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 Dixon Doll
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Chairman-elect US National Venture Capital Association; Cofounder and General Partner, DCM 35 years of US Venture Capital — A Historical Perspective for.
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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
Dixon Doll
AgendaAgenda
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
Confidential & Proprietary2
Confidential & Proprietary
US Venture Capital Investment in PerspectiveUS 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
Key U.S. VC Building Blocks…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
10
Confidential & Proprietary
Building Blocks of the U.S. Venture Capital IndustryBuilding 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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Confidential & Proprietary
The Number of U.S. VC Firms has Peaked . . . ThankfullyThe Number of U.S. VC Firms has Peaked . . . Thankfully
At Year End # Venture Firms
Capital Under Mgt
1970 28 $1B
1980 89 $4B
1990 395 $30B
2000 881 $228B
2001 946 $255B
2006 798 $235B
Source: 2007 NVCA Yearbook, prepared by Thomas Financial
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Confidential & Proprietary
United States- 56% Since 2000
Europe- 60% Since 2000
Israel- 65% Since 2000
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Note: Chart scales vary for claritySource: Ernst & Young/Dow Jones Venture One
Number of Active IT VC Firms DecliningNumber of Active IT VC Firms Declining
2206
1767
13641157
1012 960
974
862
661
556
420 391
376
299
221205
130
205
Confidential & Proprietary
Globalization of VC and TechnologyGlobalization 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
Tax Policy is an Important LeverTax Policy is an Important LeverCapital gains tax revenue forecast vs actual in billions
Tax
Rev
enu
e in
Bil
lio
ns
Source: Treasury Department and Congressional Budget Office
Confidential & Proprietary24
Bush tax cuts2003
Latest CBO estimates
Individual Long-Term Capital Tax Rates 2005-2006Individual Long-Term Capital Tax Rates 2005-2006
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) and various government web sites. Confidential & Proprietary25
0%0%0%0%0%0%0%0%0%0%0%0%0%0%
10%12.5%
14.5%15%15%
17.6%19%
20%20%
23.5%25%
26%28%28%
30%32%
43%
Currently
After Lapse (2011)
0%
20%20%
*
Confidential & Proprietary
Total U.S. Tort CostsTotal U.S. Tort Costs
Source: Towers Perrin, 2006
Cost of Litigation is Growing in the U.S.
300
250
200
150
100
50
0
To
rt Co
sts ($B)
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
To
rt C
ost
s as
% o
f G
DP
26
Confidential & Proprietary
% of WorldPopulation
4.81
U.S. China
20.35
4.35
U.S. China
19
Percentage of World PopulationPercentage of World Population
Source: Stocks for the Long Run and Future For Investors, Jeremy J. Siegel
27
Confidential & Proprietary
Percentage of World’s GDPPercentage of World’s GDP
% of World’sGDP
21
U.S. China
1410
U.S. China
19
Source: Stocks for the Long Run and Future For Investors, Jeremy J. Siegel
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Confidential & Proprietary
Top Markets Where the Cost of Complying With Corporate Governance Regulation is Too HighTop Markets Where the Cost of Complying With Corporate Governance Regulation is Too High
U.S UK & Ireland
Canada India Austria, Germany,
Liechtenstein, Switzerland
Israel China NordicCountries
France, Italy,
Monaco, Portugal,
Spain
Benelux
29
Confidential & Proprietary
Top Markets Where Regulation is Too Lax and Creates Additional Business RiskTop Markets Where Regulation is Too Lax and Creates Additional Business Risk
India Central/EasternEurope
China CIS & Russia
LatinAmerica
Other Asia MiddleEast
(excl Israel)
Africa Israel South Korea
30
Confidential & Proprietary
Top Markets Where Intellectual Property Laws Create Additional Financial RiskTop Markets Where Intellectual Property Laws Create Additional Financial Risk
China India U.S. Israel OtherAsia
Canada SouthKorea
LatinAmerica
MiddleEast
(excl. Israel)
Central &EasternEurope
31
Confidential & Proprietary
Public Policy Implications for ChinaPublic 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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Confidential & Proprietary
Key Messages SummarizedKey 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 long-term economic growth