Ready Coller Institute of Venture, • Sources of IP – We Will Awash with Cash

ISSUE 1a — 2014 WELCOME ISSUE $45

THE VENTURE ECOSYSTEM FRAMEWORK: MESSY, FAST, AND GLOBAL 企业生态系统框架：凌乱、快速、全球化 Trends Shaping the Venture Ecosystem in 2014 / 06

IS THE VC MODEL ‘BROKEN’? 风险投资模式“破损”了吗？ VC Success Definition and Understanding Who Wins and Who Loses / 20

MEASURING SCIENCE PARKS' PERFORMANCE 度量科技园区的业绩 TusPark, Imperial West, and 15 other Parks / 28 time to Impact THE PUBLIC VENTURE POLICY MENU A toolbox of PrOVEN 企业公共政策清单 Policies Public Authorities government policies /36 Can Take / 36

EDITORIAL BOARD Jeremy Coller Eli Talmor Contents Moshe Zviran Yesha Sivan (Editor-in-Chief) Robyn Klingler-Vidra (Associate Editor)

COLLER INSTITUTE OF VENTURE 36 Yù (Zöe) Zhái Itai Asaf Odeya Pergament 04 Ann Iveson

WHAT IS THE COLLER INSTITUTE MEASURING SCIENCE PARKS' OF VENTURE?—04 PERFORMANCE—28 TusPark, Imperial West, RESEARCH IS AT THE CORE and 15 other Parks OF THE CIV’S VISION—05 How they are designed and managed to T HE VENTURE ECOSYSTEM achieve optimal performance FRAMEWORK: MESSY, FAST, AND GLOBAL—06 Six Trends Shaping the THE PUBLIC VENTURE Venture Ecosystem in 2014 POLICY MENU—36 44 Policies Public Authorities This article presents a generative Can Take framework for the venture ecosystem and highlights the current trends Public policymakers’ tools for fostering affecting the ecosystem local venture ecosystems

I S THE VC MODEL ‘BROKEN’?—20 NEWS IN BRIEF—44 VC Success Definition and The News section offers a selection Understanding Who Wins of recent news covered on the and Who Loses Coller Institute of Venture website www.collerinstituteofventure.org Has the Venture Capital (VC) fund model been successful in rewarding investors with returns worth their high-risk illiquid investments?

MAIN ILLUSTRATIONS Joe Wilson www.joe-wilson.com

Venture Findings — 2014 -1a — Welcome Issue 3 什么是 Countries round the world We will strive both to be a global 科勒风险投资研究院? acknowledge the importance of hub and to make an impact on innovative, fast-growing companies venture’s whole ecosystem. for future prosperity and jobs – yet creating the conditions for such new • Global – We believe ventures to appear and flourish has venture – the creation and proved remarkably difficult. It is encouragement of high- to address this challenge that we potential new companies – is a have founded the Coller Institute global concern. Our perspective What of Venture at Tel Aviv University. is therefore global. We will draw insights and evidence is the The recipe for success is complex, from all over the world, and requiring many ingredients. The report our conclusions to Coller most important ingredient of all interested parties worldwide. – human ingenuity – can be taken • Hub – There is no shortage Institute for granted; however, history of information on venture; shows that the ‘seeds of ingenuity’ indeed there is almost too of often fall on stony ground. Even much. We will serve as a in an adverse environment, focal point for information, Venture? human ingenuity will triumph people and tools – drawing some of the time. The challenge together research, data, and is to create fertile soil – truly inputs from third parties, and entrepreneurial societies – in which overlaying them with our it triumphs more often than not. own analysis and insights. • Impact – Our ultimate aim We believe there are three is to improve the venture essential preconditions for the ecosystem, not simply to entrepreneurial society, which report its changing nature. are reflected in the objectives we We will measure our success have set for the Coller Institute: by our ability to influence players across the venture • Long-term capital – We will world, from institutional JEREMY COLLER identify the conditions that investors and universities, Chief Investment Officer, will lead to compelling returns to venture capitalists and Coller Capital for long-term capital (e.g. public policy-makers.

ELI TALMOR pension plans, foundations, Professor, London Business sovereign wealth funds) to Web-based startups in Silicon School; Founding Chairman, invest in venture capital. Valley and Tech City are already Coller Institute of Venture, • Sources of IP – We will awash with cash. Our focus is wider. Tel Aviv University investigate and communicate We will ask how to ‘compress the best practice in technology value-chain’ for deep innovation- translation from governments, how science in diverse areas such universities and corporates. as nano-materials, neuroscience • Governments do the right and robotics can be translated thing – We will promote from the lab into sustainable innovation in policy-making businesses – more quickly, more and planning, encouraging efficiently, and more often. governments to adopt best practices in legal frameworks, Now, it's your turn fiscal incentives, behavioral Venture Findings is the visible face economics and other parts of of the Institute’s global hub. It is with the public policy agenda. great pleasure that we welcome you to this inaugural issue. Our logo deliberately includes a ‘yet-to-be– filled’ triangle. We invite you to join our global community and help us create a more venturesome world.

4 Venture Findings — 2014 -1a — Welcome Issue 3 学术研究 THIS WELCOME issue of Venture 是科勒风险投资院视野的核心 Findings offers precisely what the Measuring Science Parks' Coller Institute of Venture at Tel Performance: TusPark, Imperial Aviv University (CIV) strives to West and 15 Other Parks deliver: a deeper understanding of the global venture ecosystem. By Abraham Carmeli Research is at the core of the Investigates the means by which CIV’s vision — research on how science park performance can Research venture is stimulated, promoted be measured. In addition, the and nurtured across different article zooms in on the history and is at geographies and industries. Issue performance of two science parks in 1a of Venture Findings addresses particular and provides a snapshot each of our target audiences and of 15 key science parks globally. the core collaborators, namely academics, institutional investors, public 4 of the authorities, venture capitalists and entrepreneurs. The four articles The Public Venture Policy CIV’s vision grapple with the big issues shaping Menu: 44 Policies Public the global venture conversation: Authorities Can Take By Robyn Klingler-Vidra 1 Speaks directly to public authorities. The Venture Ecosystem It asks “what can policymakers do Framework: Messy, Fast, and to support venture?” To answer Global the question, the article delineates Six Trends Shaping the Venture a menu of venture policy choices Ecosystem in 2014 available to public authorities, By Yesha Sivan across eight categories.

Develops a framework for the In addition to the four articles, the actors in the venture ecosystem: issue also highlights recent news entrepreneurs, venture capitalists, compiled by the CIV research team. institutional investors, and public The Institute’s research team’s authorities. In addition to framing analyses, and the contributions in the venture ecosystem’s participants, this first issue of Venture Findings, this article identifies the six trends will be further discussed at CIV’s that underscore the venture space inaugural conference at Tel Aviv becoming ‘messy, fast and global’. University on 19 May. I hope you enjoy this important first issue of 2 Venture Findings, and look forward Is the VC Model 'Broken'? to engaging with you in the Coller PROFESSOR MOSHE ZVIRAN VC Success Definition and Institute of Venture’s community. Academic Director Understanding Who Wins and Who Loses By Allee Zhang Assesses the performance of the VC industry by comparing the asset class's performance to public equity markets in an attempt to determine whether the risks associated with VC’s illiquid and high-risk nature are sufficient for institutional investors.

Venture Findings — 2014 -1a — Welcome Issue 5 企业生态系统框架：凌乱、快速、全球化六项潮流为2014年企业生态系统定型本文旨在揭示企业生态系统的生成框架，着重阐释一些现行的、影响此生态系统的潮流

The Venture Ecosystem Framework:

YESHA SIVAN Messy, Professor and Executive Director, Coller Institute of Venture at Tel Aviv University Fast, and Global

Six Trends Shaping the Venture Ecosystem in 2014

6 Venture Findings — 2014 -1a — Welcome Issue This article presents a generative framework announced the purchase of WhatsApp, for the venture ecosystem and highlights the another messaging service, for US$19bn in current trends affecting the ecosystem. cash and stock. While Rakuten paid US$3 per user, Facebook paid US$42.2 Sequoia, a well-respected venture capital firm, which SECTION 1 invested US$60m in WhatsApp, made around US$3bn from the WhatsApp acquisition Goal: Towards More Venture (approximately 50x return).3 The proposed venture ecosystem On the one hand, these two deals framework (see Figure 1A) was designed epitomize the value of venture: startups to map how entrepreneurs generate create value for users, and thus value for value for themselves and society, and, early entrepreneurs and later investors. in turn, generate more value for their The Viber and WhatsApp deals, while 4 investors: venture capital (VC) firms, and very unique (often called Unicorns) , also their limited partners — the institutional demonstrate some of the changes in the investors. Even more so, the framework venture ecosystem in terms of value, speed, is designed to help public authorities (of and the role — or not — of VCs. regions, nations, and cities) nurture venture On the other hand, these successful ecosystems as fruitful grounds for such deals also hint at the darker side of the innovation‑based value generation. venture ecosystem. Overall, most VCs in Let us start with two related venture recent years (2002–2014) have failed to anecdotes that both occurred in February deliver returns beyond the public equities 2014: Rakuten Inc, one of Japan’s largest market. In the U.S., the number of principals internet services companies, announced has gone from about 14,000 people managing its acquisition of Viber, a Cyprus‑based about US$270bn in 2002, to 6,000 managing (with Israeli roots) messaging company, at about US$200bn in 2012 (Figure 1B), which a reputed US$900m. Viber, one of the most suggests the classic model of VCs is broken popular mobile communications services and the industry is shrinking (Figure 1C). in the world, with a rapidly growing global This article will define the term user base of 300 million registered users, ‘venture’, and then present the framework is a good fit for Rakuten’s strategy in the for the venture ecosystem. To further digital space.1 Viber had no VC money and explore the current state of the ecosystem, was financed by its founders, using income we will first look at three trends affecting from a smaller internet firm it owned. innovation itself, and then three trends The Viber deal was dwarfed a few days affecting the enablement of the innovation. later when, on 20 February 2014, Facebook Lastly, we will look at the ongoing trends that characterize the venture ecosystem. FIGURE 1A: The Venture Ecosystem and six trends affecting it Source: Author analysis TRENDS ACTORS

1. PUBLIC AUTHORITIES CURRENT TRENDS • Region (Supra-national) FROM THE TOP: • Country (Affecting from • Sub-country the enabling side) • City • Rise of Corporate Virtual R&D 2. INSTITUTIONAL INVESTORS • Rise of Super Angels • Soverign funds • Rise of Regulation • Pension funds • Endowments and foundations • Insurance companies • Family offices

ONGOING TRENDS: • Messy • Fast 3. VENTURE CAPITALISTS • Global • Orthodox GP Fund Investors • Corporate Venture Vehicles • LPs who seek to co-invest on original CURRENT TRENDS deals • Banks FROM THE BOTTOM: • Sub-angels (Affecting from the innovation side) • Rise of New Treatment of Ideas 4. ENTREPRENEURS • Rise of Innovation Platforms • First-time Entrepreneurs • EIRs • Rise of the Early Clients Factor • Serial Entrepreneurs

Venture Findings — 2014 -1a — Welcome Issue 7 SECTION 2 the investors, high value is more absolute. Definition: Venture = New, High- Value means high returns on their Potential and Capital-Based investment, to compensate for the risk and the illiquid nature of their investment. The term ‘venture’ has many meanings. Here we focus on what can be called new high-potential, capital-based ventures. Let’s unpack the three “THE TERM ‘VENTURE’ HAS MANY MEANINGS. major terms of this definition: FOR THE PURPOSE OF THIS ARTICLE WE WILL New FOCUS ON WHAT CAN BE CALLED NEW To a large degree we are focusing on new HIGH-POTENTIAL, CAPITAL-BASED VENTURES.” ventures, rather than restructurings, leveraged buyouts, and other later–stage 5 initiatives. If an innovation is spun-off to Capital-based start a new firm, be it a corporate, a national lab or a university, this will be considered This means the ability of funding to a venture. We are also using ‘new’ to accelerate the development of the innovation, distinguish new kinds of ventures. For allowing the firm to develop faster, capture example, if an investment in an oil field takes mind share and then market share, thus a standard — albeit risky — approach, this generating returns for the investors. In will not count as a venture for our purposes. this sense, a family owned pizzeria will be a lifestyle business. However, if the same pizzeria, with capital and the right High-potential leadership, turns into a global chain, it will We will look at ventures that have the be considered a venture. potential to create high societal value, and thus create value to investors (the investor’s Naturally, this definition involves judgment value also relates to the next term, ‘capital calls. What is new? At what point do you based’). High value means a combination of gauge the level of potential? How much elements that affect many people (millions capital is needed? So, we need to bear in and often billions), replacing older systems mind that these terms should be used as and creating new ones. For many, the guides, rather than as strict definitions. value is in the eye of the beholder, but for

FIGURE 1B: Venture Capital in the U.S. key stats (1992, 2002, 2012) Source: NVCA Yearbook 2013

