The path for entrepreneurs to grow their companies outside of well-developed entrepreneurial ecosystems like Silicon Valley is challenging. Most markets around the world do not look like Silicon Valley, and they never will. But there are other models to support new businesses. In transitioning markets (where entrepreneurs do not have much access to private sector financing), government officials, donors, and business leaders are experimenting with creative approaches to support the growth of entrepreneurs. Northeast Ohio, whose largest city is Cleveland, is one such community. During our time together in this course, we will be exploring some of these innovative approaches. A massive intervention of government and donor resources in Northeast Ohio has been in place for over ten years. In that time, Northeast Ohio has experienced success (including job creation and follow-on funding) with alternative methods of financing startups, but it has not been easy. Yes, some progress has been made, but whether or not they've hit on ultimate success has yet to be determined. A dynamic entrepreneurial ecosystem takes many years, even decades, to develop. Government officials and donors typically are looking for shorter term success with their support programs which makes long-term support for entrepreneurship challenging. During this course, we will hear from entrepreneurs who have launched products and services ranging from medical devices to LED lights to whiskey. You will learn how these entrepreneurs engaged with resources made available to them through a variety of programs and intermediary organizations. We have chosen to talk with many business people that are still in the process of developing their companies and whose ultimate success or failure is still to be determined. In addition to learning about Cleveland's attempts to support entrepreneurship, you will also be hearing in the lectures from leaders in selected markets around the world including Greece, Vietnam, Tunisia, Argentina, Rwanda and China about how they are working to support the growth of start-up companies. One of our goals is to learn from you how different communities around the world are approaching implementing strategies and methods to support businesses. Taking what we've learned from our examples in class, I will ask you to reflect on how to best grow entrepreneurship where you live. I am excited to use this global platform to create a dialogue where information flows in multiple directions. Most MOOCs rebroadcast professors’ lectures, but this course will be different. Don’t expect to see me standing in front of the camera, talking and lecturing every module. Instead, the lectures will be relatively short in length and will have more of the feel of an engaging documentary than a static classroom setting.
Venture Capital
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来自 Case Western Reserve University 的课程
超越硅谷：在转型经济体中促进创业
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从本节课中
Access to Capital and Mentoring
Entrepreneurs working outside of Silicon Valley with struggle with every day: where to find capital (and mentoring) to grow their start-up companies. The Access to Capital and Mentoring module includes three video lectures: Seed Accelerators, Angel Investors, and Venture Capital. We trace how donors and government backers in Cleveland and selected international markets have come together with the private sector to support each of these areas. While completing this module, consider the following questions. Given the challenges, why would an angel investor invest in a highly risky startup? How is an angel investor motivated differently from other investors? Who has traditionally supported seed accelerators? Why do seed accelerators ask for equity in the companies that they support?
与讲师见面
Professor Michael GoldbergAssistant Professor, Design and Innovation
Weatherhead School of Management
[MUSIC]
Hello again, and welcome back to Beyond Silicon Valley.
I am Michael Goldberg.
We have just one lecture after this one,
and we've covered a lot so far, including government
support for entrepreneurship, the role of full philanthropy,
intermediary organizations, anchor institutions,
seed accelerators and angel investing.
This time, we'll explore access to venture capital.
Entrepreneurs who want to grow their companies,
often dream of receiving an investment
from a leading venture capital fund, that can provide capital and strategic advice.
But where your company is located can have a big impact on access to venture capital.
In the United States, venture capital
funds are geographically concentrated in select markets.
The majority of all venture capital investing in
the U.S. occurs in Silicon Valley in San Francisco.
Venture capital investors traditionally want to
invest in companies that are close to
their offices, so they can provide
mentorship, and support on a regular basis.
For entrepreneurs living in transitioning
economies, it remains extremely challenging
to access the venture capital funding they are looking for.
This advertisement for the renewal of the
Ohio Third Frontier in 2010, reminded Ohio voters
of how far the state had to come
in providing venture capital and support to entrepreneurs.
Communities around the world have to be creative in their approach.
To entice private venture capitalists, to support
companies' commercialization efforts after receiving initial seed funding.
Or the money that typically comes from
friends and family, seed accelerators, and angel investors.
The challenge that entrepreneurs face in raising venture
capital, is sometimes called the valley of death.
In many transitioning economies like
Cleveland, government and donor funded programs
have been introduced to provide the necessary funds to address this gap.
One such donor funded program is the 150 million dollar, Ohio Capital Fund.
Formed in 2006, and financed by the government
of the State of Ohio, the Ohio Capital
Fund, is a fund of funds, launched to
make investment capital available for Ohio-based early stage enterprises.
At a time when it was lacking.
