1 From Start-up to Scale-up: Financing Growth Firms in Europe KAREN E. WILSON SENIOR FELLOW, BRUEGEL AFFILIATE FELLOW, SAID BUSINESS SCHOOL, OXFORD UNIVERSITY EBAN Annual Conference Porto, Portugal 26 May 2016
Selected policy-oriented research 2 on entrepreneurial finance Global angel investment research OECD book Financing High Growth Firms: The Role of Angel Investors, Wilson, 2011 HBS/NBER/Bruegel report: The Globalization of Angel Investments: Evidence Across Countries, Lerner, Schoar, Sokolinski, and Wilson, 2015 European seed and early stage financing policies OECD Policy paper Policies for Seed and Early Stage Finance, Wilson and Silva, 2013 OECD Policy paper Policy Lessons from Financing Young Innovative Firms, Wilson, 2015 Scale up financing research Barclays report Scaling U.K.: Growing businesses, growing our economy, Cambridge and Oxford Universities, 2016 Duruflé, Hellman, Wilson report From Start-up to Scale-up: Examining Public Policies for the Financing of High-Growth Ventures, Forthcoming 2016
Central research questions in 3 forthcoming report What are the underlying challenges for financing scale-up? What is the role of public policy in addressing those challenges?
Methodology 4 Grounded in research and data Date sources include Beauhurst, Crunchbase, Preqin, Thomson One, a.o. Informed by current practice Discussions with industry leaders and policy makers Annual Oxford Entrepreneurship Policy Roundtables (launched in 2015 by Duruflé Hellman, Wilson) 2015: Scale-up Financing 2016: Equity Crowdfunding
An Analogy - A Car Journey Start-up is a car at the starting line Its destination is a place called Success Exact location unknown! To drive the car needs 5 Technology Management Finance
Along the journey the car encounters 6 Market conditions Traffic rules
Roundabouts! 7
The Crossroad for Scale-Ups 8 Stay private Go public Get acquired Start-up
Scale-up from a funding 9 perspective Founding Seed A-round B-round C-round Scale-up funding Start-up funding
Requirements for Scale-Up investors Financial muscle ( deep pockets ) Expertise ( smart money ) Networks ( connected money ) Long horizons ( patient money )
Venture capital investments as % of GDP (2014) 0.30 0.25 Later stage venture 0.20 0.15 0.10 0.05 0.00 United States Canada United Kingdom EUX Data Source: OECD (2015) % of Total VC Early stage Later stage US 33% 67% Canada 56% 44% UK 48% 52% EU (excl. UK) 57% 43% 11
Average amount invested ( m) THE SCALE-UP FINANCING GAP: EU VS US Early stage deals Later stage deals Number of deals (GDP adjusted) *Adjusted using 2014 GDP Sources: BVCA (2015); NVCA (2015); EVCA (2015); PEREP_Analytics (2015) 12
% of Foreign Investors Invested Amount Foreign vs EU Investors The role of EU vs. non-eu investors in EU companies Foreign vs Domestic Investment in EU Deals by Funding Round 45% 40% 35% 30% 25% 20% 15% 10% 05% 00% Seed A B C D E Funding Round % Foreign Investors Capital Invested Foreign vs EU Investor 2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Date Source: Preqin, Data for the period 2010-2014 13
Investors fund companies for more rounds in US than EU 57% 42% 31% 33% EU US 25% 12% 1 ROUND 2 ROUNDS 3 ROUNDS OR MORE Data source: Preqin, 2010-1015 14
Avg. Fund Size $mn. Funds that invest in multiple rounds are larger (especially in the US) Sizes of Funds Investing in Multiple Rounds of Same Deal 482.5 292.5 262.9 100.3 153.4 195.4 143.1 140.2 1 ROUND 2 ROUNDS 3 ROUNDS >3 ROUNDS EU (Incl. UK) US Data source: Preqin, 2010-1015 15
Median Fund Size ($mn.) US funds grow larger over time 281 325.4 200.1 150 89.9 66 40 50 54 103 82 93 I II III IV V VI Data source: Preqin EU (Incl. UK) US 16
EU Venture Capital Exits Number of Exits EVCA (EU data) 2007 2008 2009 2010 2011 2012 2013 2014 IPOs 31 7 4 5 7 4 4 8 Trade sales 324 248 209 177 212 164 215 222 Sale to PE/Financial Institution 88 127 91 98 73 115 60 76 Total # Exits 443 382 304 280 292 283 279 306 Total # Investments 3441 3836 3246 3094 3010 3035 3094 3246 Data Source: EVCA, data retrieved 29/01/2016 17
1.3 1.8 2.4 1.4 1.4 2.6 4.7 9.1 9.1 Ratio (in %) 10.9 17.1 20.2 IPOs: low % of exits 18 IPO Ratio of EVCA and NVCA reported Exits 2009 2010 2011 2012 2013 2014 Year US EU Data source: EVCA, NVCA, 2009-1015
The Crossroad for Scale-Ups 19 Stay private Go public Get acquired Stay private Go public Get acquired Stay private Go public Get acquired Start-up
Global Distribution of Unicorns Asia 20% Australia 1% Canada 1% United States 61% Europe 11% India 4% Isreal 1% South America 1% Asia Australia Canada Europe India Isreal South America United States Source: Crunch Base, end of 2015
Alternative financing options 21 Equity Angel investors, crowdfunding (both typically early stage) Venture capital, hedge funds, private equity fund, cross-over funds, etc Debt Stock markets Acquisitions Bank Loans Asset-based lending Venture debt
Action items 22 We identify five areas of action 1. Large funds 2. Venture debt 3. Stock markets 4. Private liquidity 5. Investor capabilities For each area we develop concrete recommendations
Coming soon.. 23 From Start-up to Scale-up: Examining Public Policies for the Financing of High-Growth Ventures GILLES DURUFLÉ (QCC/PUBLIC POLICY FORUM) THOMAS HELLMANN (UNIVERSITY OF OXFORD) KAREN WILSON (BRUEGEL AND OXFORD)