1992 2002 2012 No. of VC Firms in Existence 358 1,089 841 No. of VC Funds in Existence 616 2,119 1,269 No. of Principles 4,996 14,541 5,887 No. of first-time VC Funds raised 13 25 43 No. of VC Funds raising money this year 78 176 162 VC Capital raised this year (US$bn) 4.9 15.7 20.1 VC Capital under management (US$bn) 28.7 272.1 199.2 Average VC Capital under management per firm (US$m) 80.2 249.9 236.9 Average VC Fund size to date (US$m) 39.1 94.4 110.6 Average VC Fund size raised this year (US$m) 62.8 89.2 124.1 Largest VC Fund raised to date (US$m) 1,775 6,300 6,300

FIGURE 1C: Venture Capital in the U.S. capital under management (1985–2012) Source: NVCA Yearbook 2013

$300bn

$250bn

$200bn

$150bn

$100bn

$50bn

$0bn '85 '86 '87 '88 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

8 Venture Findings — 2014 -1a — Welcome Issue FIGURE 2A: Relative Allocation of Dry Powder to Different Asset Classes Source: Preqin data pack 2014 Q1

$2,500bn $1,200bn Other Venture Capital Real Estate Mezzanine $1,000bn Infrastructure $2,000bn Growth The absolute Distressed Private Equity amount of $800bn Buyout unrealized value $1,500bn as of June 2013 is about $600bn US$275bn

$1,000bn $400bn

$500bn Dry Powder: term used $200bn for capital committed by LPs but not called by the GPs Dry Powder Unrealized Value Dec 2003 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 $0bn $0bn

FIGURE 2B: More information about Venture Capital General Partners VC Firms’ industry preferences for underlying investments All private equity assets under management Source: Preqin Fund Manager Profiles 2014 Q1 Source: Preqin Fund Manager Profiles & Preqin Performance Analyst 2014 Q1 Dry Powder (US$bn) Information Technology 67% Dec 2000 298 418 Unrealized Value (US$bn) 377 374 Health Care 51% Dec 2001 Dec 2002 407 360 Telecom, Media & Com. 48% Dec 2003 402 465 Consumer Discretionary 32% Dec 2004 409 554 Industrials 25% Dec 2005 563 675 Energy & Util. 21% Dec 2006 806 898 Business Serv. 21% Dec 2007 1,011 1,265 16% Materials Dec 2008 1,075 1,204

13% Food & Agriculture Dec 2009 1,067 1,413

3% Real Estate Dec 2010 993 1,783

Dec 2011 1,007 2,029 Breakdown of VC Firms by investment stage preferences Source: Preqin Fund Manager Profiles 2014 Q1 Dec 2012 941 2,332

Jun 2013 1,046 2,420 Early stage 59%

Early stage: seed 38%

Early stage: startup 36%

Early stage/Late stage 37% Breakdown of VC Firms by number of funds raised Source: Preqin Fund Manager Profiles 2014 Q1 Venture (all stages) 56% 1 Fund 1% Venture debt 44% 2–3 Funds 9% 4–5 Funds 11% 6 Funds or more Number of firms actively managing VC funds by country Source: Preqin Fund Manager Profiles 2014 Q1

GP Location No. of Firms U.S. 770 36% China 87 UK 75 Canada 50 Japan 48 France 41 India 38 Germany 35 South Korea 34 Israel 33

Venture Findings — 2014 -1a — Welcome Issue 9 We do need to note that such new, high– Starbucks, and Staples, that are known potential and capital–based ventures for their new business model, as well represent a small part of the startup as companies like Microsoft, Intel and landscape, and a small part of the Medronic, that are known for their new investment landscape. With regards to use of technologies, employ thousands the startup landscape, Diane Mulcahy, of employees. Such venture–backed one of the vocal critics of the venture firms, that have created value for their industry,6 says only a tiny percentage entrepreneurs and pre–exit investors, (fewer than 1%) of U.S. companies have continue to create societal value to raised capital from VCs (other sources of their employees and customers.7 funding include self–funding, bank loans, angels, and, the latest, crowd funding). SECTION 3 With regards to the investment Framework: Four main actors landscape, Figure 2A demonstrates that of the Venture Ecosystem venture funding represents a small percentage of the private equity assets Starting from our definition of venture (the absolute amounts of unrealized as creating new high–potential, capital– value as of June 2013 is about US$275bn). based firms, we identify the four main We need to note that venture capital is a actors that support this effort: (a) Public relatively risky asset class that can, and Authorities that define the local (regional frequently does, lead to "total loss" of value. or national) ecosystem, (b) Institutional Such loss may also cause "saving face" Investors that supply the funding, (c) Venture challenges to institutional investors. Capital firms that act as intermediaries One important aspect of the societal between the institutional investors and the impact of such venture-backed firms can entrepreneurs as they select and nurture be measured by the number of jobs such the firms, and (d)Entrepreneurs who firms create in the long run. The 2013 initiate and then lead the venture firms. National Venture Capital Association Naturally, this venture framework report demonstrates the job creation overlooks some of the other players of value of venture backed firms in Figure the ecosystem (e.g. advisors, placement 2C. Companies like—The Home Depot, agents, lawyers and underwriters). This

FIGURE 2C: Number of employees as of IPO and in 2013 of selected venture-backed firms Source: NVCA Yearbook 2013 (Global Insight; Updated from ThomsonOne 2/2013), with CIV update

Venture Capital-backed companies known for innovative business model employment at IPO and Now Company IPO Year As of IPO 2014Q1 Current #Change

The Home Depot Sep 1981 650 (340,000) 331,000 330,350

Starbucks Corporation Jun 1992 2,521 (160,000) 160,000 157,479

Staples Apr 1989 1,693 (50,020) 89,019 87,326

Whole Foods Market, Inc. Jan 1992 2,350 (66,771) 69,500 67,150

eBay Sep 1998 138 (30,000) 31,500 31,362

Venture Capital-backed companies known for innovative technology and products emolument at IPO and Now Company IPO Year As of IPO 2014Q1 Current #Change

Microsoft Mar 1986 1,153 (100,932) 94,000 92,847

Intel Corporation Jul 1968 460 (107,200) 100,100 99,640

Medtronic, Inc. Jan 1990 1,287 (46,000+) 45,000 43,713

Apple Inc. Dec 1980 1,015 (80,000) 76,100 75,085

Google Aug 2004 3,021 (47,756) 53,861 50,840

JetBlue Apr 2002 4,011 (15,000+) 12,070 8,059

10 Venture Findings — 2014 -1a — Welcome Issue simplification will allow us to focus on Entrepreneurs the main actors as we see them. The four Entrepreneurs come with the innovations types of actors are depicted in Figure 3A, and drive the new startups. They lead firms and described in turn in the text below. in their first phase, including first rounds of financing and setting the scene for the growth. It is noted that at times the initial entrepreneurs are replaced by professional “This simplified venture ecosystem managers. Few, like Bill Gates with Microsoft, Larry Page and Sergey Brin from framework acts as a reference Google, or Mark Zuckerberg from Facebook, stay with the firm to lead it onwards. In framework for policy discussion, addition, in recent years we have also research, and debate.” seen the growth of serial entrepreneurs, entrepreneurs turned angels, and entrepreneurs turned venture capitalists. As the visual framework depicts, each actor can be seen to act along a specific Public Authorities value chain (we use the term "value chain" Public authorities set the rules and in an enhanced sense to Michael Porter’s regulatory environments for the venture work).11 The specific steps in the value chain ecosystem and, at times, even act as are depicted in Figure 3A. In developing Limited Partners, or LPs for short. These these four value chains we looked to expose usually mean national governments. In the major steps each actor takes. Later, we some cases it can mean local regions (e.g. will connect the trends to specific steps. a large province in China) or a grouping This simplified framework of the venture of countries (e.g. EU, APEC or NAFTA). ecosystem acts as a reference framework In some specific cases, local regions for policy discussion, research, and can be active in building a venture debate. It acts as a generative framework ecosystem, as with Tel Aviv's startup city as it calls for reflection and action as we 8 effort, London with its Tech City, and the examine current and new phenomena. 9 NodePole in Sweden, for data centers. The venture framework allows analysis of Public authorities are highly motivated the different steps, and the relationships to stimulate the venture ecosystem as between the steps within the same value venture generates jobs and taxes. chain and between the value chains. These steps may change based on the Institutional Investors settings and the maturity of the actor. In Institutional investors own and fact, the trends which we will soon list, manage large scale capital (equivalent relate to one more step in the value chains. to billions of dollars) that is long-term in nature. Such bodies include pension SECTION 4 funds (private, public, and corporate), endowments and foundations, Three Trends: Affecting the Innovation sovereign funds and family offices. Side of the Venture Ecosystem They usually allocate a percentage (3%–8%) of their capital to private equity, This section highlights three current of which venture capital is a smaller trends mostly affecting the innovation side part. In our venture settings they are of the venture ecosystem. The next section called LPs. As a matter of scale, according highlights three current trends mostly to a 2013 Preqin report, the assets of affecting the enablement of innovation. sovereign wealth funds surpassed the US$5tn mark (1 Trillion = 1,000 Billion).10 New Treatment of Ideas: The Intellectual Venture Case Venture Capitalists Step 4.2 in the entrepreneur's value chain Venture capitalists are the front line has to do with the birth of ideas. In this step investors in new firms. They are the ones the entrepreneur with the right background that look for entrepreneurs and ideas, or opportunity (step 4.1 "Family"), comes invest in them, and help develop their up with an idea that is the seed of the startups towards an exit. In our settings venture. A company like Seattle–based they are often called General Partners, or Intellectual Ventures (IV) is now changing GPs for short. In this model, we also include this step, and prides itself as a company angels and super angels in this category. that deals with ideas. “We believe that ideas are valuable. Everything we do—whether

Venture Findings — 2014 -1a — Welcome Issue 11 partnering with our worldwide network of The Growth of Innovation Platforms: 4,000 inventors, purchasing patents from The Amazon Cloud Case individuals and businesses, or creating our While step 4.2 is about the birth of new own inventions, is aligned to building and ideas, the creation of a seed for a firm, 12 growing an invention marketplace.” step 4.3, is about the growth of the idea. The company, which was co-founded In what we called the "baby" step, ideas by Nathan Myhrvold, formerly Chief are turning into initial businesses. Here Technology Officer at Microsoft, is changing we see a major trend in the past few the way venture is created. In one of its years: the reliance of entrepreneurs on main efforts, IV has created a network technological innovation platforms. with 4,000 inventors, that constantly The paragon example is of course creates ideas. The process is simple. From Amazon Web Services, which has allowed time to time, IV sends a request for ideas many IT/Digital firms to blossom. Such (RFIs) to the 4,000 inventors. Some of the firms need not bother with installing inventors respond with a brief memo. servers, physical space, replications, IV then decides which of these ideas are back-up, etc. They can count on a generic turned into patents. If the idea is turned infrastructure to deal with growth. Such into a patent, IV will pay the inventor a fee. firms can now focus on the innovation Such a process has the following itself: Test it. Modify it. Adapt it. impact on the venture ecosystem: Amazon Web Services is one kind of • F irst, entrepreneurs can now just invent platform. In fact, if we look at platforms ideas and need not bother with firms. as a prism, we can list Facebook, Google This can bring many more people into and Twitter as platforms. On a more the innovation and venture ecosystem. technological level, we can look at GPS, When you compare the process of mobile phones and the internet itself as idea creation with company creation, platforms. But let’s not stop there. There are some will prefer to focus — and get even more platforms: financial platforms, compensated — just for the ideas. such as credit cards, AliPay and PayPal, and • S econd, entrepreneurs can quickly take shipping platforms, including FedEx, UPS, ideas in the form of patents, or even a and even national mail provider turned basket of patents, and start a firm with global player Deutsche Post DHL.14 established Intellectual Property (IP). • T hird, firms at a late stage can protect their Getting Early Users: the Kickstarter Case original invention with additional patents. Such processes may be needed in the age of Step 4.4 has to do with the growth of the patent wars, especially against big firms. idea. As you pitch your idea to a VC, usually While there is some criticism of IV, one of the questions you will be asked is: and some may even look at IV as a patent is there traction? Are users (people, firms) troll,13 it is already changing the landscape really interested in your solution? A new of venture. Entrepreneurs and VCs are tool to gauge users’ level of interest has encouraged to incorporate a review of their emerged in 2009, with the founding of plans in light of IV’s growing portfolio of crowd–funding platform Kickstarter. 40,000 patents. With Kickstarter, a startup can

12 Venture Findings — 2014 -1a — Welcome Issue FIGURE 3A: The Venture Ecosystem Framework with Four Actors Source: Author analysis

1.0 PUBLIC AUTHORITIES 1.1 1.2 1.3 • Region (Supra-national) Understand Implement Review • Country special needs policies policies and potential • Sub-country building • City blocks

2.0 INSTITUTIONAL INVESTORS • Sovereign funds • Pension funds 2.1 2.2 2.3 2.4 2.5 2.6 2.7 Determine Determine Choose Join as LP Follow VC’s Get VC’s Analyze VC’s • Endowments and foundations Venture Venture VCs funds to to the VC's investments, returns performance • Insurance companies Allocation Strategy invest in partnership pay (Profit/Loss) and • Family offices agreement management determine fees future investments