The Ohio Capital Fund money, is invested in venture capital
funds, alongside other private investors, which then invest directly into companies.
Line Stream Technologies and embraced Pet Insurance, are two start
up companies that received investment from the Ohio Capital Fund.
Dave Neundorfer from LineStream, believes this government funded venture
capital investment, was important to the success of his company.
>> We've benefited greatly from some of the state programs that have been put in
place starting with the Ohio Capital Fund and their backer of early stage partners.
Early state partners provided our series A funding
and then contributed towards our series B funding.
So absolutely critical to our growth was not only having the support from
early stage, but also at a higher level the support from the state.
>> Laura Bennett found it difficult to attract venture capital
investors from outside of Ohio, who wanted to invest in Embrace.
>> When we were looking for, for funding I, I went all over.
I went everywhere I could go the, where
people would actually open their door to me.
So I did, fly out to California.
I went out to New York.
I spoke to extensively to venture capital in Chicago.
But in the end I think, they always have the, the nagging thought
that, oh, it's a bit of a pain to come out to Cleveland.
Obviously California that, that is difficult and unless they had
other bus, businesses here, makes it probably not practical for them.
And so, you know, having local venture
capital firms, who care more about the companies
in the area, than, you know, other areas, is, is key for this area to grow.
>> Paul Cohn, the Managing Director of the Ohio Capital
Fund, explains why the Ohio Capital Fund was set up.
>> The Ohio Capital Fund was set up by legislative action, actually,
recognizing that there was a void in early stage venture capital in Ohio.
And so, the Ohio Capital Fund was set up as a fund of funds, to invest into
venture capital funds and give them an incentive
to invest into Ohio companies to fill that void.
>> Cohn is employed by Fort Washington Partners.
which is a private investment management firm, hired by
the State of Ohio to administer the Ohio Capital Fund.
Elected officials in Ohio believed it was
important to have an independent, experienced, professional
manager, to make recommendations to the government,
regarding which fund should receive an investment.
Unlike many of the Third Frontier grants we discussed in earlier lectures.
The government is expecting their investment in the
Ohio Capital Fund, to be repaid in full.
Ten years ago there was a significant venture capital gap in North East Ohio.
In 2004, start up companies in Northeast Ohio, were only able
to raise 104 million dollars, which paled in comparison to other regions.
Lisa Delp is the former director of the Third Frontier.
>> After the angel fund, the angel funds come in.
There is a need for a next stage of capital, that was absent largely in Ohio.
We didn't have a lot of venture funds of
if we did, they were investing outside the state.
So the state looked for ways to stimulate that activity as well.
And the, the notion of the Ohio Capital Fund came into being.
>> Suddenly, twelve venture capital funds that had never had an office in Ohio, set
up a presence in the state, in order to access an Ohio Capital Fund investment.
Kohn explained, how the Ohio Capital Fund insures that their funding
reaches start up companies in Cleveland and other cities in Ohio.
>> The Ohio Capital Fund requires every venture capital fund that
receives an investment from us, to invest at least 50 cents
of every dollar that we give them, at least
an amount equal to that, back into early stage companies in Ohio.
We also require them, generally, to have a presence in Ohio.
>> Having additional venture capital funds in Ohio, has proven critical
for entrepreneurs in Cleveland looking for access capital to grow their companies.
Baiju Shah is the former CEO of BioEnterprise.
>> What the state did here, which I think was important in
something that would, you'd want to see replicated, in any region or geography.
That was trying to stimulate a high growth, ecosystem, is
they created a program whereby they are attracted capital providers,
to the state, through an incentive in the form of
an investment into those capital
providers, into the venture funds themselves.
>> Several of Cleveland's leading foundations, already involved in
supporting entrepreneurship through grant, decided to make investment into
local venture capital funds, as they were also concerned,
about the lack of available venture capital for entrepreneurs.
These foundations understood, that they expected return on
investment in unproven and venture capital funds in
Cleveland, would likely be the below of what
they could achieve as limited partners or investors.
In other alternative investments, such as
Silicon Valley based venture capital funds.
Ronn Richard is the CEO of the Cleveland Foundation.
>> We wanted to invest, in local companies giving away venture capital funds.
Either they have venture capital funds giving venture capital
money to local firms, to grow more companies in Cleveland.
Now that's called mission investing.
So, a lot of foundations are trying to use
their balance sheet side, not their rent money, but
their corpus that they invest, they're trying to think
about, you know, how can we leverage that money too.
>> David Liddle is a Venture Partner at the
Silicon Valley-based venture capital fund, U.S. Venture Partners.
>> You need to cultivate, limited partners, a role that
local philanthropic, or foundation, or government dollars
can play, is to stand in the place
of traditional limited partners until the ball gets rolling.
