The Venture C apital Landscape

The Venture Capital Landscape

Simon CornwellVenture Partner, Amadeus Capital PartnersCEO, The Ink FactoryATPAC Conference, Bangkok, August 2013

2

Simon Cornwell

• At European venture firm Amadeus since 2001– Partner and investment committee member from 2005 to 2011– Became a venture partner in 2012 after founding The Ink Factory

• CEO of The Ink Factory, a media company based in London and Los Angeles

– Currently raising its first venture capital round

• Previously– CEO of Two Way TV, interactive digital television pioneer– Boston Consulting Group– Refugee work in Thailand

• Undergraduate degree from Oxford, Masters from Yale

3

Amadeus

• One of Europe’s largest venture capital investors– $750 million under management– 85 companies backed since it was founded in 1997

• Founded by Hermann Hauser and Anne Glover

• Family of funds focused on the technology sector

• Amadeus’ newest fund is its Digital Prosperity Fund– Focused on products and services for emerging markets– Cornerstone investor is MTN, world’s #10 mobile operator,

based in South Africa– $150 million investment target

4

My objective today

• Paint a picture of venture capital around the world

• To suggest why venture capital is important for Thailand

• To look at how other countries are approaching national policies around venture capital

• And see if there are models or approaches that could be interesting for Thailand

5

Agenda

• What is venture capital? And why is it important?

• The emergence of a new world order

• Why venture capital is important for Thailand, and where the opportunities may lie

• Creating a successful environment for venture capital– The ingredients needed– Clusters– Possible areas of opportunity for Thailand

• State backing for venture capital

• Conclusions

What is venture capital?

• Venture capital firms are professional, institutional managers of risk capital

• That capital enables and supports the most innovative and promising companies

• This money funds new ideas that – could not be financed with traditional bank financing– threaten established products and services in a corporation– and typically require five to eight years to be launched

Source: North American Venture Capital Association, Yearbook 2013

7

A typical venture capital investment

• New technology company with high growth potential– Consumer-oriented– Business-to-business

• Entrepreneurial team with skills to reach the market

• Often, an innovative business model

• Venture capital typically supplies– $1 million to $5 million start-up capital (the ‘A’ Round)– $5 million to $30 million in further financing (‘B’ and ‘C’ Rounds)

- Sometimes much more than this

• Venture investors are actively engaged in the company

8

Venture investing often fails

• Fewer than half of venture investments succeed

• But in aggregate, gains from successes outweigh losses from failures

• And failure is necessary to generate the successes

Went Public; 14%

Acquired/Sold; 33%

Collapsed; 18%

Still pri-vate, or

unknown; 35%

Source: Outcome study of 11,686 companies, NVCA Yearbook 2013

9

But venture-backed companies also change the world

Founded

Market Cap

($bn)Revenue

($bn) Employees

Apple 1976 455 169 72,800

Google 1998 288 56 44,777

Microsoft 1975 263 78 99,000

Cisco 1984 131 49 72,360

Intel 1968 112 52 105,000

Facebook 2004 99 6 5,300

1348 410 399,237

Source: Yahoo; Google; World Bank; Company reports

Thailand’s Gross National Income in 2012 was $348bn; Denmark’s was $334bn

10

In venture investing, annual returns are very volatile

• Annualised returns on average US venture funds

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

-40

-30

-20

-10

-

10

20

30

40

50

Year ended March 31st

An

nu

alis

ed

re

turn

(%

)

Source: Cambridge Associates 2013

326%

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But Venture Capital generates long term returns

• Value of $1 million invested in March 1983 in average US venture fund

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

-

10

20

30

40

50

60

At 31st March of year

$ m

illio

n

Source: Cambridge Associates 2013

Over 30 years:• Average firm returns 13.0% • Top 25% of firms return >25%

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Venture investment and the economy

• Venture investment can have a huge impact on the wider economy

• The best data comes from the US– More than fifty years of venture capital investing

• But much corroboration from Europe as well– In the UK, one third of GDP growth is estimated to come from

venture-backed firms

• But useful to look at the US as a demonstration of the long term impact of venture capital

13

Impact on the US Economy

• Venture-backed companies had $2.9 trillion in revenues

• Accounting for 21% of US GDP

Source: IHS, NVCA 2009

• As of 2006, 12.1 million people worked in venture-backed companies– 11% of total US employment

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Significant impact in other areas

• Revenue growth 70% higher

• Job creation eight times faster in venture-backed companies than in the rest of the economy

