US VCs going (too) global



The NVCA just published a new study looking at the globalisation of venture capital, sponsored by Deloitte.  The study highlights a key trend that industry players have known about for a while: VC too is truly becoming global.

Traditionally venture has been a highly localised industry with Don Valentine (I think) famously saying he would not invest in a company whose board he could not bike to. Here is a quote from the great man, through SiliconBeat:

Valentine said Sequoia hasn’t invested abroad in its 30-plus yearhistory, and it’s unlikely to begin doing so. Even investing in aBoston company is a big deal for Sequoia, he said, and most of ourinvestments are not only west of the Mississippi, they’re west of theCalifornia border, he said.

Now this quote is only from September 2004, and in the meantime Mike Moritz has driven Sequoia to acquire Westbrige to invest in India and more recently came into Index Ventures’ PaperDoll, among other international forays.  So the world has kept on changing, very fast.

We have one partner here at Atlas Venture, Sonali, who spends much time in India and is real Indian market insider.  She keeps reminding me of how often she will come across Norwest, Greylock, Battery, Draper and our friend Rahul Kanna at Clearstone on the ground there.

The data from the NVCA study is really striking in my view.  A few years ago, when VCs would push their companies to run operations or manufacturing in India and China; these countries  have now shot to the top of lists where US investors would like to expand their investment focus.  And now …

… China and India garner 55% of intentions to invest abroad.  Wow !

That’s got to be great news for local entrepreneurs.

What’s wrong with that picture ? In my VC opinion, if you thinkyou are busy in an overfished market in the valley and will find wideopen spaces in India and China, you should probably think again.  It ishighly unlikely that these countries will produce remotely enoughfundable deals to feed all the guys looking to play in the localmarkets, which means, probably, that only the top tier VCs or the guyswho devote local resources will make a real impact.

Digging further into the data:

  • Why go to India ? US repondents say "access to great entrepreneurs" (c. 37%) and "emergence of entreneurship in new region" (32%)
  • Why go to China ? US repondents say "access to market" (c. 48%) and "emergence of entreneurship"  (34%)

It gets really striking when you see why US VCs go to Europe: lower cost locations is the primary driver, access to dealflow and entrepreneurs do not even rech 20%.  In other words, here is the worldview of US venture capitalists:

  • Innovation and great entrepreneurs will come from India and to a lesser extent China
  • Access to market drives interest in China and to a lesser extent Western Europe
  • There is no real interest in Europe generally apart from the lower cost alternatives offered by Eastern Europe

Here is the perception: Europe is being bypassed as Asia and the US essentially get on with it whilst our occasional StarDeal gets done by Sequoia (Stardoll) or Highland (Photoways and a few others).

Of course I beg to differ !  Valerie recently posted on another two Euro companies that are getting on the global innovation map, gigle and t-Vips, although peppered with a dose of typical European moderation ;-).  And we have our own , highly promising Icera (A funded by Atlas and Benchmark), to name but a few.  But I do think European VCs still are not completely together with the programme when it comes to thinking global.  I will post more on that topic in the future.


 

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