Survey: Emerging markets to see VC industry expand
In sharp contrast to Western markets, an overwhelming majority of venture capitalists in China, India and Brazil expect the number of venture capital firms in their respective countries to increase between now and 2015.
Venture capitalists in China, India and Brazil expect to see more venture firms in their countries over the next five years while most of their counterparts in the United States and a few other western markets expect the number of firms to decrease, a survey has found.
Consolidation is expected in the venture capital industries of US and Europe and 62 percent of all respondents globally expect the number of venture capital firms in their country to decline in the next five years, according to the 2010 Global Venture Capital Survey, conducted by Deloitte and the National Venture Capital Association.
However, a vast majority of respondents in the key emerging economies of Brazil, China and India expect the number of firms in their countries to increase. Ninety nine percent of respondents in China are of the view that the number of active venture capital firms in the country will increase in the next five years. It is a view shared by 97 percent of respondents in Brazil and 85 percent of those surveyed in India.
In the US, 92 percent of respondents expect the number of venture capital firms to decline, followed by France and Israel which saw 83 percent and 80 percent of respondents share the same opinion respectively. The estimated amount of capital available for venture investments in these countries in the next five years followed similar trends, the survey found.
The stage has now been set for emerging markets like China, India and Brazil to rise as drivers of innovation and they are increasingly becoming more competitive with the traditional markets
“Traditionally strong markets like the U.S. and Europe will continue to be important hubs despite consolidation in the number of venture firms,” said Mark Jensen, partner, Deloitte & Touche and national managing partner for venture capital services. “However, the stage has now been set for emerging markets like China, India and Brazil to rise as drivers of innovation as they are increasingly becoming more competitive with the traditional markets,” he added.
Additionally, 91 percent of Chinese venture capitalists and 76 percent of those in India believe LPs will be more interested in investing in their countries. In Brazil, 92 percent of respondents shared the same view.
In comparison, 56 percent of US-based venture capitalists think that LPs are less inclined to invest in the country. Their sentiments are echoed by 89 percent of French respondents and 61 percent of British venture capitalists.
“The Asian markets, in particular, are abundant in entrepreneurial spirit, energy and a dedication from both the private and public sectors to push the economic growth pendulum as far as possible,” Trevor Loy, general partner of Flywheel Ventures, said in a statement.
The continued rapid growth of the emerging markets is also creating a new source of revenue, investment capital, job creation and shareholder liquidity for US technology start-ups, he said. This is
The Asian markets… are abundant in entrepreneurial spirit, energy and a dedication from both the private and public sectors to push the economic growth pendulum as far as possible
particularly true of those companies leveraging “America’s deep research and development resources” to address critical infrastructure needs in energy, water and communications, Loy added.
However, emerging markets continue to face certain challenges, according to respondents to the survey. In India, for instance, venture capital firms see difficulties in exiting investments; In China, firms are still concerned about dealing with an unstable regulatory environment; and in Brazil, unfavourable tax policies are viewed as a hurdle.
The National Venture Capital Association represents approximately 460 venture capital firms in the United States. Deloitte provides audit, consulting, financial advisory, risk management and tax services to its clients.