3.0 VENTURE CAPITALISTS Next fund • Orthodox GP fund investors • Corporate venture vehicles 3.1 3.2 3.3 3.4 3.5 3.6 Create Raise Create Deal Invest Follow Exit • LPs who seek to co-invest on story/Theme capital Flow original deals from LPs • Banks • Sub-angels

4.0 ENTREPRENEURS • First-time Entrepreneurs • EIRs 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 Global 4.12 Family Birth Baby Kid Teenager Adult Growth 4.9 IPO Spins • Serial Entrepreneurs 4.10 Trade

4.11 Dwindle—Kill, Restart

Venture Findings — 2014 -1a — Welcome Issue 13 present its product, and gain early clients. systematically with local firms, VCs, startups These clients confirm the need for the and universities, to make IBM the avenue product, help co–design it with early of choice for globalization. IBM GTU has feedback, and fund the early development. also signed an agreement with the Israeli One of the best examples of the effects government to co–sponsor joint research. of Kickstarter can be seen with Oculus Vermeulen & Pereira Dias Nunes, in Rift, the firm that makes virtual reality their review of the evolution and regulation head–mounted display goggles. of venture capital funds (Figure 5A),15 Following the demonstration of the portray the intricate relationship between Oculus Rift prototype at the E3 game show corporates and other firms. Closer ties in June 2012, in August 2012 the company between startup and firms offer value for announced a Kickstarter campaign to further develop the product. Within four hours, Oculus secured its intended amount of US$250,000, and in less than 36 hours, the “The claim here is simple: campaign had surpassed US$1m in funding, Kickstarter allows eventually ending with US$2,437,429. Twelve months later, in June 2013, firms to achieve critical Oculus Rift announced a US$16m Series A funding. The round was co–led by Spark traction faster.” Capital and Matrix Partners. After about six more months, in December 2013, the firm announced a US$75m Series B funding led by both, including joint development, easier Marc Andreessen, who joined the company’s due diligence, faster access to market board on behalf of his VC firm, Andreessen feedback, and outsourced innovation. Horowitz. In March 2014, Facebook snapped Corporates now see working with up Oculus Rift at the US$2bn price tag. The startups as a direct enhancement of claim here is simple: Kickstarter allows R&D. The combination of strong business firms to achieve critical traction faster. development teams and corporate venture firms (with one LP as the corporate itself) pulls more and more entrepreneurs into the SECTION 5 cozy hands of corporations. This usually Three trends: Affecting the enabling means fewer IPO exits and fewer upsides side of the venture ecosystem for VCs. In fact, most "exits" today are into trade sales and much less into IPOs. Having presented three trends that directly From the entrepreneurs’ and VCs’ affect innovation (mostly entrepreneurs), we perspectives, trade sales are often now turn to present three trends affecting faster and cost less to achieve. Recent the enablement of innovation (mostly VCs, valuations in some cases have also institutional investors and public authorities). seen IPO level valuations of billions. Some sophisticated entrepreneurs plan The Rise of Corporate Virtual R&D: The their strategy to plug holes in corporate Case of the IBM Global Tech Unit (GTU) strategic maps. They work closely with Step 3.6 (the VC exit step), and the related few competing corporations, often to build entrepreneur steps 4.8 and 4.9, mark the their business with the technical match value creation to the investors. In recent to future corporate products and services. years we have seen a growth of corporate- Checkpoint, now the giant in the security related exits as opposed to IPO exits. area, started its life in the hands of Sun (now Corporate exits are very common part of Oracle), selling a security add-on. in the Israeli venture ecosystem, where This trend affects traditional VCs in there are over 100 multi-national research several ways. First and foremost, returns centers, including long-time players like are often faster and lower, meaning IBM, Intel, and HP and newcomers such the speed of firm development should as Samsung, Huawei, and recently (2013) be accelerated. Second, relationships Apple. Israel is very unique in this regard. with corporate business development IBM Global Technology Unit (GTU) people must be enhanced. (In the Israel represents one of the most established bustle, VCs often consult their corporate corporate efforts to identify, work with, business development friends as part and ultimately buy or partner with of the due diligence of young firms). other startups. The GTU has worked

14 Venture Findings — 2014 -1a — Welcome Issue Rise of Super Angels: The Case of including the ubiquitous Ron Conway Ron Conway and the "Hot Potato" (formerly at PayPal), put a total of US$1m Angels have long been a key factor in the into Hot Potato, a Foursquare–like check– venture industry. The first funding for in service. A few months later, Facebook Google was an August 1998 contribution purchased it for a reported US$10m. This of US$100,000 by Andy Bechtolsheim, figure may pale in comparison to the co–founder of Sun Microsystems, and billions that Google funders earned with given before Google was incorporated.16 the IPO, but it was a remarkable return in As the venture ecosystem has developed, such a short time. If super angels can turn several small investments into US$10m to US$20m trade sales every year, they’re “The rise of super angels directly poised to do a lot better than VCs.17 The rise of super angels directly affects the entrepreneurs as they affects the entrepreneurs (step 4.3) as they often approach angels first and often approach angels first and get funded faster. The VCs can find themselves left get funded faster.” with investments the angels did not invest (LEE, 2013) in, or investments with higher valuations, because angels had already invested in them. Institutional investors are affected past founders, now angels, are emerging indirectly because of the lower potential as a driving force. Angels use their own returns of VCs. Public authorities may money, are quick decision makers, and want to look at this trend and ponder use their knowledge and experience the taxing issues that relate to it. to work with entrepreneurs (and often other angels) to develop startups. Rise of Regulation: They also appear to do step 3.4 in the The Case of AIFMD VC value chain in a different way. For For the purposes of this article, Institutional example, in October 2009, several angels, Investors start their asset allocation in step

FIGURE 5A: The relations among corporates, corporate VCs, and portfolio companies Source: Vermeulen & Pereira Dias Nunes (2012)

• One or more corporations • Deal Flow and Capital • Partnering and other • Due Diligence • Joint Development private/ • Exit Opportunities institutional investors

• One or more corporations, a government sponsor and one or more other private/ institutional investors

Investors • One corporation as only anchor investor • Outsourcing • Window to Markets Innovation • Outsourcing • One or more • Partnering CapitalistsVenture Innovation

Portfolio Companies corporations • Acquisition Target • Cash as only anchor investors

Venture Findings — 2014 -1a — Welcome Issue 15 2.1, when they need to allocate a percentage due to regulation or cost of regulation. of their capital to venture. Step 2.1 depends The impact of AIFMD augments the heavily on the public authorities' step 1.2 impact of the Dodd–Frank Wall Street in which they set the regional policies for Reform and Consumer Protection Act the venture ecosystem (please refer to passed by the Obama administration in Figure 3A). A recent trend affecting global 2010. In fact, regulation as a major trend regulation is the European Directive for appears to be a top concern (26%) for Alternative Investment Fund Managers institutional investors, according to a (AIFMD). survey of 100 limited partners, conducted The origin of the latest AIFMD by Preqin in December 2013 (Figure 5C). push can be tracked to a G20 summit in November 2008, where G20 leaders SECTION 6 concluded that: a secure and stable financial system requires all significant The Bigger Picture: Three Ongoing financial market actors to be subject to Trends Affecting the Venture Ecosystem. appropriate regulation and supervision Even More Messy, Fast, and Global for investor protection, as well as financial In section 4 we have identified the 18 stability reasons (see KPMG report). three trends affecting innovation, This conclusion led the European particularly for entrepreneurs: Commission to publish a proposal for • Rise of New Treatment of Ideas AIFMD in April 2009, one of the major EU • Rise of Innovation Platforms regulatory initiatives to extend appropriate • Rise of the Early Clients Factor. regulation and supervision to the alternative In section 5 we have identified investment fund management industry. three trends affecting the enablement of Member states needed to transpose the innovation, particularly the roles of VCs, framework into national law by 22 July 2013. public authorities and institutional investors: The impact of the AIFMD regulation • Rise of corporate virtual R&D in the EU, and especially the somewhat • Rise of super angels different implementation of AIFMD in • Rise of regulation. different EU countries, will directly affect public authorities globally, as well as These current six trends are already institutional investors and venture firms, changing the venture ecosystem, which in see Figure 5B for the regulatory impacts of turn affects the position and role of each AIFMD level II. Non–EU public authorities of the actors. The six current trends are may want to harmonize their own rules part of the ongoing venture ecosystem as with AIFMD. it becomes more messy, fast, and global. A key promise of AIFMD (and a famous EU tradition) is the act of labelling, Messy giving certain VCs a EuVECA Label.19 The standard structure of a VC that secures Such marketing efforts may raise the its funding from few LPs, carefully invests trust of some funds and even "provide and nurtures startups and waits for an an international stamp of quality".20 IPO or trade sale is no longer working for Institutional investors may also enjoy a most VCs. As the article "Is the VC Model more regulated environment. At the same 'Broken'?" (page 20) investigates, this time, smaller VCs will be squeezed out method works well for very few VCs.

16 Venture Findings — 2014 -1a — Welcome Issue So, as with any industry that is not FIGURE 5B: The regulatory impact of AIFMD level II efficient, parts of the venture ecosystems are Source: KPMG under pressure to change. Entrepreneurs • Content of Annual Report • Scope of custody today have other competing avenues • Disclosure to investors • Cash flow monitoring • Reporting to competent authority • Oversight and control to obtain funding, such as with the • Leverage calculation methods • Delegation of custody rise of both angels and crowd funding. • Leverage on a substantial basis • Loss of financial instruments Furthermore, for the A and B rounds, they • Discharge of liability can approach corporate VCs that are less • Cooperation arrangements sensitive to valuations. This in turn leaves • Data protection safeguard • Objective reasons • Features of the delegate "regular" VCs with second tier investments, • Conflicts of interest • Sub-delegation which lower their return even more. Kis Mk OMNoInTOitRoIrNin RIRS Gg • Letterbox entity Some LPs are co–investing directly with the GPs. GPs create special provisions for active investors by offering customized separate accounts and deal–by–deal Transparency Depositary investment opportunities.21 The lines between LPs and GPs are blurring, as are

those between VCs and entrepreneurs, as Third country Delegation Y

R provisions L L y

O E

VCs try to set up firms with Entrepreneurs– e r

T G

o AIFMD t

a a

in–Residence (EIRs). Conversely, some VCs L

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U Level II

u G

are now paying the entrepreneurs directly g

e Scope and Capital

R 22 R Valuation upon investment (e.g. Founders Fund). Provisions

Fast Business Risk/Liquidity While it still often takes years for firms Conduct Management to grow, the modern economy allows the right innovation, especially a digital one, to blossom quickly. It took Facebook • Calculation of AuM PPRrOoCcEeSsSsEeSs • Policy and procedures 18 months to get to the value of almost • Monitoring of AuM • Periodic review US$150bn and Google took three years, • Occasional breaches • Frequency of valuation • A dditional own funds and • Professional guarantees as opposed to Intel which took 27 years, professional indemnity insurance of external value and Oracle 14 years. It took Oculus Rift about 18 months to get from a Kickstarter • Functional and idea that raised US$2.5m to a round B of • General principles hierarchical separation • Due diligence on investments • Permanent risk US$75m (and US$2bn value at March 2014). • Conflicts of interest policy management function Speed is everywhere, as platforms • Organizational structure • Risk and liquidity policies of innovation allow certain firms to get • Investment in securitizations • Risk limits • S afeguards against conflicts bigger–faster. Due to speed combined with of interest the force of super angels, it seems this is a push for what can be called "Early–Late" investment, where startups are funded early with large amounts, such as tens of millions of US dollars after just 6–12 months. FIGURE 5C: Biggest challenges facing Limited Partners This in turn reinforces the power of larger in 2014 according to 100 LPs In December 2013, Preqin spoke with 100 LPs globally 23 Source: Preqin VCs that can muster such decisions. about their current attitude towards private equity and their future Regulation 26% investment plans, to get Performance 22% an idea of the strength of investor appetite for Economic Environment 22% the asset class in 2014. As the private equity Transparency 15% industry has come under increasing scrutiny since Fees 15% the global financial crisis, regulatory changes have Liquidity 11% been perceived as the biggest challenge facing 3% Volitility LPs in 2014, as shown in Figure 5C. Over a 2% Consolidation of Industry quarter (26%) of investors in the asset class cited Other 15% regulation as the main challenge for the year ahead, compared with only 15% in December 2012.

