note: Chart scales vary for clarity
Source: Ernst & Young/Dow Jones Venture One
221
205
205
391
130
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Globalization of VC and Technology
VC is truly a global business
• Entrepreneurs live and start companies everywhere
• Low-cost centers of technological excellence distributed globally
• Other potential markets to emerge (India, Eastern Europe, Russia)
Portfolio companies are increasingly global
• Companies must utilize global centers of technological excellence
• International markets more important for select disruptive technologies
• Companies must access many international markets from the get go
Emergence of many new important sectors like Cleantech
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Cleantech Investments (US $M)
21%
CAGR
25%
CAGR
195%
CAGR
Source: Dow Jones VentureOne and Ernst & Young
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Important VC – Related Public Policy Issues
Tax policy encouraging risk taking and
company formation
Long-term support for University,
government R&D
Creating entrepreneur friendly
•
Legal system (creating law)
• Court system (enforcement)
Intellectual property protection
Investor friendly, confidence inspiring,
securities regulatory system
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Government Policies Can Be Harmful to VC
Misguided overreaching U.S. government policies,
regulations, like Sarbox have harmed domestic VC
industry by
•
Sharply reducing IPOs
• Increasing costs of going public, ongoing compliance
Beware of Unintended Consequences
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A Tale of Two Markets
There are significant disparities
between tech markets and capital markets in general
Dow
+ 11%
11,723
NASDAQ
13,063
5,049
(50%)
2,525
2000 Peak
(1/14/2000)
4/30/2007
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2000 Peak
(3/10/2000)
4/30/2007
Tech IPOs Continue to Decline
180
# of U.S. VC Backed Tech IPOs
$90B
Amount Invested ($B)
$87.7
$80B
$70B
$60B
108
105
$50B
$46.3
$40B
$36.4
60
$22.2
46
$9.2
$11.2 $12.5
10
6
$24.0 $26.7
$22.5
$19.7
10
18
11
20
$30B
$14.5
17
$20B
$10B
0
Source: VentureSource and National Venture Capital Association MoneyTree™ Report
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M&A Has Become the Primary Venture Exit
Number of Exits
M&A
IPO
Annualized
Source: Thomson Financial/National Venture Capital Association
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Global Private Equity Market
More U.S. Companies Have Gone Private but Q3’07 May See a Slowdown
20%
15%
10%
5%
0%
Source: Marketview
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% of U.S. M&A Volume
Private Equity Volume ($USB)
25%
Weak US Capital Markets Offset by Global Strength
North America
4 Exchanges
$19.9 Trillion
NYSE $14.4T
NASDAQ $3.7T
Europe
18 Exchanges
$13.4 Trillion
London $3.4T
Euronext $3.4T
Asia-Pacific
17 Exchanges
$10.2 Trillion*
Tokyo $4.4T
Hong Kong $1.4T
Latin & South
America
7 Exchanges
$1.1 Trillion
Middle East &
Africa
4 Exchanges
$0.8 Trillion
Source: World Federation of Exchanges, 10/23/06
* Osaka & the National Stock Exchange of India are not included
in the total for Asia-Pacific to avoid double counting Tokyo & Bombay
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Capitalization of Global Markets
Development of Markets Abroad is Healthy
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: World Federation of Exchanges, 2006
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Tax Policy is an Important Lever
Tax Revenue in Billions
Capital gains tax revenue forecast vs actual in billions
Bush tax cuts
2003
Latest CBO estimates
Source: Treasury Department and Congressional Budget Office
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Individual Long-Term Capital
Tax Rates 2005-2006
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
*
10%
12.5%
14.5%
Currently
15%
15%
17.6%
19%
After Lapse (2011)
20%
20%
20%
20%
23.5%
25%
26%
28%
28%
30%
32%
43%
The rates are based on long-term capital gains tax rates applicable to gains on sales of share.
*Long-term capital gains listed securities are exempt.
Source: Individual Taxes 2004-2005, Worldwide Summaries (PricewaterhouseCoopers), European Tax Handbook 2005 (International Bureau of Fiscal Documentation)
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and various government web sites.
Total U.S. Tort Costs
2.5%
300
2.0%
250
200
1.5%
150
1.0%
100
0.5%
50
0.0%
0
Source: Towers Perrin, 2006
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Tort Costs ($B)
Tort Costs as % of GDP
Cost of Litigation is Growing in the U.S.
Percentage of World Population
% of
World
Population
20.35
19
4.81
4.35
U.S. China
U.S. China
Source: Stocks for the Long Run and Future For Investors, Jeremy J. Siegel
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Percentage of World’s GDP
% of
World’s
GDP
21
19
14
10
U.S. China
Source: Stocks for the Long Run and Future For Investors, Jeremy J. Siegel
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U.S. China
Top Markets Where the Cost of Complying With
Corporate Governance Regulation is Too High
U.S
UK & Canada
Ireland
India
Austria,
Israel
Germany,
Liechtenstein,
Switzerland
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China
Nordic France, Benelux
Countries Italy,
Monaco,
Portugal,
Spain
Top Markets Where Regulation is Too Lax and
Creates Additional Business Risk
India
Central/
Eastern
Europe
China
CIS &
Latin Other Asia Middle Africa
Russia America
East
(excl Israel)
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Israel
South
Korea
Top Markets Where Intellectual Property Laws
Create Additional Financial Risk
China
India
U.S.
Israel
Other
Asia
Canada
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South
Korea
Latin
America
Middle Central &
East Eastern
(excl. Europe
Israel)
Public Policy Implications for China
Establishment of one industry voice, CVCA, is
an important positive step
Creation of the domestic Shenzhen, Shanghai
Exchanges also desirable
Caution against overregulation which could
discourage new company formation and restrict
foreign capital inflows
Importance of strong capital market oversight
and governance agencies like CSRC
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Key Messages Summarized
China
VC industry today still in very early stage
(roughly same as U.S. in late 70’s)
Industry always has been cyclical – new cycle
every 10-12 years. Anticipate downturns.
Flourishing VC industry a crucial element for
leveraged job creation, innovation, and longterm economic growth
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Key Messages Summarized (cont.)
Public
policy plays major role in successful
evolution of VC industry
•
Taxation, Legal, R&D Support, Governance, Etc.
Excessive government intervention has periodically
damaged U.S. VC industry (Sarbox)
NVCA in U.S. has played important role in
influencing public policy - I strongly encourage
CVCA to do the same in China
Thank You.
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