1. Dr. Yannis Pierrakis Senior Lecturer in Entrepreneurship and Innovation Kingston University

2. Source: Business Growth and Innovation (NESTA, 2009). 6% Yes No Product Innovation Process Innovation Wider Innovation Did innovation take place 2002 – 2004? Average annual employment growth rate (2004-07) 5% 4% 3% 2% 1% 0% Yes

3. Breakthrough idea or technology – Solves a problem – Creates new needs – Improves the cost equation – Runs fast – Often IP protectable (especially for biotech) Not a ‘conventional business’

4. Personal savings Grants Loans Mortgages Credit cards FFFs Business Angels Venture Capital Crowdfunding ….

5. Innovation requires resources, it’s an investment. How is this investment funded? VC

6. Personal savings Grants Loans Mortgages Credit cards FFFs Business Angels Venture Capital Crowdfunding ….

7. The high-growth innovative firms often require significant capital up-front and this is very hard to obtain from conventional sources of debt finance. They tend to have intangible assets, and show a significant delay before generating revenue making than a high risk investment. Only a small proportion of businesses (3%) receives venture capital finance

8. VC backed firms are responsible for a disproportionate number of patents and new technologies (Kortum and Lerner 2000, Mann and Sager 2007) Bring more radical innovations to market faster than lower growth businesses that rely on other types of finance (Hellmann and Puri 2000; Gompers and Lerner 2001)

9. Limited Partners Pension Funds Insurance Companies Family Offices High net-worth individuals Endowments Fund-of-fund Govt. 10-Year timeframe VC First 3-5Years Exit timeReturns to LP How the venture capital model works

11. Business Angels – Individuals with lots of cash – Have knowledge of the industry – Typically invest at the very early stage in exchange of equity – Provide hands on support to the start up – Wide network of contacts

12. Private – Institutional venture capital funds, formal business entities with full time professionals Corporate – Subsidiaries of large corporations (e.g. Intel Ventures) Public – Funds established by the Government that invest solely public money Hybrid – Funds established as a partnership between the Government and private funds Angel groups – A fund formed by a team of business angels 12

13. Venture Capital – High risk capital that invests in high risk and high growth companies – Hands on involvement with the company Comes in stages – Pre-seed – Seed – Early stage (Series A) – Late stage & Expansion (Series B, C etc.)

14. A typical VC fund portfolio Status Company 1Dead Company 2Dead Company 3Dead Company 4Zombie Company 5Zombie Company 6Zombie Company 7x1 Company 8x2 Company 9x3 Company 10x15 Limited Partners Pension Funds Insurance Companies Family Offices High net-worth individuals Endowments Fund-of-fund Govt. 10-Year timeframe First 3-5Years Exit time Returns to LP VC

15. 15 Opportunity introduction Initial screening Due diligence NegotiatingFunding 6 in 1000 business plans get funded on average 5% of business plans are read beyond the executive summary 10% of proposals pass initial screening 10% of pre-screened proposals pass due diligence & receive funding (source: 1000ventures.com)

16. Investment for a portion of the company Liquidation preference Interest rate Management stock option pool

17. 17 Dec-97 Loan & Boand Issue $326m bond issued May-97IPO3 million shares are offered, raising $49.1m Jun-96 Venture Capitalists 2 VC funds invest a total of $8m May-96FamilyFounder's siblings invest $20,000 Dec-95 Angel Syndicate 20 angels invest $46,850 each on average, for a total of $937,000 Aug-95 Business Angels 2 angels invest a total of $54,408 Feb-95FamilyFounder's father and mother invest a combined $245,000 Jul-94FounderJeff Bezos starts Amazon.com, he invests $10,000

18. – Finance for your idea (unlikely through the banks) – Connections with industry experts – Identifies and ‘corrects’ your weaknesses  – Requires to give up significant equity – Outsiders get involved with your company – Raising capital requires significant efforts and time

19. Banks VC funds Collaterals are needed (tangible assets) Need to show high growth potential (intangible assets) Credit score and cedit risk assessment is very important Credit score is not so important You keep all the equity You give up significant portion of the business Banks do not get involved in the way you run your company VC funds are actively involved in the way the company is run You continue to run the company Your position as CEO maybe at risk Detailed examination of the companies finance and forecasts Basic financials are adequate Banks aim to make a 'modest' profit VC funds aim to make significant profit Banks do not provide additional help VC money is 'smart money'

20. Venture Capital investments in the US, UK and continental Europe

21. Number of Venture Capital backed companies in the US, UK and continental Europe

23. Crowdfunding IPOs or M&A

24. Grants Business Angels Private Equity Private VC VCTs Public VC Business Angel Networks Crowdfunding

25. Alternative Investment Market (AIM) Early stage businesses, venture capital-backed companies and more established businesses may join AIM to help raise the capital necessary for expansion AIM launched on 19 June 1995 and has raised almost £24 billion (thousand million) and has helped more than 3,000 small-medium-sized companies raise equity to support their growth

26. Reshaping the UK economy http://www.nesta.org.uk/publications/reshapin g-uk-economy