Venture Findings — 2014 -1a — Welcome Issue 17 Global Such mutations are created within FURTHER READING Perhaps the biggest trend that affects and across the various chains of value of REFERENCES the venture ecosystem is globalization. the four actors. It is part of the Darwinian evolution that is occurring in the venture (For a sample review of top global ERNST & YOUNG hotbeds for venture see the Ernst & capital ecosystem. Yet it seems that the (2013) Young 2013 report).24 actors that are mostly affected by these Turning the corner – Entrepreneurs can quickly move from pressures are public authorities. As Global venture capital location–based barriers collapse with insights and trends 2013. digitization, English becomes a common JENG, L. A., & WELLS, P. C. language, and capital and ideas are moving (1998) “the quality of our future faster, public authorities must find new The Determinants of ways to enable, facilitate, tempt, and Venture Capital Funding: depends on a vibrant Evidence Across Countries. encourage value creation in their location. Retrieved from http:// venture ecosystem.” Public authorities will have to be papers.ssrn.com/ much more aggressive and focused in abstract=103948 establishing the grounds for their venture ecosystem. Trying to copy Silicon Valley MULCAHY, D. one place to another based on their startup (2013) (from California) or Silicon Wadi (from needs. Innovation platforms and remote Six Myths About Venture Israel) or Silicon Roundabout (from London) Capitalists. Harvard work allow them much more flexibility. to their region was difficult in the past.26 Business Review, 80–83. Regions are offering generic benefits With the ongoing trends of messy, fast, which makes the competition global. NVCA and global, creating carbon copies, or a Venture firms are looking for (2013) one-model-fits-everywhere, is no longer NVCA Yearbook 2013. new innovation globally and are practical, nor possible. For a review of National Venture Capital less bound by location. Institutional the potential actions public authorities Association. investors, in their search for returns, can pursue, see the article "The Public are moving capital to VCs globally. VERMEULEN, E. P. M., & Venture Policy Menu" on page 36.27 These trends of messy, fast, and PEREIRA DIAS NUNES, D. We hope the framework presented (2012) global, are affecting all four actors in the here, and the mapping of current and The Evolution and ecosystem.25 Entrepreneurs are moving Regulation of Venture ongoing trends, will serve as a good start faster from one place to another to find Capital Funds. Ex Research in allowing public authorities to nurture the best location for their startups and VCs Topics in Corporate Law & their venture ecosystem, creating value Economics, 1. are sending tentacles to other locations to for themselves, institutional investors, look at ideas. They are starting their own venture capital firms and entrepreneurs. accelerators to speed the development Our future, and the quality of our future, of firms, and they are building closer depends on a vibrant venture ecosystem. connections with corporates peers. Institutional investors are also reacting and looking for new value that may stem from regulation, as they look for VCs globally.

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18 Venture Findings — 2014 -1a — Welcome Issue

风险投资模式“破损”了吗？风险投资的成功定义: 理解其中的得与失风险投资基金模式成功后回报是否值得投资者的高风险、非流动性投资？ Is the VC model ‘broken’?

Observations on VC Success: Who Wins and Who Loses within the Asset Class?

ALLEE ZHANG Affiliate Researcher, Coller Institute of Venture

“A 2012 Kauffman Foundation report highlighted the poor performance of the VC industry, particularly VC funds' failure to beat public market indices.”

20 Venture Findings — 2014 -1a — Welcome Issue Has the Venture Capital (VC) fund model been successful in rewarding investors with returns worth their high-risk illiquid investments?

SINCE THE LATE 1970s, the Venture Capital asset class has played an important part in a balanced and diversified investment portfolio for many investors. The industry has had many success stories in building and exiting powerhouse companies that are now household names, such as Apple, Google, Amazon, Facebook, and most recently, WhatsApp, the second largest technology acquisition of all time. As the VC sector continues to raise funds, investors are placing further focus on examining VCs’ risk-return profile and its performance relative to the public markets. A 2012 report from the Kauffman Foundation raised questions about the industry. The report highlighted the poor performance of the VC industry, as most of the funds in which Kauffman invested over a 20-year horizon (1989–2010), failed to beat public market indices, despite the higher-risk nature of the investment portfolio. In contrast, the National Venture Capital Association (NVCA) has performance data based on 1,439 U.S. VC funds that show VC significantly outperformed the public markets over a long-time horizon (greater than 15 years). Kaplan and Lerner (2009) also questioned the U.S. VC industry’s consistent performance, as they observed that VC investments and returns were subject to a boom and bust cycle between 1999–2009. Despite the cyclicality, Kaplan and Lerner found that VC returns were not unusually low or high relative to the public market. However, performance data of 739 VC funds up to the end of 2012, reported by the European Venture Capital Association (EVCA), reflected fund returns below the public index on both long and short term investment horizons. Further, in a performance study of 1,400 U.S. buyout and VC funds, Harris, Jenkinson and Kaplan (2013) found that although VC outperformed public markets in the 1990s, the asset class underperformed public markets in the 2000s. For a while, investor appetite for VC funds has remained strong, with new markets of VC fundraising and investment activity expanding globally. What’s more, public support and investment in the VC asset class (as discussed in the "The Public Venture Policy Menu" article on page 36) is ever growing. As VC plays an important part in Limited Partners' (LPs') diversified portfolios, its "success" in achieving the outperformance required commensurate to its illiquid and higher

Venture Findings — 2014 -1a — Welcome Issue 21 risk nature, is examined in this article. have been selected for coverage across Comparing the VC rate of return to European VC. IRRs for these public market the public market benchmarks helps LPs indices were calculated by investing the to assess the "success" of a strategic asset equivalent cash flows that were invested allocation to VC instead of alternative in VC into the public market index. public asset classes. However, performance methodologies for public indices differ from Observations those of private equity to VC. While public Over the past two decades, the VC industry market returns are measured in real time, has experienced significant cyclic private equity returns are typically assessed changes. Despite the effects of economic quarterly and annually, which may result downturns and financial crises, the level of in tracking errors over the short term. commitment to and the investment pace of Using Public Market Comparator, or Public U.S. VC funds has been consistent with the Market Equivalent (PME), is a more accurate historic averages since 2002. However, the approach to evaluate what returns would amount invested in European VC funds has have been achieved if the same amount of experienced a more severe impact from the capital had been made in public markets economic cyclic changes, with committed instead of VC. It reflects the return to VC investment in the region steadily declining investments relative to public equities by since after the dotcom crash in 2000 and the mimicking the Public Market as a VC fund beginning of the financial crisis. and calculating an IRR based on investing the A common theme identified for both equivalent cash flows that were invested in U.S. and European VC funds is the significant VC into the public market index. For the purpose of this study, we focus on VC fund IRR and comparison against PME, as these two performance indicators are the most appropriate metrics in assessing “A common theme identified for both performance and widely used by the industry. In particular, these metrics are examined in U.S. and European VC funds is the light of performance ranking, vintage year, significant disparity in performance size and investment horizon of the funds. between top and bottom quartiles funds.” Data Source and Scope In 2012, U.S. and European VC investment accounted for almost 85% of total global VC investment activity, with the U.S. disparity in performance between top and maintaining an almost 70% share bottom quartiles funds. Returns from U.S. throughout the past 10 years. This article top quartile funds, on average, outperform focuses on U.S. and Europe performance, as bottom quartile funds by 22.3% over the there is ample information and performance past 31 years. The top quartile Venture data made available. It is worth noting that Capital funds in Europe have provided there is the potential to overlook some trends higher returns to LPs in the range of 1.3% represented by the remaining 15%, which to 53% during the same period. Looking includes Israel and the BRIC nations. across both regions, the top quartile Performance data for U.S. VC have VC funds, on average, have historically been sourced from NVCA and Cambridge outperformed the lower quartile funds by Associates and performance data for Europe 18.83% IRR since 1981 (refer to Figure 2). VC have been sourced from EVCA and The vintage year and the investment Thomson Reuters. horizon of the fund overlays further For public benchmark comparison, impact to the returns discrepancy between the S&P 500 Index, Russell 1000 and Russell top quartile and bottom quartile funds. 2000 Cambridge Associated modified public Preqin reported that the median net IRRs market equivalent (mPME) indices have for vintage 2007, 2008 and 2009 global been selected for coverage across the U.S. venture capital funds, at 5.3%, 4.0% and The mPME IRR calculation is based on the 6.4% respectively, are higher than for public index’s shares that are purchased the mid-2000 vintages; 2009 was the only and sold according to the private fund cash vintage year where the bottom quartile flow schedule, with distributions calculated boundary for venture capital funds is in in the same proportion as the private fund. the positive territory, with an IRR of 1.2%. The FTSE Europe Total Return and Over the past 31 years, the highest HSBC Small Company Equity indices returns for U.S. VC were registered by the

22 Venture Findings — 2014 -1a — Welcome Issue IRR % Net 2014 February Reuters, Thomson Europe Source: and –U.S. Performance Fund Year Vintage Cumulative 3: FIGURE IRR % Net Europe and –U.S. 2014 February Performance Fund Reuters, Year Thomson Vintage Source: Cumulative Quartile Bottom vs Quartile Top 2: FIGURE 100,000 120,000 Average Invested (US$M) 2013 May 2014; EVCA, January NVCA, and Reuters Thomson Source: Europe and —U.S. Commitment Investment VC 1: FIGURE 100.00 -20.00 -20.00 40.00 60.00 80.00 40,000 20.00 6 80,000 20,000 40.00 60.00 80.00 20.00 0. 0,000 0.00 00 0 8,013 1981 1981 1995 3,464

1982 1982 4,129 11,348 1983 1983 1996

1984 1984 4,639 14,983 1997 1985 1985

1986 1986 6,689 1998 21,511 1987 1987

1988 1988 11,405

1999 54,966 1989 1989 18,195 1990 1990 2000 105.224

1991 1991 10,926 2001 1992 1992 40,976

1993 1993 9,267 22,141 2002 1994 1994

1995 1995 9,502 19,677 2003 1996 1996

1997 1997 12,813 23,235 2004 1998 1998 Venture Findings — 2014 -1a — Welcome Issue 23 Issue -1a —2014 — Welcome Findings Venture 23,605 14,183 1999 1999 2005

2000 2000 20,090 27,588 2001 2001 2006

2002 2002 11,375 31,883 2007 2003 2003

2004 2004 9,266 29,921 2008 2005 2005 5,161 20,381 S. 2006 (EU) IRR Average ooled (U.S.) IRR Average ooled 2006 (%) IRR Quartile ottom (%) IRR Quartile op EU U. P P B T 2009 2007 2007 4,242 23,315 2008 2008 2010

2009 2009 7,238 29,463 2010 2010 2011

2011 2011 4,625 26,525 2012 2012 vintage 1990, and 1992–1997 funds, prior to market in all but the 5-year horizon (refer the dotcom bubble. Similarly, for European to Figure 6). The majority of the returns and VC, the best performance was from funds value-add of Europe VC remained in the prior to vintage 1998 and 2004. Europe VC negative territory, reflecting the effects funds have, since 2005, been in the J-Curve, of economic downturns and the financial with the exception of 2006 and 2008, which crisis in Europe. showed signs of a slight positive return. A paper by the European Investment When looking at VC performance relative Fund written in 2011 put forward various to investment horizons, and in contrast to hypotheses for each stage of the VC cycle to public market performance, over the long- explain the performance disparity between term time horizons greater than 15 years, the two regions, which include: U.S. venture capital returns significantly • Insufficient VC investment in Europe surpassed that of the public indices. and available funding is spread However, over the past decade it has too thinly across investments been tougher for funds to outperform the • Insufficient diversification in public market alternatives. The recent European VC managers’ portfolios run-up in the public equity markets has • European exit markets are too fragmented eclipsed VC returns, contributing European VC has not reached "critical to underperformance relative to public mass" to become self-sustaining and provide market equivalent benchmarks in the 1, 3 higher returns, which may be due to the and 5 year periods (refer to Figure 5). lack of a venture capital ecosystem. Over the 10-year horizon, the net IRR The plausibility of these hypotheses of Europe VC underperformed the public needs to be examined further.