>> Linestream Technology, received an initial investment
from Early Stage Partners, a Cleveland-based venture
capital fund, whose limited partners include the Ohio
Capital Fund and a number of Cleveland's foundations.
Shortly thereafter, U.S. Venture Partners made an investment in as well.
>> Northeast Ohio was a region that I think benefited
from the, the priming of the pump if you will.
In terms of providing some capital through the state, through the government.
To get the flywheel turning, right?
And there were some very, very early firms in, in the venture capital
space, Early Stage Partners being one of them that kind of helped in parallel.
And benefited from that, that priming from the state.
>> Government and donor intervention to increase access to venture
capital in Cleveland, has created more funding opportunities for entrepreneurs.
In 2013, 118 Cleveland companies raised
259 million dollars from venture capitalists, as
well as corporate and angel investors
representing an increase of 115% over 2004.
And during that same time frame, the number of companies
attracting venture capital, more than tripled from 36 to 118.
Several acquisitions of starter companies, have occurred over
the past several years, but Cleveland's investors have
not benefited from a large IPO or acquisition
on the scale of a Groupon, Nest or Instagram.
Investors are still waiting to see if they
will enjoy the financial returns on their investments
and local venture capital, that can compete with
Silicon Valley, and other more developed entrepreneurial eco-systems.
Other markets outside the U.S. are also seeing significant support from
the government or donors, to increase
access for venture capital for entrepreneurs.
Yi Zhang, of Kaiwu Capital, shares his experience in China.
>> I work for Kaiwu Capital.
We are a venture capital fund based in Beijing and we have a
overall, one billion RMB fund under management.
Shanghai government is one of our limited patners, and they invest around
100 million RMB which is equal to 50 million US Dollars into our fund.
Now, their expectation is not just get a financial return as the other LP did.
They are, they understand that they do not
want to do the professional investment by themselves.
And they want to market to select the best start-up.
So, they, they understand the best way to do
that, to invest in a professional firm like us.
So, the expectation for them is, make sure we invest
in a start-up that can drive the overall economic GDP gross in Shanghai.
>> There are a growing number of
international impact investors, that are deploying capital
in private companies in emerging economies, and
taking a similar patient view on returns.
Impact investments are investments made in the companies, organizations, and funds
with the intention to generate measurable
beneficial social impact, alongside financial return.
Allen Taylor runs Endeavor's investor network
program, which is focused on impact investing.
>> The funds that are most aligned with what Endeavor
is doing, believes in economic development, and believe in job
creation, believe in funding great companies to do that but
particularly in markets where the, the liquidity environment's not very clear.
Exit opportunities don't occur to be
immediately available, they're willing to take a
little bit of an extra risk and say, hey, I might not earn
my money back in five years or seven years, but I have a
good shot at doing it in ten years, and so I'll make an investment.
>> So, to recap.
We've seen how government and donors can help address a lack of venture capital
in the community, by becoming investors in
local venture capital funds, alongside private investors.
Similar to many of the other programs we
have discussed during this course to support entrepreneurship.
Investors in venture capital, need to understand, that it could be
a decade before they will see potential return on their investment.
The performance of venture capitals in asset class, over the
past ten years globally, has trailed the public equity market indexes.
And most of the best performing funds are located in
Silicon Valley, where the highest concentration of yield flow resides.
In 2011, venture capital investments at the seed funding
stage in the United States, declined about 48% over the
prior year, and investments were concentrated in social media, and
software, which are not areas of particular emphasis in Cleveland.
Communities who want their entrepreneurs to avoid the
fundraising valley of death, are continuing to find
ways to intervene with creative, professionally managed programs,
to try to make venture capital funding available.
How do governments and donors measure the
success of their investments and venture capital funds?
Investors in Silicon Valley, are solely interested in Exit and Liquidity.
In Ohio, the 71 companies that have received money from the Ohio Capital Fund,
have hired over 2500 employees, and are
generating almost 30 million dollars in payroll taxes.
And while small, this economic development
impact, matters to government and philanthropic investors.
They would like to see financial returns from exits, but these
realizations have been slower in the Midwest, than in Silicon Valley.
The Ohio Capital Fund has fully allocated their
investment capital, and it is not clear if
the fund will be renewed by the government,
which means that new investments may not be available.
Opponents of the Ohio Capital Fund, believe that the private sector
should provide the necessary venture capital
to fund companies, not the government.
This debate is playing out in transition economies here, and outside the U.S., and
the success of these type of government
or donor funded programs, remains uncertain and inconsistent.
That's it for now.
Next time will be our final course lecture, where we will
recap our previous discussions, and look to the future.
See you then.
[MUSIC]
