s. michael camp, ph.d. the center for entrepreneurship the ohio state university september 25, 2007...
TRANSCRIPT
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S. Michael Camp, Ph.D.The Center for Entrepreneurship
The Ohio State University
September 25, 2007
The Ohio Capital Fund Early Stage Summit III
Ohio Venture Capital Overview
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Confusing Messages
“(Ohio) VC investing hits bottom . . .”
“Ohio venture capital plummets . . .”
“Ohio venture-backed companies have growing economic impact . . .”
“Ohio ranks best in Midwest for venture capital investment . . .”
“Venture capital flows to Midwest life sciences at record rate . . .”
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It Depends
• Source of Data– Timely, reliable and relevant
• Unit/Level of Analysis• Definitions and Selection of Metrics• Time Frame
– Sound research design and methodology
• Agenda– Regional collaboration and agreement on use
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Problems with National Data:Ohio Seed and Early Stage Investment (000)
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Collaborative Project Goals
• Ohio Capital Fund– Fund compliance– Economic impact
• State-Wide, Cross-Regional Assessment– A single reliable source for data
• Project future needs, demand, and opportunities• Measure economic impact• Promote unique investment opportunities• Inform public policy
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Regional Collaboration
• State and regional leaders take initiative– BioEnterprise– CincyTech– Dayton Development Coalition– JumpStart– Regional Growth Partnership– TechColumbus
• Focus of analysis and time frame– Seed and early stage investment activity– 2002 - 2006
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Definitions
• Stage of investment– “Seed Stage Investment” includes:
• startup, non-VC seed, seed, individual, angel and TITC funding
– “Early Stage Investment” includes:• first round or early funding
– “Growth Stage Investment” includes:• expansion, growth, “later stage” including explicitly
recorded 2nd, 3rd, 4th, 5th and later rounds of funding
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Ohio Seed & Early Stage Investment:Number of Companies
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Ohio Seed & Early Stage Investment:Total Dollars Invested
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Ohio Seed & Early Stage Investment:Total Dollars Invested by Stage
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Ohio Seed & Early Stage Investment:Total Dollars Invested by Stage
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Ohio Seed & Early Stage Investment:Percent of Dollars Invested by Industry (2002-2006)
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Ohio Seed & Early Stage Investment:Percent of Investment by Geography
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Ohio Seed & Early Stage Investment:Weighted Moving Average Investment per Stage
Stage of Financing
Average Annual Investment per Company per Year
Average Total Investment per Company
Seed $530,000 $1.06 million
Early $2.47 million $4.94 million
Growth $6.89 million $13.78 million
• Weighted moving average weighted heavier for 2004-2006• Data have been scrubbed for outliers (e.g., Sky Bus)
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Ohio Seed & Early Stage Investment:Estimating Future Capital Demand
• 2 year development cycle per stage• 50% attrition rate from seed to early and early to growth stages• conservative 5% annual growth in average investment per company• conservative 6% annual growth rate in deals• no other investment activity considered (only new seed deals)
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Ohio Seed & Early Stage Investment:General Outlook
• Seed level funding is accelerating in Ohio, suggesting a surge in new deal flow
• Better accounting of deal activity• New influx of risk capital• Deal quality and aggressive grassroots networking• Solid technological advancements in key technologies
(e.g., life sciences, IT, materials)• State/regional policies/programs designed to encourage
seed & early stage investment (e.g., Third Frontier, ESP)• State programs designed to encourage advanced R&D in
select target industries (e.g., Wright Centers)
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Ohio Seed & Early Stage Investment:General Outlook (cont.)
• Four to six year lag from lab to market, suggests a pending acceleration in idea/deal flow in Ohio
• Will require focused commercialization strategies
• Two year lag in the need for follow on funding for surviving seed deals suggests a pending surge in early and growth stage funding over the next 4 to 5 years
• Including deals in the pipeline in 2007 and new activity between 2007-2011
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Ohio Seed & Early Stage Investment:General Outlook (cont.)
• Ohio’s seed-level funding needs in next five years could easily exceed $330 million
• Focus only on new activity (2007-2011)• Assumes 6% annual growth rate in number of new deals• Assumes 5% annual growth rate in company investment
• Additional funds necessary to take surviving new seed companies through growth in 5 to 7 years could easily exceed $2.1 billion
• Assumes 50% attrition from seed to early stage• Assumes 50% attrition from early to growth stage
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Ohio Seed & Early Stage Investment:General Outlook (cont.)
• For every $1 in seed funding, Ohio needs approximately $7 dollars in follow on funding to adequately fund surviving ventures
• Assumes an average of 2 years per company per stage
• Funds will have to come from:• New independent funds• New sponsored funds (e.g., OCF, Third Frontier seed
and validation funds)• Non-domestic funds
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Ohio Seed & Early Stage Investment:General Outlook (cont.)
• Rate of investment in Ohio by funds from outside Ohio is increasing
• Less competitive climate (i.e., better valuations)• Access to unique technologies and talents• Increase in qualified deals through angels
• More research needed on attractiveness of VC investing in Ohio
• Valuations and returns
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Ohio Seed & Early Stage Investment:General Outlook (cont.)
• The future is ours and we must be the champion of our own story
• New regional funds are difficult to raise• Convince LPs to put money in Ohio• Partnership is in place through OCF
“You teach people how to treat you.”
Dale Carnegie