In Conclusion, is the VC Model ‘Broken’? So, does the risk-reward balance of the VC model pay off and does VC outperform public markets for LPs? Although the VC sector has been affected by economic cycles, the level of investment commitment and investments in the U.S. VC industry has been similar to historic averages since 2002, with European VC commitments slightly lower than historic averages since the dotcom bubble. Returns from European VC have also been significantly weaker and also more volatile than that of U.S. VC over the 31-year time period examined in this study. The VC model portrays some characteristics of an inefficient market

“over the past decade it has been tougher for funds to outperform the public market alternatives.”

where the top quartile, more experienced managers have an advantage with their greater insights into industries, and access to stronger relationships and the best entrepreneurs, allowing the top VCs to generate above benchmark returns. It is apparent that U.S. VC has underperformed relative to public market equivalent benchmarks in the short term, in the 1, 3 and 5 year periods, but performance surpasses public markets from 10-year investment horizons onwards. It is uncertain if European VC will exhibit 24 Venture Findings — 2014 -1a — Welcome Issue FIGURE 4: Fund Performance by Vintage Year – U.S. and Europe Aggregated Data Source: Thomson Reuters, February 2014

Fund Size (US$) No. of Funds 1 Year IRR No. of Funds 3 Years IRR No. of Funds 5 Years IRR

0-100m 443 5.74 1425 0.60 1425 -0.92 100-200m 99 7.67 327 3.01 327 0.51 200-350m 55 2.46 187 4.87 187 2.52 350-500m 32 5.26 96 6.18 96 2.63 500m+ 44 11.73 129 7.30 129 3.80

Fund Size (US$) No. of Funds 10 Years IRR No. of Funds 15 Years IRR No. of Funds 20 Years IRR

0-100m 1425 1.28 1425 13.08 1425 18.91 100-200m 327 2.07 327 81.48 327 41.12 200-350m 187 5.26 187 27.43 187 34.31 350-500m 96 3.59 96 0.19 96 0.23 500m+ 129 7.67 129 4.49 129 5.70

FIGURE 5: Venture Capital and Public Market Benchmark Comparison – U.S. Source: NVCA and Cambridge Associates, September 2013

U.S. 1 Year IRR 3 Years IRR 5 Years IRR 10 Years IRR

Cambridge Associates U.S. 15.09 14.38 7.51 8.58 Venture Capital Index S&P 500 Index 19.26 16.2 10.7 7.94 Value-Add -417 -182 -319 64 Russell 2000 Index 29.87 18.08 11.68 10.03 Value-Add -1478 -370 -417 -145 Russell 3000 Index 21.5 16.67 11.22 8.47 Value-Add -641 -229 -371 11

U.S. 15 Years IRR 20 Years IRR 25 Years IRR 30 Years IRR

Cambridge Associates U.S. Venture Capital Index 26.14 30.05 30.3 17.15 S&P 500 Index 6.1 8.13 9.48 10.02 Value-Add 2004 2192 2082 713 Russell 2000 Index 9.04 9.2 9.89 9.75 Value-Add 1710 2085 2041 740 Russell 3000 Index 6.59 8.34 9.64 10.02 Value-Add -1955 2171 2066 713

FIGURE 6. Venture Capital and Public Market Benchmark Comparison – Europe Source: EVCA and Thomson Reuters, June 2013

U.S. 1 Year IRR 3 Years IRR 5 Years IRR 10 Years IRR

European Venture Capital 11.12 2.04 -1.13 0.52 HSBC Small Company Equity Index 20.5 5.45 -1.74 6.79 Value-Add -938 -341 61 -627 FTSE Europe Index 18.83 6.67 -0.63 5.86 Value-Add -771 -463 -50 -534

*Value-Add shows (in basis points) the difference between the actual private investment return and the public market comparator/mPME.

Venture Findings — 2014 -1a — Welcome Issue 25 similar trends in performance and generate bother? At the other side of the asset class FURTHER READING alpha in the longer investment horizon, spectrum, there is an overall compelling KEY SOURCES as the funds’ investments are realized. track record—an "alpha"—of other types of

To conclude, one must draw a non-liquid investments. It is no wonder that KAPLAN, N. & LERNER, J. distinction between the success of the few institutional investors are fairly content in (2009) It Ain’t Broke: The "unicorn" ventures and the model of LP placing funds into those more "traditional" Past, Present, and Future commitment to a venture investment. A alternatives such as buyouts, distressed of Venture Capital. disturbing fact is that in the U.S. less than investing, energy and infrastructure, and MULCAHY, D. (2012) 1% of all companies have raised capital from real estate. VC is therefore under attack from We have Met the Enemy… VCs. Instead, a growing array of competing all directions and needs to be inherently and he is Us, Ewing Marion and more efficient sources of funding have reconfigured in order to display a risk- Kauffman Foundation. been developed; these sources include super return profile that LPs find attractive. angels, serial entrepreneurs, corporate VCs and crowd funding. VC as an asset class has also suffered from the significant dispersion in the performance of such funds. The high- risk nature of the asset class, combined with comparatively small ticket sizes, long-term investment horizon and potentially difficult exits, draws the question: why should LPs VC Model Defined

VENTURE CAPITAL has played a the risks associated with the VC fund. key role in supporting innovation in During the invested period, the various industries, and stimulating GPs draw down the funds in blocks of economic growth. The core of the cash as and when they need the capital VC business model is to identify for their investments ("Call"). GPs high-potential entrepreneurs at also run the investment operations, early stages, with the overall goal creating value, and prepare the exit being to grow these companies strategies of the invested companies. and generate high returns. They are actively involved in their The typical VC firm is organized as portfolio companies, hold board seats, a limited partnership, with the venture and sometimes manage the transition capital managers serving as GPs, from management by founders, and the investors as limited partners to management by professional (LPs). The LPs, usually endowments, managers. GPs are also actively pension funds, or wealthy individuals, involved in the transition out of the provide capital, which is then used to venture phase, to public trading invest in high-potential, high-growth through an IPO, to acquisition by a companies, following the investment larger company, or to liquidation. strategy proposed to the LPs. The LPs GPs typically receive 2% per year expect to be rewarded with significant of the amount invested in companies in returns to compensate for the illiquid management fees, and are also entitled and high-risk nature of the asset class. to 20% of the cash returned to the LPs Once the target amount of capital above the original investment when a for the fund has been raised by the company undergoes IPO or acquisition. GPs, the subscription is closed. The Upon exit of investment companies, typical duration of investment is 10 the capital is also redistributed years, and the LPs cannot leave those to the LPs on a pro-rata basis funds before their term. In exchange depending on the size of their initial for the contributed capital, LPs receive investments. Once the VC fund has a pre-negotiated stake in the equity of provided sufficient returns for its the investment fund and they become investors, the GPs would usually To access the full list of fully-fledged shareholders, sharing in attempt to raise follow-on funds. references numbered in this article, please follow the QR Code

26 Venture Findings — 2014 -1a — Welcome Issue EVCA Venture Capital Forum

6 November 2014 Berlin , Germany

European venture capital has an inspiring story to share. Despite the significant challenges of recent years European VC has continued investing in innovation, transforming ideas into world-renowned companies. The EVCA is proud to be a part of European VC’s story, representing the industry for more than 30 years. We’ve worked tirelessly to ensure policymakers in Brussels understand how VC promotes jobs and growth, an approach that has garnered tangible results. We played a central role in the creation of the European Venture Capital Funds Regulation, a cross-border marketing passport and quality label, and promoted European VC to global investors through international speaking events, communications campaigns and academic research. We continue to press for new and innovative ways to help European VC bring brilliant new ideas to global markets with the continued support and insight of our members. By joining the EVCA, our members give us a powerful mandate to speak for the industry and ensure we are listened to by influential lawmakers and regulators. Now European VC stands ready for a period of renewed success, based on resurgent confidence in the qualities of the industry and Europe’s entrepreneurs. I invite you to join us at the EVCA Venture Capital Forum for a day of first-class networking and exceptional thought leadership from leading industry figures. For more information and to reserve your place, contact [email protected]. It’s an exciting time for European VC. Bring your voice to the debate over the past and future direction of this most inspirational of industries. I look forward to welcoming you to Berlin!

Best regards,

Dörte Höppner | Chief Executive European Private Equity & Venture Capital Association

EUROPEAN PRIVATE EQUITY AND VENTURE CAPITAL ASSOCIATION 度量科技园区的业绩清华工业园、帝国工业园及15个其他工业园区为达到其最佳业绩表现, 这些工业园区是如何设计与管理的 Measuring Science Parks’ Performance TusPark, Imperial West, and 15 other Parks

How They are Designed and Managed to Achieve Optimal Performance

Abraham Carmeli Professor of Strategy and Management, Tel Aviv University

28 Venture Findings — 2014 -1a — Welcome Issue SCIENCE PARKS are unique organizational performance goal and is not necessarily forms that offer a platform for applied the primary motivation of tenant firms. research to flourish. They are composed of research institutions, such as universities, Key Factors Influencing Success and knowledge-intensive firms, including The literature suggests a variety of key large, SMEs and incubator enterprises, factors that contribute to the success of which locate their research and development science parks (often without directly (R&D) activities in a particular geographical considering the suggested three dimensions area, and their aim is to produce, leverage identified above). Two major practices that and translate knowledge into viable business contribute to the success of science parks products. In many science parks there is are: a heterogeneous set of stakeholders, a development of properties and facilities such as partners, competitors, suppliers, nearby, for firms to engage in R&D. and customers (e.g. Silicon Valley and Through the confluence of their Daejeon in South Korea), and strong ties components, science parks serve as a and links with focal academic institutions mechanism for facilitating the flow (e.g. Thailand Science Park – TSP, and of knowledge and technology among The Research Triangle Park – RTP). universities, R&D institutions, companies Other important elements include the and markets, and thereby bolster economic infrastructure and physical space, human growth (IASP, 2002). In essence, science capital, and a sense of community. parks are incubators and contributors To better understand the determinants of wealth as they become a source of of science park performance, we further comparative advantage for both the examined the design and management tenant organizations and the regional of science parks around the world. Our comparative analysis indicates that science parks in Asia have been established as part of a government effort to promote areas for “Science parks balance between investors and/or develop a particular cluster. structuring and systemizing the provision For example, Zhanjiang Hi-Tech Park in Pudong, Shanghai, was planned of shared, supporting services to those by the Chinese government as a way of promoting Shanghai to foreign investors, tenant companies that need them.” and Daedeok Innopolis was planned by the South Korean government in an attempt to encourage growth outside Seoul. There community. The question, however, is how are a few western country examples science parks are designed and managed where government acts as the catalyst. A to achieve optimal performance. notable example is the emergence of the Prior to delving into the factors Tech City science and technology hub in that determine the success of science East London. However, in contrast to the parks, we need a model or methodology government-led character of London’s for assessing their performance, Tech City, in most western cases it was a and we suggest a three-dimensional university or corporate effort that propelled configuration. We suggest science parks the establishment of science parks. should be assessed with regard to: Examples include the design and 1. Horizon (short, mid, and long-term), building of the UCSD Science Research led 2. T ype of performance (e.g. innovation, by the University of California, San Diego; productivity, financial and social), and Cambridge Science Park that was established 3. Relevant and key stakeholders. by Cambridge University, and the Barcelona For example, one key performance Science Park (PCB), which was a project led indicator is innovation. This can be by the University of Barcelona. Other science measured by the number of patents and park initiatives in developed countries were other forms of intellectual property over made by for-profit enterprises such as the a short, mid, and long-term period, but it Docklands Science Park (DSP) in Melbourne. would mainly be relevant for the tenant firms and academic institutions. Variance and Impact of On the other hand, social performance is Organizational Systems important for the government that often Interestingly, we found that some science wishes to encourage the development parks are more loosely coupled organiza- of a particular area by attracting tional systems than others that evolve as stronger residents, but this is a long-term more tightly coupled organizational systems.

Venture Findings — 2014 -1a — Welcome Issue 29 Loose coupling is a situation in which Variations in Domain Distribution elements are responsive, but retain evidence We also found that while some science of separateness and identity, whereas tight parks comprise a set of diverse firms, others coupling is a situation in which elements are more concentrated around a specific are highly connected, such that a close to domain or two. In Cambridge Science Park, unified responsiveness is developed and the concentration is on life sciences and conveyed (Weick, 1976: 3). In the context of pharmaceuticals, with tenant firms such as science parks, we observed that in certain Abcam, Amgen, Bayer CropScience Ltd, Napp parks, the services are more comprehensive Pharmaceutical Holdings Limited, Royal and organizers enact structuring processes, Society of Chemistry, and Sigma-Aldrich particularly those established in Asia. Yet, Company Ltd. Hsinchu Science Park (HSP), a other science parks have been organized in suburb of Taipei, initially aimed to imitate a more loose fashion, such as the MATAM the Silicon Valley model and concentrated Scientific Industries Park in Haifa and the on semiconductors. However, over the Har Hotzvim Industrial Park in Jerusalem. years HSP has built satellite parks that The different ways of organizing science are more focused, such as the Biomedical parks—loose or tight coupling—may be Park. Other science parks are less focused suitable for some tenant firms, but not for and tend to attract firms from a variety of others. Tenant firms that need more costly industries, but over time there is a tendency services need fundamental facilities that to converge around core domains. must be organized by the management of Alongside the factors underlining the the science parks. For example, the Berlin success of science parks, we also observed Adlershof science park provides shared labs and testing equipment for modern failure-prone practices that government food analysis, as well as for Thin-Film with officials and managers need to consider while the incorporation of nanotechnology. developing and cultivating these entities. This provision of infrastructure and equipment is particularly helpful for young firms with limited resources. Loosely-coupled science parks are more “Alongside the factors underlining the attractive to tenant firms that do not need success of science parks, we also specialized facilities and they are often larger and more established. However, observed failure-prone practices.” even in these science parks there are young and small-sized firms that find other ways to obtain such services by cooperating and partnering with larger tenants. A key issue concerns governmental policy Another finding is that science parks and support. Although one of the key goals have gone through a dynamic evolutionary of many science parks is to attract renowned restructuring, where the initial concept international companies, not all science was not working or was misplaced. For parks are successful in this respect, because example, the Daedeok Innopolis science they rely too heavily on government support. park suffered from a myriad of problems, Government support is crucial for including technologies not being sufficiently attracting multinational firms, but in transferred to the local industries, times of economic downturn, governments unsuccessful efforts in creating synergistic have ceased their support or used effects due to lack of coordination, weak preferential policies to help local firms. In connections among the institutes in the park, addition, government support can create and problems with commercialization. complacency and inhibit the competitive Similarly, DSP in Melbourne aimed to edge needed for science parks and their assist local manufacturing by promoting tenants to flourish. Other failure-prone the development of new products. However, practices include incoherent strategy (e.g. today the government does not play a where to focus and missing opportunities substantial role and the DSP company for synergy), poor infrastructure, provides relatively limited services (though underinvestment in renewing facilities, they do offer fund sourcing services for and the absence of a clear business model. new technological ideas and research In conclusion, our research finds collaborations). To illustrate DSP’s limited that science parks serve to foster new presence, when we asked a chief architect knowledge creation and innovation as of a multinational high-tech company well as economic development in defined located within Docklands about DSP he geographical regions, but they face key told us, “I didn’t realize they really exist.” challenges and their evolutionary process