• And in some industries, venture-backed employment dominates

Venture-backed

EmploymentTotal

Employment

Venture-BackedCompanies Share

of EmploymentSoftware 817,166 1,008,929 81%Telecommunications 736,961 994,862 74%Semiconductors 309,437 418,998 74%Networking and Equipment 392,505 668,058 59%Electronics/Instrumentation 271,224 528,148 51%

Source: IHS, NVCA 2009

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Over 80% of the world’s venture investment is in the US, Europe and Israel

2006 2007 2008 2009 2010 2011 20120

10

20

30

40

50

60

IndiaChinaIsraelEuropeUS

Ve

ntu

re C

ap

ita

l In

ve

stm

en

t ($

bn

)

Source: Ernst and Young; World Economic Forum 2013

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In summary …

• Venture capital is patient risk capital generating long term returns for investors

• It can also have a huge impact on economies where there is a lot of venture investing

• Venture capital is highly skewed towards the US (in particular), Europe and Israel– With India and China emerging as significant, but still small

• But markets are changing …

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Agenda






• Conclusions

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A new economic world order

Key economic and demographic shifts has lead to a reconfiguration of the world economic order

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Where is growth being generated today?Economies’ share of world GDP (%) - at market exchange rates

1990 1995 2000 2005 2010 2015 20200%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

DevelopedEmerging

Sources: AT Kearney; Bloomberg; BP; dotMobi; Fortune; IMF; UBS; UN; World Bank; World Steel Association; WTO

Emerging economies’ GDP will soon overtake developed economies’

Forecast

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Emerging economies’ growth is positively impacting technology spending

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 20150%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

DevelopedEmerging

Sources: IHS Global Insight, World Industry Service database (2011)

Emerging economies’ tech spend has already overtaken developed economies’

Forecast

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Consumer spending on technology will also benefit from economic growth

10000 15000 20000 25000 30000 35000 40000 45000 500001,000.0

1,500.0

2,000.0

2,500.0

3,000.0EU

US

Per Capita Gross National Income (US$ 000s)

Pe

r C

ap

ita S

pe

nd

on

Te

chn

olo

gy

(US

$ 0

00

s)

1995

2003

Sources: IHS Global Insight and Amadeus analysis

The emerging middle class is as large as the US and with average income of EU of only 10 yrs ago

2010

1995

2010

1st Quintile GNI per capitaAspiring Economies

Population

504

309

306

Population (millions)

• The Aspiring Economies (excluding China and India) are about to follow• The top quintile of Aspiring Economies populations’ have a GNI per

capita > EU’s from 1995 to 2003

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In summary, the market is changing

• Even though venture capital is highly focused on the US, the market for technology is much broader

• Power is with the new economies, leading in both infrastructure investment and consumer adoption– The AEC middle class will be an increasingly important market

• This should create opportunity for products and services that originate outside of the old economic powers

• But how is Thailand positioned to take advantage of that, and what are the challenges that we face?

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Agenda






• Conclusions

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Why venture capital is important to Thailand: the big picture

CambodiaVietnam

BruneiPhilippines

IndonesiaThailand

Malaysia Singapore

Source: World Economic Forum Global Competitiveness Report 2012-2013

Factor-driven In transition Efficiency-driven

In transition Innovation-driven

38 economies 17 economies 33 economies 21 economies 35 economies

• The World Economic Forum divides the world’s 144 largest economies into five stages

• Investment in innovation is key to sustainable development– Over time, must shift the focus of the economy– Competitive advantage based on efficiency will be attacked from below

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Basic structural evolution is almost completeWhat is next beyond NIC?

1960 1970 1980 1990 2000 2010 20200

10

20

30

40

50

60

Pe

rce

nt

of

GD

P b

y S

ec

tor

Services

Manufacturing

Agriculture

The Thai economy by sector, 1960-2012 and beyond

Source: World Bank Databank 2013

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The next stage is based on innovation

Global Competitiveness

Ranking

Singapore 2

Malaysia 25

Brunei 28

Thailand 38

Indonesia 50

Philippines 65

Vietnam 75

Cambodia 85

Capacity for Innovation

Ranking

Singapore 20

Malaysia 25

Indonesia 30

Cambodia 65

Brunei 68

Vietnam 78

Thailand 79

Philippines 86


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Patents and R&D commercialisation

• The filing of patents is a key benchmark for assessing the effectiveness of the commercialisation of R&D

• Patent filings– Reflect an intent to commercialise– Demonstrate that the researchers were thinking about

commercial applications of their technology– And that they were innovating at an international level

• A crude measure– Many patents have no value– or are filed as a tactic to frustrate competitors

• But a valuable first-pass indicator

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Patent filings per million inhabitantsNot exclusively a western phenomenon!

