Venture Capital Group #6 Session 7 von Burg and Kenney (1999) Venture capital and the birth of the local area networking industry Jamal Armel Alexey Malkov Oriol Sementé Katariina Silander

Assignment Introduction Venture Capital in brief Venture Capital US vs EU Enhancing EU Venture Capital Conclusion Summary Venture Capital Cycle Using venture capital is a more common practice in the USA than in Europe. Give reasons why this is so! How could the use of venture capital be enhanced? Use other sources, in addition to the article by von Burg and Kenney!

Agenda Introduction Venture Capital in brief Venture Capital US vs EU Enhancing EU Venture Capital Conclusion Summary Venture Capital Cycle Introduction Venture Capital: US vs EU Conclusions Enhancing EU Venture Capital Venture Capital in brief Summary Venture Capital Cycle

Introduction: The Role of Venture Capitalists Involvement of Venture Capitalists Entirely new industry Development Introduction Venture Capital in brief Venture Capital US vs EU Enhancing EU Venture Capital Conclusion Summary Venture Capital Cycle

Introduction: The Role of Venture Capitalists No Established ventures Reluctance of venture capitalists to pursue opportunities Leads to No Clear market No industry benchmarks Introduction Venture Capital in brief Venture Capital US vs EU Enhancing EU Venture Capital Conclusion Summary Venture Capital Cycle

Genealogy of startup LAN companies Introduction Venture Capital in brief Venture Capital US vs EU Enhancing EU Venture Capital Conclusion Summary Venture Capital Cycle

Venture Capital in brief Managing Director Principals Associates Analysts Entrepreneur in Residence Equity Investments Young Private Firms Active Role DirectorAdvisorManager VENTURE CAPITAL Introduction Venture Capital US vs EU Enhancing EU Venture Capital Conclusion Summary Venture Capital Cycle Venture Capital in brief

INVESTMENT DECISIONS Educated Guesses Entrepreneurial Visions Imperfect Information Omission Commission Risk Takers or Risk averse? Introduction Venture Capital US vs EU Enhancing EU Venture Capital Conclusion Summary Venture Capital Cycle Venture Capital in brief

Introduction Venture Capital US vs EU Enhancing EU Venture Capital Conclusion Summary Venture Capital Cycle Venture Capital in brief Perceived Risk Perceived Return High Low Moderate High Low Moderate Banks S&P 500 NASDAQ Entrepreneur FFF Angels VCs Realistic Investors Investor Risk – Return Space Source: Adapted from Cardullo (1999)

Venture Capital Cycle Introduction Venture Capital in brief Venture Capital US vs EU Enhancing EU Venture Capital Conclusion Summary Venture Capital Cycle REVENUE Source: Adapted from Cardullo (1999) Angels, FFF VCs – M&A Strategic Alliances Banks and Others TIME Valley of Death Break Even Emerging Growth Company Public / Private Company IPO M&A Early Stage Later Stage INVESTMENT A B C + Secondary Offerings Seed Capital Accelerators Governmental Funds Investment Cycle

Venture Capital Cycle Introduction Venture Capital in brief Venture Capital US vs EU Enhancing EU Venture Capital Conclusion Summary Venture Capital Cycle EntrepreneursVenture Capital ECOSYSTEM Governmental Funds Economical Stability Technological Hubs Research Spin-off Entrepreneurial Mindset Startup Accelerators Business Angels Corporations and Government Private Investors Investment Banks $ IPOs Source: Adapted from HBR - How Venture Capital Works Public Markets Corporations

Venture Capital investments in the US and Europe are growing Introduction Venture Capital in brief Enhancing EU Venture Capital Conclusion Summary Venture Capital Cycle Venture Capital US vs EU In both the US and Europe: Venture capital investments are growing

BUT in Europe: Venture capitalists are having trouble to attract money ~ 30% of Venture Capital Investments in Europe are from Governmental Investors In Europe, there are problems in finding funding Introduction Venture Capital in brief Venture Capital US vs EU Enhancing EU Venture Capital Conclusion Summary Venture Capital Cycle Venture Capital US vs EU

Venture Capital Distribution Around the World Source: Global Venture Capital distribution (2012) Source: Venture Capital distribution in Europe (2014) Introduction Venture Capital in brief Venture Capital US vs EU Enhancing EU Venture Capital Conclusion Summary Venture Capital Cycle Venture Capital US vs EU