30 Venture Findings — 2014 -1a — Welcome Issue is rather unique and complex. The major challenge is how to create a hybrid model where science parks balance the opposing CAse study forces of structuring and systemizing the provision of shared, supporting services to those tenant companies that need them, while maintaining a more loosely coupled system for companies that need more London: New Campus at The White City Opportunity independence and autonomy. Finally, White City (Imperial College) Area (WCOA), led by London our research uncovered that in too many planning legislation, science park cases, a clear and coherent represents the option for business model was not defined, which For over a century, science- Imperial College to execute that inhibited the science park’s success. based Imperial College has vision. WCOA is a regeneration taught students from the project of 1 million sqm in heart of central London. The West London, and it includes urban London environment the two-phase project of is unforgiving when it comes Imperial College. This project to real estate, making it has been planned to create hard for Imperial College synergies across its different to accommodate growth components, to include a new within its existing urban research and translation hub, facilities. Back in 2008, the college executive management global financial crisis opened office, hotel and conference opportunities to develop center, leisure, retail and land for new use. The post- restaurants, and apartments crisis price levels allowed for academic staff. development of spaces for The first phase—Imperial academic environments West campus—is already and innovative technology underway with 120,000 sqm industries. Imperial College’s and 600 postgraduate students. leaders sought out ways to take advantage of this opportunity, by acting on their vision of translating research into benefits for society: new companies, business benefits and economic growth.

(Below) An architect's drawing of the new campus at White City, London.

Venture Findings — 2014 -1a — Welcome Issue 31 TABLE 1 SCIENCE PARKS/CLUSTER TABLES

NAME TYPE LOCATION SIZE (m2) YEAR

ADLERSHOF SCIENCE Park Berlin Adlershof, Germany AND TECHNOLOGY 467,000 2002 PARK

BARCELONA Park Barcelona, Spain SCIENCE PARK 86,638 1997

CAMBRIDGE Park Cambridge, England SCIENCE PARK 150,000 1970

DAEDEOK INNOPOLIS Cluster Daejeon, South Korea 67,800,000 1973

HSINCHU Cluster Hsinchu City, Taiwan SCIENCE PARK 14,000,000 1980

INFOPARK Park Kochi, India 397,600 2004

MATAM SCIENTIFIC Park Haifa, Israel INDUSTRIES PARK 270,000 1974

PARC SCIENTIFIQUE Park Lausanne, Switzerland 55,000 1991

SOPHIA ANTIPOLIS Cluster Valbonne, France 1,300,000 1969

TECH CITY / "SILICON Cluster London, England ROUNDABOUT" 10,700 2008

THAILAND Park Klong Luang, Thailand SCIENCE PARK 124,000 2002

THE RESEARCH Cluster North Carolina, U.S. TRIANGLE PARK 28,328,000 1959

TUSPARK Park Tsinghua University, China 800,000 1994

ZHANJIANG Cluster Pudong, Shanghai, China HI-TECH PARK 25,000,000 1992

32 Venture Findings — 2014 -1a — Welcome Issue

MAIN FOCUS COMPANIES WORKFORCE URL

Microsystems, www.adlershof.de Photonics, IT, Media, 950 15,000 Biotechnology etc.

Life Sciences mostly www.pcb.ub.edu/homepcb/ (Biotech, Pharmacy, 70 2,200 live/en/p126.asp Environment and Chemistry)

Biomedical, Telecom, www.cambridgesciencepark. and Software 100 5,000 com

IT, Biotechnology, dd.innopolis.or.kr Nanotechnology, 1,306 63,000 Software, Environment

Integrated Circuits, Comp. www.sipa.gov.tw and Peripherals, Telecom, 500 150,000 Precision Machinery and Biotechnology IT 150 20,000 www.infopark.in

Software, www.matam.co.il Semiconductors, and IT 50 10,000

Energy, Photonics, www.parc-scientifique.ch Material Science, Space, 131 2,000 Communication and Mobile Systems

Telecom, IT, Health www.sophia-antipolis.org Sciences, Fine Chemicals & 1,400 35,000 Biotechnology, and Earth Sciences

Software and www.siliconroundabout.org.uk Digital Media 3,000 48,000

National Research www.sciencepark.or.th Centers, Organic, Printed, 61 2,300 Electronic, Food and Feed, and Nano-cosmeceutical IT and Biotechnology 170 39,000 www.rtp.org

Bio and Life Science, en.tusholdings.com Software, IC Design, 500 40,000 Digital TV, and 3G Mobile Communication

Life Sciences, Software, www.zjpark.com Semiconductors and IT 3,600 100,000

Venture Findings — 2014 -1a — Welcome Issue 33 FURTHER READING CAse study REFERENCES

CARTER, N. (1989) Science Parks, Taylor & Francis.

FERGUSON, R. & Beijing: TusPark (Tsinghua Strategy OLOFSSON, C. (2004) University Science Park) TusPark consists of mixed ownership, Science Parks and the Development of NTBFs between the state-owned Tsinghua - Location, Survival Since the day it was set up in 1994, University (Tus-Holdings Co. Ltd) and two and Growth. The other private companies. It is situated in Journal of Technology TusPark (Beijing) has strived to Transfer, 29(1), 5–17. become the total solution provider for a "glamorous" location next to Tsinghua science and technology innovation and and Peking Universities, where high-tech LÖFSTEN, H. & entrepreneurial environment, and talent and tech research are abundantly LINDELÖF, P. (2002) available. Its creation was a result of Science Parks and the the value-added service provider for growth of new technology- innovative, high-tech companies. the Chinese government policy from based firms – academic- Today, TusPark has grown to be the largest the 1980s, that focused on diversifying industry links, innovation the funding sources of universities and and markets. Research university science park in the world, home Policy, 31(6), pp.859–876. to high-tech giants and spawning more research institutions. These new policies than 30 branch operations (sub-parks) enhanced the collaboration between around China. Within nearly 800,000 universities and enterprises, as well as the sqm of building area, TusPark operates commercialization of academic research a successful business model, which through university affiliated companies. creates a professional R&D environment, At that time, Tsinghua applied with more than 40,000 workers, 500 a "Technology + Products" strategy high-tech companies and already 1,000 that matured into profit-oriented incubated startups under its roof. strategies a few years later. By the early 1990s, Tsinghua already owned more than 190 affiliated enterprises. The Science Parks as Nursery university applied the "Technology + Gardens in China Capital" approach when it established To understand the success of TusPark, we TusPark in 1994, a main contributor need to review the motivations behind to China’s innovation system. The science park creation in China. Science approach later changed to a higher parks’ directors point to two national level strategy, "Capital + Equity", when issues that influence the creation of new Tus-Holding Co. Ltd was founded. companies and technologies in China. The While the main park area provides first one is the government allocation of shareholders with income from rent and incentives, which focuses on large and services fees, TusPark’s uniqueness comes medium-sized, state-owned enterprises. from the essential capital and financing This allocation created a financing support that creates the incubator within gap for the development and operation the innovation park (aimed at early of small businesses and startups. stage companies mostly founded by the university academic staff). This is a The social environment is said to "nursery garden" that endows new plants make it difficult for entrepreneurs to with water and conditions to grow and access services like law, market, human blossom. TusPark is acting as a VC by not resources, etc. Science parks aim to only providing the capital, but also by solve these issues by creating a small playing a key role in managing its portfolio environment—like nursery gardens— companies and making connections to the that helps pioneering companies to grow national industry and government leaders. better and faster. Obviously, university TusPark’s business model achieved science parks bring more than that: success in terms of providing benefits to access to talent, tech-labs, equipment, the ecosystem surrounding it, namely the real estate and some ability to support Chinese government, Tsinghua University, young groups in executing products from the hosted tenants and its shareholders, academic research. TusPark represents by integrating innovation resources such exactly that, innovation and progress in To access the full list of as "policy, industry, university, research, references numbered in spaces neglected by national policies. finance, motivation, trade and media". this article, please follow the QR Code

34 Venture Findings — 2014 -1a — Welcome Issue

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Public Policymakers’ Tools for Fostering Local Venture Ecosystems

ROBYN KLINGLER-VIDRA Senior Research Fellow, Coller Institute of Venture

36 Venture Findings — 2014 -1a — Welcome Issue THIS ARTICLE is motivated by policymakers’ hot industry, build a science park next to a desire to know what they can do to foster research university, provide subsidies and local venture ecosystems. It strives to be a incentives for chosen industries to locate resource for policymakers by mapping a there, and create a pool of venture capital. comprehensive menu of venture policies. The Singaporean venture policies, Before diving into the menu, I start with a for example, include: public funds for word on the global pervasiveness of venture venture investors, subsidies for firms in policies’ applications. There have been a targeted technologies, encouragement of multitude of uses of "Silicon" monikers potential entrepreneurs, mentoring for associated with venture policy initiatives; startups, subsidies for researchers moving a few examples include the "Silicon laboratories to Singapore and awards for Roundabout" in London, Taiwan’s "Silicon failed entrepreneurs (Lerner, 2009: 18–19). Island", Israel’s "Silicon Wadi", Hong Kong’s Policymakers’ desire to support "Silicon Harbor", and the "Silicon Alley" in innovation springs from the uncertainty New York City. Policymakers have adopted and risk surrounding new technology their own silicon brands as part of their development and adoption, as well as the aspiration to propel Silicon Valley-like relationship between innovation and long-term economic growth, according innovation and venture activity. In doing to Shumpeter. But game-changing so, they hope to enhance local economic innovations are not easy to predict. In an growth, employment, and competitiveness. editorial piece in The New York Times in Policymakers’ efforts to develop 1939, the author lamented that “television ‘local Silicon Valleys’ began in the 1980s. will never be a serious competitor for Such efforts translated into an estimated radio, because people must sit and keep US$3bn spent annually by Organization for their eyes glued on a screen; the average Economic Cooperation and Development American family hasn’t time for it.” Just as this influential American newspaper struggled to predict the future for television, entrepreneurs can make only educated guesses about which innovations “Policymakers benefit from considering will take off. In fact, for many companies, their local context and unique the financial burden of investing in research and development is too high. As a competitive positioning when choosing result, governments have increased their R&D expenditure in an effort to support from the venture policy menu.” innovative technological developments. As an illustration, the European Council has agreed that all member states increase total R&D expenditure (across public (OECD) governments by the mid 1990s and private sources) to 3% by 2020. (OECD, 1997). Since then, public venture Now that the motivations for, and policies have grown exponentially in scale pervasiveness of, venture policies have and scope. The European Union’s European been introduced, I turn to identifying Investment Fund manages over 12 billion the venture policies that have been euros, which it invests via fund of fund, implemented to date. The following table direct equity and lending instruments. presents a menu of venture policies, Individual governments, Singapore based upon what has been deployed by and Russia for example, have launched city, state and regional governments. a public fund of VC funds (Singapore’s The menu outlines eight categories of Technopreneurship Investment Fund in venture policies instruments, including: 1999 and the Russian Venture Corporation (1) funding, (2) taxation, (3) regulation, (4) in 2006), with US$1bn in assets under clusters/networks/institutes, (5) attracting management. As an illustration of the talent and investment, (6) stock market ubiquitous reach of venture policy efforts, access, (7) technology infrastructure the Russian government has invested in and government procurement and turning Skolkovo, a suburb of Moscow, (8) education and training. into the ‘Russian Silicon Valley’. The table details the names of the In these and other public policy policies, and explains the purpose of the efforts, according to Vivek Wadhwa, a policy and provides an example of its Silicon Valley-based venture capitalist, the employment. In addition, within the table Silicon Valley venture formula has been there is an estimated time to impact, in said to consist of the following: select a years, for each policy, to give readers a

Venture Findings — 2014 -1a — Welcome Issue 37 TABLE 1 MENU OF VENTURE POLICY CHOICES

FUNDING TIME TO IMPACT POLICY PURPOSE EXAMPLES (YEARS) COMMENTS

EQUITY INVESTMENTS Fill equity gap by Germany’s High-Tech Direct government investments in SMEs IN VENTURE FIRMS investing where private Gründerfonds, United 5–7 are typically made as co-investments investors do not Kingdom’s Enterprise Capital along with private investors Funds, Taiwan’s Development Fund

LOANS FOR VENTURE Offer loans to early-stage United States Small Business Moral hazard is a concern, so risk-sharing FIRMS companies; banks tend not to Administration loan program, 5–7 arrangements are important to get right invest in venture firms since France’s SOFARIS, Austria’s there is little or no collateral Finanzierungsguarantee Gesellschaft Technology Financing Program, United Kingdom’s Startup Loan Scheme