SwedenIs

rael

Singapore

United K

ingdom

Philippin

es

Indonesia

0

50

100

150

200

250

300

350

Pa

ten

ts f

iled

an

nu

ally

pe

r m

illio

n i

nh

ab

-it

an

ts


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Creating an innovation economy requires a new approach in many areas

• Culture: a way of looking at the world

• Education– Encouragement of questioning and exploration– Excitement about commercial opportunity in the academic

community

• Commerce: risk-taking and the acceptance of failure

• Government: supportive policy and tax environment

A long-term, organic process

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How can venture capital help?

• Where does venture capital fit in supporting the shift to becoming an innovation-based economy?

• Venture capital is only one part of the equation

• But it is one that can encourage all the other pieces to come together to create an effective whole

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Agenda






• Conclusions

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The ingredients for success in venture

Ideas

EntrepreneursMoney

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Ideas

• Technologies, services or business models

• May be based on university research– A discovery– A new (better/faster/cheaper) way to solve a problem– From specialist academic centres of excellence– Or from anywhere!

• May also just be based on spotting what the market needs and figuring out how to deliver it

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Entrepreneurs

• Commercialisation of R&D will not happen without entrepreneurs who can connect the idea to the market

• These entrepreneurs must combine– The vision of the product and the business model– The patience to build value over time– The willingness to take risk and be different– The experience to deliver

• Sources of entrepreneurs– The business community, especially established technology

players– The diaspora: key in both China and India

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Money

• Generally the easiest part of the equation

• Variety of sources– Seed capital – ‘friends and family’– Loans– Grants and incentives – Venture capital

• Thailand has a ‘money-friendly’ environment– Good conditions for investment– Good infrastructure for local and international investors

• But it’s hard to deploy money effectively without the other ingredients

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The good news: you can start small

• One or two people usually make all the difference

• Apple, Microsoft, Intel, Hewlett-Packard, Facebook, Google, Yahoo – Were founded by a total of a dozen people– Working from their bedrooms or their university labs– With start-up capital of a few hundred thousand to a few

million each

• But they were surrounded by a world which supported what they were doing– A technology cluster

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ClustersBringing people, ideas and money together

• Over time, the most successful environments for venture investing are clusters

• Typically emerge around academic centres of excellence– Intellectual property – Entrepreneurs– Money– Support services– An environment where people learn by example

• Silicon Valley was the first technology cluster, but others are following

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Examples of clusters

• Silicon Valley– Sandhill Road: ‘I won’t invest in a company I can’t walk to’– The Homebrew Computer Club

• Boston/Route 128

• Stockholm/Kista

• Mumbai

• Berlin

• Cambridge (England)– A good example to explore in a bit more detail

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The Cambridge Cluster

• Today the Cambridge cluster has over– 1,500 companies

- (of which just 66 have direct university shareholdings)

– With a total of $20 billion in revenues in 2012– And employing around 57,000 people

• Five Cambridge companies have so far passed $1 billion in stock market capitalisation– Including ARM, world leader in microprocessors

- This year will see 10 billion ARM-based chips shipped- Without ARM, no smartphones, no tablets, no digital cameras

• But thirty years ago, there was no cluster …

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How did the cluster start?

• Led by Hermann Hauser, Austrian physicist– Doing post-doctoral research at the Cavendish

Laboratory

• With support from the university

• Designed the Acorn computer– Adopted by UK schools as the BBC Micro– Acorn was sold to Olivetti, and then to Fujitsu

• Made the team wealthy– but also created the foundations for the next

generation of companies

• The core of the cluster was born– ARM – the Acorn RISC machine– Virata – the Acorn modem team– Element 14 – the other half of the Acorn modem

team!

