1 August 2006
Venture capital industry goes global
Deloitte survey shows that more than half of
venture capitalists around the world are looking to travel,
lured by cost savings and diversification.
Following this international trend, local funds also need to travel to maximise returns on their investments.
Deloitte, the professional services firm, today announced findings of an extensive survey into globalisation and the venture capital industry. Key to the survey is the globalisation plans of the industry in contrast with the traditional perception that venture capitalists (VCs) look to invest in local technology developments.
Commenting on the findings, Matt McKendry a Deloitte partner in New Zealand says “There are a number of key factors which have inspired VCs to look beyond their back yards in the larger counties. In Europe, VCs are looking to Asia and Central Europe as lower cost locations and Western Europe for access to quality entrepreneurs and portfolio diversification. The Asia Pacific region is also looking to its own continent to access lower costs, with almost 70% pointing to China and the remainder to India. The popularity of China and India as low cost locations is also mimicked by US VCs. Aside from China and India, the overall findings show, however, that the majority of VCs are taking their first international steps within their own continents.”
This matches the experience of the New Zealand VC market. While the government backed Venture Investment Fund (VIF) has stimulated a more formalised investment market in recent years, there is still little local investment activity from international funds because of the preference to invest closer to home.
The survey also showed that VCs around the world have a similar approach to international growth.
“The survey shows that there will be a growing international interdependence in the VC market, with VCs forming strategic alliances and informal networks around the world. The reasoning behind this is borne out of separate findings which show that the largest perceived barrier to international growth is a lack of local knowledge or expertise. This response tallies with the key finding that 70% of respondents believe strategic alliances will be a key method for globalisation,” says Matt McKendry.
According to McKendry this is a phenomenon also facing the local market.
“The local VC funds need to also form stronger relationships with international investors to help provide a platform for additional investments. The reality is that the local VC funds invest in early staged businesses on the international context.”
“What we think as expansion businesses are generally considered early staged businesses when compared to international data. Therefore, our funds need to establish channels with US, European and Asian investors to create opportunities for our emerging companies in terms of local networks, additional funding and a wider range of realistic exit options,” says Matt Mckendry.
“These international relationships are important to both our local investors as well as enterprises and the research supports this as a global trend.”
- 56% of VCs are expanding their global
investment focus – key reasons being access to lower cost
locations, diversification of industry and geographical risk
and access to quality entrepreneurs;
- 44% are not expanding – key reason being higher quality deal flow in local markets;
- Although the majority of VCs plan to expand internationally, this is not reflected in a change of investment strategy. The majority plan to continue to focus on software investments, communications and networking technologies.