Perspectives on Venture Capital October 11, 2007

Todays Discussion: Perspectives on Venture Capital Impact on US Economy Impact on EU Economy Creating a favorable VC environment 2

Venture Capital Is a Major Force in the US Economy Source: Venture Impact, 2007 – 2005 data Total revenue of Venture Capital backed companies: 16.6% of US GDP Total employment of Venture Capital backed companies: 9.0% of US Private Sector employment 3

Venture Capital Drives US Economic Growth By Creating Jobs and Revenue Source: Venture Impact, 2007 Jobs Millions, Venture Backed Companies Revenue USD Trillions, Venture Backed Companies Total US VC investment in 2005 = $23 billion (0.2% of US GDP) 4

Venture Capital Backed Companies Have Outperformed Their Non-Venture Counterparts Note: GDP growth (nominal) was 13.5% (i.e., 6.5% CAGR) Source: Venture Impact, 2007 Recent Past: Employment and Revenue growth, CAGR EmploymentRevenue Venture backed companies All companies 5

Venture Backed Firms Have Driven Revenue and Employment Growth Even During Economic Slowdowns Economic Slowdown: Employment and Revenue growth, CAGR EmploymentRevenue Venture backed companies All companies 6 Note: GDP growth (nominal) was 11.7% (i.e., 3.7% CAGR) Source: Venture Impact, 2007

Venture Capital is Not Just About Information Technology Source: Venture Impact, 2007 Employment millions Sales billions Media / Entertainment / Retail Computers and Peripherals Industrial / Energy Financial Services Software VC backed companies, 2005 Biotech / Medical Devices / Equipment 0.5NA 7

VC Job Creation Relative To Non-Venture Counterparts is Even More Pronounced in Specific Industries Employment Growth in Leading Industry Sectors, CAGR Financial ServicesBiotechnologyElectronics / instrumentation Source: Venture Impact,

Todays Discussion: Perspectives on Venture Capital Impact on US Economy Impact on EU Economy Creating a favorable VC environment 9

Venture Capital Investment in Europe Has Driven Job Creation Source: EVCA Report, November Total investment in 2004 ( billions) 10.3 Number of companies funded in ,557 Europe Venture Capital (2004) Total employment in all venture funded companies (# of employees, millions) ~1.0 Employment in venture funded companies as proportion of employment in DJ STOXX 600 companies ~5%

Job Growth in Venture Backed Companies Far Exceeded Overall European Job Growth * Estimated based on data Source: EVCA Report, November 2005 Employment growth, CAGR Venture backed companies Overall (EU – 25 countries)* 11

Highest Employment Growth in Biotech, Health Care, and Medical Device Industries 12 Employment growth in European venture backed companies, CAGR Source: EVCA Report, November 2005 Average = 30.5%

University Spinoffs Had the Highest Job Growth 13 Employment growth in European venture backed companies, CAGR Source: EVCA Report, November 2005

Venture Funded Firms Have a Strong R&D Focus Employee Mix % of total employees for European venture funded companies R&D Spending R&D expenses, thousands per employee European VC backed companies are spending ~45% of expenses on R&D 14 Work in R&D functions 33% Are researchers or engineers 26% Have a PhD 13% Source: EVCA Report, November 2005

Todays Discussion: Perspectives on Venture Capital Impact on US Economy Impact on EU Economy Creating a favorable VC environment 15

Many of Todays Most Innovative Business Models Came From Venture Backed Companies 16 However, raising VC funding remains a challenge in most developing economies

How Can Countries Create a More Favorable Environment for Venture Capital Provide tax incentives – Encourage long term holding – Keep it simple – Unsuccessful attempts to learn from: Australia, South Africa Educate investors, particularly foreign investors – India example Create critical mass – Investment in university based research (e.g., on campus incubation) – Immigration laws – Ok to fail mindset – VC zones with supporting systems (e.g., Silicon Valley, Research Triangle Park) 17 THEMES FOR DISCUSSION

Diaspora Can Have a Significant Impact Source: McKinsey Quarterly Leveraging the Diaspora 18 Nature of contributions Remittances and investment – In 1999, 70% of China FDI came from Chinese people living abroad – Silicon Valley Indians seeding startups in Bangalore & Hyderabad Knowledge and intellectual capital – Advise to government (e.g., policy to encourage venture capital, deregulation of industries) – Financing of elite educational institutions – Business internships and exchange programs Create emigrant networks – Professional – Economic – Educational – Social Facilitate information flow – Communication infrastructure – E.g., database of expats, information on investment opportunities Provide incentives – Financial: E.g. Foreign currency deposits, removing restrictions on profit repatriation – Other: High profile awards

Leveraging Diaspora for Entrepreneurship: TiE Example The Indus Entrepreneurs (TiE): world's largest not-for-profit organization for entrepreneurs 19 Founded in 1992 in Silicon Valley by a group of successful entrepreneurs, corporate executives, and senior professionals with roots in the Indus region Currently 12,000 members in 45 chapters across 10 countries Mission: foster entrepreneurship globally through mentoring, networking, and education Achievements: – Largest pool of intellectual capital anywhere – Brand globally synonymous with entrepreneurship – Annual conference, TiECon, regarded largest entrepreneurial forum in the world – Helped boost the economies of the communities in which it operates – Economic wealth creation estimated at $200 billion – Significant involvement in social entrepreneurship – Influenced liberalization of key economic sectors in India and Pakistan

Final Thoughts Venture Capital is a local business – Critical mass is key – It is not technology Leverage Diaspora – Build networks – Facilitate information flow – Provide incentives 20