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Professor Sir Richard Friend

• Cavendish Professor at Cambridge; Tan Chin Tuan Centennial Professor at the National University of Singapore

• Research into light-emitting semiconductors has led the world

– Led team that invented the OLED display; now world leader in flexible display and semiconductor technology

– Laureate of the IEE Faraday Medal and the Technion Harvey Prize

• But also founder of Plastic Logic, and of Cambridge Display Technology, and on the board of several other companies

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Professor Andy Hopper

• Professor of Computer Technology and Head of the University of Cambridge Computer Laboratory

• Inventor of the technology that led to ATM

– Core to broadband data delivery

• But also a serial founder of businesses

– Worked with Hermann Hauser at Acorn

– Founded Virata, Adaptive Broadband, Cambridge Broadband, Real VNC and others

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The spread of the Cambridge network

Source: Centre for Entrepreneurial Learning, University of Cambridge

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Strong personal linkages give it strength

Source: Centre for Entrepreneurial Learning, University of Cambridge

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Institutional support for the cluster

• Enlightened university intellectual property policy– IP created at the university belongs to the university

But– If the IP is sold, income is split with the inventor – The inventor can set up a company to exploit the intellectual

property, and the university then typically gets 15% of the income generated from the IP

• Cambridge Enterprise, which provides proactive support for the commercialisation of intellectual property– Practical support services– Seed investment of up to $200,000

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How do you create a cluster?

• You cannot teach people to be entrepreneurs!

• But you can create or replicate conditions that have led to successful cluster formation elsewhere– Identification of interesting market opportunities, and

development of expertise around them– Active encouragement of university spin-outs– Encouragement for academics working with companies– Attracting multinational corporate R&D centres

• How could Thailand think about creating clusters?

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Great opportunities for Thailand

• Good access to global markets– Already a highly export-oriented market and culture

• The coming of the Asean Economic Community– Tariff-free access to a market as exciting as China’s

• Some established technology industry expertise

• The emergence of tech-savvy, connected domestic consumers– Thai consumers arguably lead ASEAN in technology usage– Can we turn this into competitive advantage?

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Building on an established base: Optoelectronics

• Thailand has world leadership in the manufacturing of optoelectronics

– High precision devices combining electronics and optics

– Used in telecoms networking and in consumer electronics

• But – Thailand’s lead is based on manufacturing skill– No fundamental intellectual property developed or owned here– Process changes will shrink Thailand’s advantage

• Question: should Thailand look to own or create fundamental optoelectronic IP?

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Tech-savvy, connected consumers: Mobile services

• Thailand’s fixed line internet penetration is low and slow

• But smart phone penetration is growing meteorically, helped by the rollout of 3G and aggressive pricing– 25 million smartphones in Thailand, and 5 million tablets– Market growing at 70% per year– Will reach more than 50% of the population during 2014

• Thailand leads ASEAN in smartphones– Along with Indonesia

• But locally-developed services are lagging behind

Source: Ericsson, GfK

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Smartphone and service growthGrowth in adoption by Thai consumers

Smartphone Line Instagram Twitter Facebook0%

50%

100%

150%

200%

250%

Gro

wth

Ra

te 2

01

2-2

01

3

Japan

US

US

US

Source: GfK, company reports

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Mobile services: areas to consider

• Online payment systems and e-banking– Biggest single barrier to the adoption of e-commerce and other

services

• E-commerce– Very underdeveloped in Thailand– Maybe because of lack of payment systems, maybe for other

reasons

• Facebook applications

• Entrepreneurs can ask what has worked elsewhere, and why, and whether we can do it in Thailand in a Thai way

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Another area of competitive strength: Media

• Thailand has a strong film, TV and commercials infrastructure– Creatively world class– Solid technical and executional foundation– Open environment that encourages innovation

• High bandwidth mobile data is opening the opportunity for new media services– Fastest growing area of the internet

• Another area for consideration

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In summary

• Creating a successful environment for venture includes many things besides money

• The key is supporting, in all ways, the individuals who have ground breaking ideas and who bring them to market

• Clusters provide that supportive environment

• Thailand has a number of candidate sectors for cluster formation

• And you can start small!

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Agenda






• Conclusions

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What is the role of the state?

• Many governments want to create a venture culture

• Numerous models in place around the world, involving

• Direct investment– The establishment of sovereign investment funds– Direct investment by the state into enterprises– Investment into venture capital funds

• Indirect support– Funding of advanced research facilities (alongside industry)– Tax incentives for investment in research and development– Tax incentives for venture investors– Commitment of a proportion of government budgets to SMEs

• Key is to pick the model that will work best for Thailand

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Three different examples

• Russia– Rusnano

• China– Beijing municipality

• The UK– Integrated approach

• Note that the US, accounting for over 70% of global venture investment, has no national level strategy– In-Q-tel, the CIA’s venture fund, is its only state-backed fund

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Russia: Rusnano

• Rusnano was founded in 2007 by the Russian state– Anatoly Chubais is its driving force and its CEO– Former finance minister and deputy prime minister, led

