19. 10k business ideas
1k firms started
100 VC funded
20 IPO
2
market
leaders
Nobel
Prize in
Economics
2006
Professor
Edmund
Phelps
Less than 10% of business ideas even get started
20. 62% of venture investments are <1x
0
10
20
30
40
50
60
x<0.5 0.5<=x<1 x=1 1<x<2 2<=x<5 x>=5
% Cost % Value
26. The extreme risk of 62% is definitely not for
everyone, including many entrepreneurs
and investors…..
.
27. In fact a 2% loss ratio for banks lending
to SMEs is already pushing the boundaries.
28. So if you feel comfortable managing risk, you
might as well shoot for the moon
29. The capital which survives, creates businesses now
accounting for 21% of US GDP…..
1978 1981 1987 1995 1995 1997 1999 1999 2005
and $1.4tn in new market value
creating 440k new jobs
with $545bn in new annual revenue
serving >1bn customers
Source: HIS Global Insight
30. And in Europe we are starting to build waves of similar dimensions
31. So what should you be thinking about
when you are starting a business…
Opportunity
Others
Ownership
36. Moving to Maslow’s Web
Communications
Clothing
Discretionary Non-Discretionary
Media
Entertainment
Shopping
Travel
Energy & Housing
Education
Food
Finance
Health
Safety
1993-2003 2004-2012 2012+
37. And in Europe we have no shortage of willing talent….
A way of describing the odds: Edmund Phelps, a Columbia economics professor and Nobel laureate, described the odds in his new book, “Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge and Change” as “from 10,000 business ideas, as 1,000 firms are founded, 100 receive venture capital, 20 go on to raise capital in an initial public offering, and two become market leaders.”
US: A study by three students at Columbia business school looked at the expected rate of credit losses on banks’ loan portfolios and came up with a benchmark of sorts: For our sample (Q4:1996-Q2:2012), the average (median) ALLL is 1.54% (1.37%) of gross loans held for investment: (http://www4.gsb.columbia.edu/filemgr?&file_id=7221887). EUROPE: According to the IMF, the level of non-performing loans as a share of total loans made in 2012 in Europe, was quite high– around 6% in the EU27.EU SMEs rely heavily on banks for funding. Around 75% of corporate financing in the EU is obtained from banks, compared to about 30% in the US. The EU crisis has now highlighted that this is a huge vulnerability for SMEs in Europe. KR: European banking report: http://www.ebf-fbe.eu/uploads/FF2012.pdf)http://www.zyyne.com/zh5/100747#p=7
iPhoneSelf-driving carsHealth
According to the venture impact study, IHS Global Insight, originally VC-backed companies accounted for 11.87m jobs and over $3.1 trn in revenue in the US in 2011—accounting for 21% of GDP and 11% of private-sector employment. At Index, our portfolio companies alone have generated $4bn worth of revenue, while growing on average by more than 75%, creating 20k jobs with 1k positions currently openPeople say VC doesn’t add anythign but maybe when we look back on this cambrian explosion of innovation from 1960s (semis) to 2020s (cloud connected services in every sector) – the broadscale application and understanding of venture economics will be the true legacy of venture rather than Apple, Cisco, Facebook, Google, Microsoft, Salesforce, Skype and TwitterDATA: https://docs.google.com/a/indexventures.com/spreadsheet/ccc?key=0ArWfM5OOjmKZdDJ4QWcwcHh5UFZSYm9KSENDRHBONWc&usp=drive_web#gid=0
What did these governments spend in a year on DEFENSE, EDUCATION, HEALTH:See google doc for this data: https://docs.google.com/a/indexventures.com/spreadsheet/ccc?key=0ArWfM5OOjmKZdDJ4QWcwcHh5UFZSYm9KSENDRHBONWc&usp=drive_web#gid=1
ORIGINAL STUDY…http://digitalcollections.library.cmu.edu/awweb/awarchive?type=file&item=44582Forty years ago, in a paper in American Scientist, Herbert Simon and William Chase drew one of the most famous conclusions in the study of expertise:There are no instant experts in chess—certainly no instant masters or grandmasters. There appears not to be on record any case (including Bobby Fischer) where a person reached grandmaster level with less than about a decade's intense preoccupation with the game. We would estimate, very roughly, that a master has spent perhaps 10,000 to 50,000 hours staring at chess positions…KR: After Simon and Chase’s paper, for example, the psychologist John Hayes looked at seventy-six famous classical composers and found that, in almost every case, those composers did not create their greatest work until they had been composing for at least ten years.