Venture Capitalists usually Bankers and Lawyers rather than former entrepreneurs Venture Capital in US and Europe Source: Introduction Venture Capital in brief Venture Capital US vs EU Enhancing EU Venture Capital Conclusion Summary Venture Capital Cycle Venture Capital US vs EU From day 1 your market is the whole US Easy Expansion Same Language and Legislations Entrepreneurial Mindset - “American Dream” Inherited from generetaions of entrepreneurs Liberalism Deregulated economical and financial markets Few public support Less support from governmental organizations US EUROPE Start Local and expansion to adjacent markets Costly and slow Expansion Diverse Languages and Legislations Venture Capitalists in Europe: -Often little operational experience -Usually Risk-averse -Focus on mature startups rather than young

Support industries suitable for Venture Capital funding through: -Educational Programmes -Governemetnal Support Support entrepreneurial events (e.g. Slush) Improve EU’s Venture Capital Regulations How to Attract Venture Capital to Europe? Source: Investments by industry Introduction Venture Capital in brief Venture Capital US vs EU Enhancing EU Venture Capital Conclusion Summary Venture Capital Cycle Enhancing EU Venture Capital More on EU VC regulations:( regulation ) regulation Create Technological Hubs

Europe Needs More Technology Centers Source: valley/ Introduction Venture Capital in brief Venture Capital US vs EU Conclusion Summary Venture Capital Cycle Talent CapitalNetworks Affordability Infrastructure Enhancing EU Venture Capital

Today there is more venture capital in Europe than ever, the problem is a shortage of viable startups to invest into. How to Enhance the Use of Venture Capital Introduction Venture Capital in brief Venture Capital US vs EU Enhancing EU Venture Capital Conclusion Summary Venture Capital Cycle Source: BCG. “A Rise in Good Deals, but an Investor Drought. The State of European Venture Capital” (2015) There is, then, no current or anticipated shortage of European entrepreneurs and ventures. But if they want to compete with U.S. companies, they will need a lot of capital to grow, especially in later development stages. European venture capitalists are more risk-averse compared to US venture capitalists Source: discussion of VC in Europe on Slush 2015 Enhancing EU Venture Capital

The ecosystem in Finland: Startups raised over $145 million (2014) Introduction Venture Capital in brief Venture Capital US vs EU Enhancing EU Venture Capital Conclusion Summary Venture Capital Cycle Enhancing EU Venture Capital Governmental funds and financial support: e.g. Tekes, other “starttiraha” Governmental support systems: City of Helsinki Think tanks Universities: Aalto Design Factory, Startup Sauna, Aaltoes Slush - Arctic15 Finland has the highest number of active investors in the Nordics

Conclusions1/2 Introduction Venture Capital in brief Venture Capital US vs EU Enhancing EU Venture Capital Summary Venture Capital Cycle Conclusion Why there are more Venture Capital in the US than Europe? + Private Money → + Venture Capitalists US Economical Situation is more solid US Liberalism and “American Dream” Entrepreneurial Culture More and Bigger Technological Hubs: Silicon Valley - Boston (MIT)

Conclusions 2/2 Introduction Venture Capital in brief Venture Capital US vs EU Enhancing EU Venture Capital Summary Venture Capital Cycle Conclusion How to enhance venture capital in Europe? Internet of Things - Digitalization - Big Data Focus in Industries suitable for Venture Capital EU Venture Capital should be more risk-taking Facilitate matchmaking: Slush - Tech Hubs EU Venture Capital are needed of more funds to invest in later stages and avoid migrations to US Joint Funds | Public-Private Collaboration United Legislation System needed to ease European expansion Push for a unified Europe Financial and Governmental Institutions should support Research Spin-off in early stages

Summary Introduction Venture Capital in brief Venture Capital US vs EU Enhancing EU Venture Capital Conclusion Summary Venture Capital Cycle EntrepreneursVenture Capital ECOSYSTEM Disruptive Industries Internet of Things Digitalization Big Data Facilitate matchmaking Slush Technological Hubs Startup Ecosystems Impulse Research Spin-off Financial Support in the Early Stages Unified Europe | Common Legislation Increase VC Funds Joint Funds Public-Private Collaboration

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References Cardullo (1999) – Technological Entrepreneurism: Enterprise Formation, Financing and Growth. (Book) Cardullo (2003) – The Culture of the USA Venture Capital Industry Zider (1998) - How Venture Capital Works - Harvard Business Review BCG. A Rise in Good Deals, but an Investor Drought. The State of European Venture Capital (2015) Venture capital firms in Europe vs. America: The under performers | Ivey Business Journal. [ONLINE] Available at: [Accessed 20 February 2016]. Wall Street Journal. [Accessed 21 February 2016]. [Accessed 21 February 2016]. Tekes. [Accessed 21 February 2016]. Statista: Hans Landström (2007) - Handbook of Research on Venture Capital, Edward Elgar Publishing