Russian privatisation in the 1990s

• Vision: turn Russia into the global centre for nanotechnology– Generate sales of $10 billion from portfolio companies by 2015– Invest internationally with the goal of bringing manufacturing

and intellectual property to Russia

• To date, Rusnano has fallen significantly short of its objectives, despite a number of very large investments– Announced a major restructuring along more market-driven

principles in June 2013

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Lessons from Rusnano to date

• It takes a long time to grow businesses!– And it often doesn’t work as expected

• Investment decisions have sometimes been surprising– Made by government officials without investment backgrounds– Driven by policy rather than market need

• Central planning almost feels like old Soviet mentality– Larger number of smaller, more diverse, market-led initiatives

may be more effective

• But the jury is still out: long term commitment may yet yield good results

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China: Beijing

• Shanghai has traditionally been the heart of the Chinese tech industry

• To compete, the city of Beijing has adopted a very hands-on approach to building a technology cluster

• Led by Vice-Mayor Gou Zhongwen– Long background in technology management– Duties as deputy mayor entirely focused on developing Beijing’s

technology base and intellectual property infrastructure

• Core area of focus to date has been display technologies– Gen 8 fab built: will compete with Koreans and Taiwanese to build

large screen displays– Multi-$ billion investment

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Investment in intellectual property

• As with Rusnano, a key objective has been acquisition and creation of intellectual property

• Approach has been to partner with western universities – Offering major contribution to research facilities– In return for commitment to bring manufacturing but also

research and development to Beijing

• Protracted negotiations with Cambridge about partnering on display technologies– Other partnerships already underway

• Patient, long-term approach contrasts with Rusnano

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In addition …

• Network of science parks in Beijing with both well-established tech companies and start-ups– Companies include Lenovo and Baidu– A number of NASDAQ-listed tech companies– A growing number of start-ups, many started by former

employees of established tech companies

• Successful in attracting top international venture funds– Led by Sequoia, whose investments include Apple, Google,

Yahoo, Youtube, Instagram, WhatsApp and many, many others

• Well on the way to creating a world-class cluster– But with huge levels of investment and a very centrally-

planned approach

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The UK

• Smaller-scale, market led approach

• Three core elements– The Technology Strategy Board– Investment in venture– Tax incentives for companies and investors

• Longer term, a commitment to sourcing part of government purchasing from SMEs in all sectors– Slow progress as departments and local authorities value the

ability to source as they wish

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The Technology Strategy Board

The Board

from industry and the investment community

Private enterpriseInvestmentGrant funding

IncubatorsOther facilities

Research and development

Key areas for government

supportNano

technologyPlastic

electronics

GovernmentTax policyPurchasing

policy

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UK government strategy

• Allocation of circa $200 million annually to venture capital investment– Given to asset managers who then pick the best venture

capital partnerships– No government involvement in investment decision-making or

no restrictions on geography or sector

• Soft loans to support smaller ‘seed stage’ funds

• Tax rebate for companies on all R&D expenditure

• Tax rebates for investors in start-ups

• Eventually, a commitment to sourcing from SMEs!

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Summary

• There are many different approaches to state support for venture

• Large scale, impatient national plans don’t necessarily deliver results

• Smaller-scale, market-led strategies may be more effective– Also pragmatically more achievable – Again, it’s fine to start small!

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Agenda






• Conclusions

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Conclusions

• Venture capital is patient, long-term capital that historically has yielded good returns

• It has also had a big effect on people and on economies– The world would be a different place without venture capital!

• Creating a successful environment for venture could be a key ingredient in Thailand’s future

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Conclusions (2)

• Gradual, organic change is needed in many areas to support the growth of a venture culture

• But good prospects exist for Thailand– Some existing areas of excellence– The coming of the AEC will open big opportunities

• Supporting cluster formation is key

• Government policy should be lightweight, flexible and focused on supporting small-scale real-world initiatives– Using balance sheet as well as budget

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What it will take is a champion

• One or two world-class entrepreneurs– Thailand has many

• Academics committed to seeing research become reality– Sir Richard Friend, Andy Hopper

• But also a champion for venture– Hermann Hauser, Anatoly Chubais, Gou Zhongwen– Committed to driving through the initiatives to support venture– History shows that one person can make a real difference

• Maybe someone in this room?

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Thank you!

• ATPAC and The Ministry of Science and Technology

• Anong Wecharatana

• Professor Mehti Wecharatana

• Wannapid Jarusombat

• Vantana Cornwell

Amadeus Capital Partners

August 2013

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The Venture C apital Landscape

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