GUARANTEES Increase private lending United Kingdom’s Can help companies obtain short-term to startups by reducing the Enterprise Finance 3–5 trade financing and working capital risk of lenders Guarantee, Singapore’s Loan Insurance Scheme

FUNDS OF VC FUNDS Build a local VC industry Israel’s Yozma Fund, The Funds of VC Funds that have had the most capable of sustainable New Zealand’s Venture 5–7 positive impact have been one-time injections investment in startups Investment Fund, European of capital, not evergreen funds. Cautionary Investment Fund, Singapore’s note that too much public involvement in Technopreneurship investment decisions may inhibit the Funds Investment Fund, Russian of VC Funds' ability to operate successfully Venture Corporation

GRANT FUNDING Incentivize activity in European Union, UK Not in exchange for equity in venture firm COMPETITIONS specific sectors by awarding Technology Strategy Board 1–3 funding without taking any equity in the business

INCREASE PUBLIC Governments increase their European Council mandating The OECD average R&D expenditure R&D EXPENDITURE share of the cost of R&D; that Member States increase 6–10 was 2.3% as of 2011 offer subsidies/tax credits R&D spending to 3% by 2020 to private companies for their R&D spending

PUBLIC – PRIVATE Co-investment with private Singapore’s Business Angel In successful cases, for every dollar of SECTOR CO-FUNDING sector investors can help to Scheme and the United 2–5 public money invested in companies, quickly increase the pool of Kingdom’s Business Angel as much as three dollars has been early-stage investment capital Co-Investment Fund invested by business angel syndicates available to startups

TAXATION

LOW OR ZERO TAX Lower tax rates for United Kingdom lowered its Tax breaks for SMEs can be on generate RATES FOR VENTURE corporations to help startups corporate tax rate in April 1–3 corporate tax rates, but also for business FIRMS achieve greater profitability 2013 to 23%, and will further investment capital, employee costs, reduce it to 20% in 2015 and capital allowances for property

LOW OR ZERO TAX Lower tax obligations Singapore’s tax exempt Means of promoting local, and attracting RATES FOR VENTURE for investors in startups status for offshore domiciled 1–3 international, investors CAPITAL FIRMS AND (e.g. tax exemption or capital venture capital investors gains tax rate) ANGEL INVESTORS

TAX CREDITS FOR Tax credit for investment in United Kingdom’s Enterprise Tax credits have been made available for INVESTMENTS INTO startups/VC funds Investment Scheme, Seed 1–3 business angels and VC Managers VENTURE FIRMS Enterprise Investment Scheme and Venture Capital Trust; Taiwan’s 20% tax credit

TAX CREDITS FOR Encourage private firms to Canada and Taiwan offered Credit for expenses incurred when developing PRIVATE R&D invest in research R&D tax credits early on 3–5 technology or science, as well as advances in EXPENDITURE environmental impact and process efficiency and cost

38 Venture Findings — 2014 -1a — Welcome Issue REGULATION TIME TO IMPACT POLICY PURPOSE EXAMPLES (YEARS) COMMENTS

ADOPT LEGAL Investment vehicles that give LP structure The Anglo-American version of the LP STRUCTURES investors limited liability for 2–5 structure has had the most success in FOR VC INVESTORS their investments in SMEs attracting international capital. Local versions of LP structures, such as that in Australia and Finland, have contained variations that undermine the consistency of the structure that international investors are familiar with (see Lerner, 2009: 158)

INTELLECTUAL Protect the new ideas, products United States IP laws Key developing markets, including India PROPERTY RIGHTS and processes developed 3–5 and China, are better protecting IP year- locally so entrepreneurs feel on-year to encourage local innovation secure that they will not have their IP stolen

BANKRUPTCY LAWS Ease of starting and shutting Japan and Singapore changed Bankruptcy laws should make it easier to end down businesses; ability bankruptcy laws so that 3–5 a "zombie" company; toughening bankruptcy for “failed” founders to there are fewer restrictions laws, such as the reforms undertaken in start another business on the future activities of the U.S., do the opposite and have been managers of failed businesses said to discourage entrepreneurship

REDUCE FUNDRAISING Enable international American 1979 ERISA By allowing major institutional asset classes to invest in early-stage investment RESTRICTIONS investment and exit reinterpretation 1–2 in local startups allowing pension funds vehicles, there are more funds available to invest in VC funds for VCs and, therefore, more early-stage investment capital available to startups

IMPROVE LABOUR Facilitate movement of labor France’s "Entrepreneurship Greater labor market flexibility allows talent to MARKET FLEXIBILITY across firms and decrease the laws” that allow employees to 1–3 flow across sectors and geographies, which has risk to would-be entrepreneurs take leave to start their own been named as a driver of economic growth considering leaving their job business

ALLOW FOREIGN Reduce or remove restrictions Vietnam’s WTO accession Opens up opportunities for local SMEs to be OWNERSHIP AND on the share of foreign in 2007 reduced foreign 1–2 subsidiaries or acquisition targets for leading INVESTMENT ownership allowed in domestic ownership barriers in multi-national firms in the sector firms to increase opportunities strategic sectors, including for inward investment the technology sector

CLUSTERS, NETWORKS AND INSTITUTES

EXPORT PROCESSING Offer tax and other incentives China’s Shenzen region and Helps attract foreign firms and create regional ZONES for investment and startup Vietnam’s export zones outside 2–5 clusters of activity. This was effective for activity in a specific region Ho Chi Minh City and Hanoi Vietnam in attracting Intel

SCIENCE PARKS Develop density of scientists Microsoft Business Park, In Taiwan, the Hsinchu Science Park was Taiwan’s Hsinchu Science 2–5 especially effective in attracting talent back Park, Hong Kong’s CyberPort to the country, turning a “brain drain” into a and Science Park “brain bank”

ACCELERATORS AND Develop venture ecosystems South Korea’s Smart Content Significant variations across schemes called INCUBATORS in certain regions or focused Center; Sunshine Suites in 2–3 accelerators and incubators in terms of taking on specific industries New York City equity, providing office space, etc.

CO-WORKING SPACES Provide SMEs with access Singapore’s Blk71 (in Co-working spaces can be most effective to affordable and flexible partnership with SingTel) 2–3 in urban areas where real estate costs are office space close to other prohibitive to startup activity entrepreneurs

GOVERNMENT Have public institutes develop Taiwan’s ITRI and III; Korea’s Taiwan’s ITRI, as an example, undertook the RESEARCH INSTITUTES new technologies and products ETRI 6–10 costs and efforts of developing hardware that for private sector to license/use they then made available to local SMEs

ENTREPRENEUR Increase the quantity and UK's Entrepreneur First and Training programs can be effectively delivered TRAINING CENTERS quality of entrepreneurs Israel’s MAGNET 2–3 via partnerships with industry and academia AND PROGRAMS

ESTABLISH BUSINESS Help develop local community Singapore Private Equity & VC Organizing investor networks can help ANGEL NETWORK AND/ of investors capable of co- Association was established by 1–3 facilitate co-investment in local venture firms OR VC ASSOCIATION investing in startups policymakers

LEVERAGING GOV. Use government buying Defense spending or otherwise In its “Submission to the Review of the PROCUREMENT TO power to help give small firms in which the government 3–7 National Innovation System”, the Australian SUPPORT STARTUP a jump start makes a concerted effort to buy Venture Capital Industry advocates in favor from venture firms of government procurement programs which CLUSTERS would support local technology companies Venture Findings — 2014 -1a — Welcome Issue 39 TABLE 1 — CONTINUED MENU OF VENTURE POLICY CHOICES

ATTRACTING TALENT AND INVESTMENT TIME TO IMPACT POLICY PURPOSE EXAMPLES (YEARS) COMMENTS

ATTRACT TALENT VIA Encourage local Singapore’s Global Investor Caution from the Startup Chile IMMIGRATION entrepreneurial activity Program that gives 3–5 experience that foreign entrepreneurs by attracting experienced Permanent Residency in can take advantage of the incentive foreign entrepreneurs; help exchange for VC investment, and then return to their home educate and inspire local Entrepreneur Visa and country shortly thereafter entrepreneurship Exceptional Talent Visa in the UK and the Startup Visa Act in the U.S., Startup Chile which gives money to foreign entrepreneurs that launch a business in Chile

INVESTMENT Attract FDI for local startups Startup Chile Create buzz internationally about your PROMOTION AGENCY 2–5 country as a destination for venture

BILATERAL Encourage cross-border KORIL (Korea-Israel) and The BIRD fund, for example, was responsible INVESTMENT FUNDS investments in startups that BIRD (Bilateral Investment in 3–5 for the growth and international expansion of leverage the unique assets of R&D – Israel / U.S.) Israel’s early IPOs on NASDAQ each country

DELEGATIONS OF Host and take delegations London’s Tech City initiative Means of marketing local talent and ideas as STARTUPS of startups across countries took 25 creative tech startups 2–3 well as fostering networks across companies, and regions to help link to the South by South West sectors and geographies entrepreneurs and investors Festival in Austin, Texas and showcase local talent

OPEN BORDERS TO Allow an open flow of talent European Union Note that political rhetoric regarding closing LABOR MARKET across regions 1–3 borders tends to coincide with challenging economic environments

OPEN TRADE AND Enable cross-border trade European Union / European Enables domestic firms to fluidly sell abroad, CAPITAL ACCOUNT and investment, especially Economic Area, NAFTA, 1–2 which is essential for startups with small LIBERALIZATION access to key markets MERCOSUR consumer markets at home

STOCK MARKET ACCESS TIME TO IMPACT MEASURE PURPOSE EXAMPLES (YEARS) COMMENTS

LAUNCH A SECOND-TIER Help startup companies with Singapore’s CATALYST, Need to get the balance right of strictness STOCK MARKET inconsistent revenue/short- Korea’s KOSDAQ 2–3 and accessibility so that the stock term profitability access market is attractive to SMEs but also capital markets sooner robust in terms of requirements and transparency into its listed companies

DECREASE Encourage startups to access AIM reduced amount of Less stringent listing requirements REQUIREMENTS FOR local capital markets for exits equity companies have to 2–3 must be balanced with competent offer in order to IPO; Taiwan PUBLIC LISTING due diligence to ensure that the stock reduced number of years market is a high-quality venue that companies had to have consecutive profitability

ALLOW DUAL LISTING Encourage local capital Tel Aviv Stock Exchange Can help link domestic and foreign stock ON LOCAL AND FOREIGN market liquidity and also allows dual listing 1–3 markets, in addition to giving local startups EXCHANGES allow local companies to draw more capital market liquidity options upon international liquidity

40 Venture Findings — 2014 -1a — Welcome Issue TECHNOLOGY INFRASTRUCTURE TIME TO IMPACT POLICY PURPOSE EXAMPLES (YEARS) COMMENTS Improve connectivity PROVIDE HIGH-SPEED Korea’s 1 GB internet; UK’s EE High-speed internet allows local developers to via access to high-speed network offers 4G service innovate online products and services INTERNET internet to encourage more 2–5 / new uses of internet

BUY SPECIFIC Obtain frontier technologies Taiwan licensed software Buying 3D printing equipment may be a means HARDWARE/SOFTWARE so local entrepreneurs and from the U.S. beginning in 2–3 to facilitate leapfrogging in developing markets SO LOCAL DEVELOPERS engineers can innovate the 1970s on these platforms HAVE ACCESS

LIVING CITY/LIVING LAB Give technology to would- Korean ETRI (government Integration of research and innovation be startups so they can research institute) has all smart 3–5 processes through public-private-people brainstorm and test product phone devices so entrepreneurs partnerships ideas have access to test their apps

PUBLIC OPEN DATA By increasing availability UK Open Data Institute Startups, access to public data can lead to of public data online, (launched December 2012) 2–5 businesses that help policymakers optimize entrepreneurs are able to efforts, or consumer applications build businesses that leverage datasets

TELECOM NETWORKS Physical infrastructure Kenya’s investment in Nairobi as a case study of mobile app cluster (FOR DEVELOPING necessary for ICT industry telecom infrastructure 5–10 success, due to this investment in telecom infrastructure COUNTRIES)

EDUCATION AND TRAINING TIME TO IMPACT MEASURE PURPOSE EXAMPLES (YEARS) COMMENTS

GRANTS & PROGRAMS TO Increase the pool of Australia acting on a Means of encouraging students to pursue the ENCOURAGE SCIENCE AND engineering talent recommendation to 5–10 'hard sciences' ENGINEERING STUDIES do this from PWC IN UNIVERSITY

TECHNOLOGY TRANSFER Help commercialize Israel’s Technion and Stanford University does not take any of its AND ENTREPRENEURSHIP inventions and innovations Singapore’s National 5–7 students' IP, and this is said to encourage a CENTERS AT UNIVERSITY University of Singapore highly entrepreneurial student environment

UNIVERSITY-ORGANIZED Increase undergraduates' Barclays and Ravensbourne Startup internship schemes present INTERNSHIPS AT awareness of, and skills Partnership; Tata 3–5 entrepreneurship as career choice on equal STARTUPS relevant to, the venture International Social footing with careers with large firms or the ecosystem Entrepreneurship Scheme public sector

INTRODUCE TECHNOLOGY Increase pool of computer Vietnamese programming Empowers students—at a young age—to CURRICULUM IN scientists and engineers classes in the 5th grade; Coding 10–15 understand what algorithms are and to code, PRIMARY SCHOOL taught in Estonia, mandatory use and debug computer programs since the age of 8; UK curriculum being changed to teach 11-year-olds how to code

INVESTMENT To help entrepreneurs Commercialization Australia; Create international appetite for local ventures READINESS PROGRAMS develop their pitch and learn France Investissement: “Les 2–5 by investing in entrepreneurs' pitch skills how to interact with would-be Services du Club” investors

Venture Findings — 2014 -1a — Welcome Issue 41 sense of when the policy may be expected are those that have incentivized private FURTHER READING Key numbers to produce results. The time to impact is sector activity by reducing risk for a short REFERENCES based upon various states’ experiences with time period, providing an initial injection IUL MiT portugal the policy tool. For example, Israel’s fund of of capital, increasing the pool of talented LERNER, JOSH (2009) 4 editions + 5th Ed. now Open venture capital fund, Yozma, contributed to entrepreneurs and investors (through Boulevard of Broken Caixa Capital accelerator the growth of the formidable Israeli venture education or immigration measures), or Dreams: Why Public Efforts capital industry in just five years after encouraging international cooperation. to Boost Entrepreneurship and Venture Capital Have submissions launch. The fund of venture capital fund, Above all, policymakers benefit Failed — and What to 384 therefore, has an estimated time to impact from considering their local context Do About It. Princeton: of 5–7 years. Finally, where possible, the and unique competitive positioning Princeton University Press. table includes comments on its use — either when choosing from the venture policy TECH CITY (2013) 22 countries Portugal, spain, France, united kingdom,Canada, a cautionary note or highlighting what has menu. Key considerations for selecting usa, Belgium, Argentine, germany, Belarus, Chile, Brazil, Colombia, Estonia, Tech Powers the London India, Italy, Mexico, Czech Republic, Russia, South Korea, Greece, Bangladesh. worked well — in the localities where it has the optimal policies for your locality Economy: The Tech City 3rd Building been deployed. include: the timeframe, risk tolerance, Anniversary Report. technical capacity of policymakers, level GULINELLO, What’s Next ? of economic development, competitive CHRISTOPHER 1,498 globalpreuneurs advantages and any existing obstacles to (2005) Now that the full menu of venture local venture activity. Said plainly, sub-sets “Engineering a Venture policies has been detailed, we ask: how of the policies may be best for different Capital Market and the Effects of Government 46.1% from already Global do policymakers decide which policies to locations at various times, so it is important incorporated startups employ locally? While it may be tempting Control on Private to deploy venture policies that fit your Ordering: Lessons from to order from the venture policy menu as if local context rather than copy the Silicon the Taiwan Experience”, eating at a buffet, here we offer a cautionary Valley, or another region's, formula. George Washington note about policymakers acting upon International Law Review. the temptation to pursue all strategies. 37(4): 845-883. Innovators There are numerous problems with the state over-engineering the FifTH Edition venture ecosystem. Over-engineered th 80 semi-finalists efforts are problematic because they starts on 20 March can de-motivate entrepreneurs and crowd out private sector investment. www.mitportugal-bgi.org In this way, policymakers are cautioned 1,150 hours of coaching and mentoring per edition to facilitate venture ecosystems through enabling venture policies, but not over- engineered investments, regulations or initiatives. The venture policies that have achieved the most success to date bootcamps In iscTe-iul9 , lisbon - portugal Ł AND miT, massachussets - usa

>€ 22 million SECURED FINANCING

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€1,000,000 caixa capital awards FINANCIAL SUPPORT / EDITION

>160 HIGHLY QUALIFIED JOBS CREATED To access the full list of references numbered in this article, please follow the QR Code

55 active ventures 42 Venture Findings — 2014 -1a — Welcome Issue Key numbers IUL MiT portugal 4 editions + 5th Ed. now Open Caixa Capital accelerator

384 submissions

countries Portugal, spain, France, united kingdom,Canada, usa,22 Belgium, Argentine, germany, Belarus, Chile, Brazil, Colombia, Estonia, India, Italy, Mexico, Czech Republic, Russia, South Korea, Greece, Bangladesh. Building

1,498 globalpreuneurs

46.1% from already Global incorporated startups

InnovatorsFifTH Edition th 80 semi-finalists starts on 20 March

1,150 hours of coaching www.mitportugal-bgi.org and mentoring per edition

bootcamps In iscTe-iul9 , lisbon - portugal Ł AND miT, massachussets - usa

>€ 22 million SECURED FINANCING

53.4% VENTURE CAPITAL and business angels

>20x economic leverage

€1,000,000 caixa capital awards FINANCIAL SUPPORT / EDITION

>160 HIGHLY QUALIFIED JOBS CREATED

55 active ventures 新闻摘要 PUBLISHED PUBLISHED 23 FEBRUARY 2014 06 FEBRUARY 2014

Preqin投资者前景展望：《经济学人》杂志2014 特别报告 News 2014上半年替代资产投资科技创业 in Preqin Investor Outlook The Economist brief Alte native Assets H1 2014 Special Report Tech Startups Preqin Investor Outlook: Alternative H1 2014 provides a unique Assets We are not only entering a big data insight into institutional investors era, an entrepreneurial explosion is in private equity, hedge funds, real The News section offers also on the tip of people’s tongues. a selection of recent estate and infrastructure. Preqin’s The Economist’s 2014 Special Report news covered on the report examines the investment on Tech Startups opens its page by Coller Institute of plans and views of more than 430 saying that “digital startups are Venture website: www. investors in alternative assets, bubbling up in an astonishing collerinstituteofventure.org compiled from a series of interviews variety of services and products, carried out by Preqin’s analysts in Please follow the QR penetrating every nook and December 2013. codes to access the full cranny of the economy. They are text of the news snippets, reshaping entire industries and and join our community even changing the very notion of for our coverage of global the firm.” People are worried that venture trends. this entrepreneurial boom will lead to another dotcom bubble and bust. However, even Josh Lerner claims 新闻栏目所提供的是从科勒风 “technologies of startup production 险投资研究院官方网站 www. have become so evolved, cheap and collerinstituteofventure.org ubiquitous that they can be easily 上筛选出的部分近期要闻。请扫描二维码阅读新闻全文， combined and recombined". 并请加入我们，了解更多全球企业及风险投资潮流。

PUBLISHED 02 FEBRUARY 2014 PUBLISHED 02 MARCH 2014

风险投资与私募股权国家吸引力指数热门初创公司 2013年度报告离十亿美金收购究竟远吗？

The Venture Capital and Hot Startups Private Equity Country Are billion dollar paydays still rare? Attractiveness Index 2013

Following Varonis System’s recent IESE Business School at the University IPO, attention has been drawn to of Navarra publishes an annual the near billion dollars again. CNBC report, The Venture Capital and Private recently stated that: “Even for hot Equity Country Attractiveness Index". startups, billion dollar paydays The goal of the report is to guide are rare.” Tech startups may be institutional investors to solve the attracting more money than ever, problem of where to allocate their but that doesn’t mean a billion capital. dollar payday is easy to come by.

44 Venture Findings — 2014 -1a — Welcome Issue PUBLISHED PUBLISHED PUBLISHED 13 FEBRUARY 2014 18 DECEMBER 2013 06 FEBRUARY 2014

美国风险投资估值与潮流欧盟出台AIFMD 初创公司的神秘与困扰 2014年报重新规划未来蓝图

U.S. VC Valuations AIFMD Startups and Trends Re-shaping for the future Myths and obsessions 2014 Annual Report The Alternative Investment Fund In The Economist's recent special Managers Directive (AIFMD) is one report, , the There are currently plenty of A Cambrian Moment of the major EU regulatory initiatives publication invited Mariana annual reports on the past year's to extend appropriate regulation Mazzucato, the author of the book VC performance. The Economist and supervision to the alternative The Entrepreneurial State: Debunking claims, in its article On top of the investment fund management Public vs. Private Sector Myths, world again, that the venture- industry. According to AIFMD, an to discuss the boom in startups. capital industry may be shrinking, Alternative Investment Fund (AIF) According to Mariana Mazzucato, but in 2014 America’s innovation is defined as a collective investment the startup boom is partly a result of engine will prove to be in great undertaking which raises capital the lack of high-quality jobs in the shape. However, innovation is from a number of investors, with a "old economy", but is also a result one of the most important factors view to investing it in accordance of policies based on myths around that drive the venture capital with a defined investment policy entrepreneurship and startups. industry, because the industry for the benefit of those investors. An itself started as an innovation. AIF may be either an open-ended or closed-ended fund and may PUBLISHED take any legal form. The AIFMD, 09 FEBRUARY 2014 PUBLISHED 20 FEBRUARY 2014 and the definition of what is an AIF, are important for the venture community to be aware of.

移动市场吞噬风险投资谁被落在了身后？ PUBLISHED Facebook收购WhatsApp 30 JANUARY 2014 Mobile is Eating VC Who’s Left Behind? “Software is eating the world” Facebook’s WhatsApp 2014年主权财富基金五大投资潮流 acquisition “Software is eating the world”, American entrepreneur, Marc Facebook’s recent acquisition of Andreessen said. The mobile WhatsApp for US$19bn has been Sovereign Wealth sector attracted venture capital in the news. TechCrunch reports, Fund (SWF) investments of more than US$1bn “Facebook is purchasing messaging again in 2013 Q3, according to CB Five Investment Trends for 2014 giant WhatsApp for US$16bn in cash Insights report Mobile is Eating VC: and stock, according to a regulatory Venture Capital Funding to the Mobile filing. The deal is being cut for Institutional investors and public Sector Tops 1 billion dollar (again). US$12bn in Facebook shares, US$4bn authorities are two major focuses The CB Insights' report says that in in cash and an additional US$3bn for CIV in 2014. As an institute 2013 Q3, venture capital investors in RSUs for employee retention.” providing venture fund analyses, poured US$1.12bn across 150 deals we pay attention to the Institutional into U.S. mobile and telecoms Investor’s Sovereign Wealth Center, companies, making it the largest which listed five investment financing quarter to the mobile trends for Sovereign Wealth Funds sector ever. at the beginning of the year.

Venture Findings — 2014 -1a — Welcome Issue 45 PUBLISHED PUBLISHED PUBLISHED 05 NOVEMBER 2013 07 JANUARY 2014 27 FEBRUARY 2014

欢迎来到独角兽俱乐部研究报告 2014科技板块从十亿美金的初创公司取经养老基金在私募股权资产配置中的延伸与演变上市途径报告

Welcome to the The Extent and Evolution 2014 Tech IPO Unicorn Club of Pension Funds’ Private Pipeline Report Learning from billion Equity Allocations CB Insights dollar startups Adveq applied research series at London Business School CB Insights has taken a fresh look Many entrepreneurs, and the into the fastest growing, most venture investors who back Adveq and the Coller Institute of highly valued private companies them, seek to build billion dollar Private Equity at London Business in technology. The 2014 Tech IPO has 590 investor-backed companies. Recently, the Cowboy School hosted the first public Pipeline private technology companies Ventures team built a dataset of discussion of the initial applied US-based tech companies started research report under the Adveq in the United States today, with since January 2003, to see which Applied Research Series on Tuesday valuations—real or rumored—of of these companies have achieved 14 January 2014. The research by greater than US$100m, and which valuations at US$1bn, by either Florin Vasvari, Associate Professor are demonstrating significant private or public markets. of Accounting, and Eli Talmor, momentum based on CB Insights’ Professor of Accounting at London proprietary private company ratings. Business School, is the first research report completed under the PUBLISHED 16 FEBRUARY 2014 Adveq Applied Research Series.

PUBLISHED 下一个硅谷： 02 JANUARY 2014 加州如何做到最好？

Replicate Silicon Valley Can you do it right? 新书章节：风险投资与创新

Silicon Valley, famous as the world’s supreme entrepreneurial hotspot, Venture Capital generating a seemingly endless supply of new technologies, new and Innovation companies, and huge wealth, is the Book review global hub of the innovation and venture capital industry. Inspired by Published in 2010, the book Silicon Valley’s success story, there entitled Venture Capital: Investment are three armies of cities, regions Strategies, Structures, and Policies, and countries around the world edited by Douglas J Cumming, that want to replicate its model, and conceptualizes and analyzes this is explored in the BBC’s new significant aspects of venture capital series, The Next Silicon Valleys. studies. In Part II Venture Capital Value-Added and Conflicts, chapter 14 “Venture Capital and Innovation” by Masako Ueda, discusses the profound relationship between venture capital and innovation.

46 Venture Findings — 2014 -1a — Welcome Issue ADVERTISEMENT FEATURE RE CAPIT TU AL N C E O V L N A G B R

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