July 8, 2005--American venture capitalists plan to increase investment abroad, but small businesses in the U.S. will not lose out on funding, according to a survey released last month.
The 2005 Global Venture Capital Survey, conducted by Deloitte & Touche and the National Venture Capital Association (NVCA), found that 20% of U.S.-based VCs expect to increase their global investment activity over the next five years -- with China, India, Canada, and Mexico as the top destinations. Currently, only 11% of VCs invest abroad, according to the survey authors, who chalk up the development to globalization. "More and more, we are seeing exciting ideas abroad," said NVCA president Mark Heesen, adding that India and China are attractive because of the high number of well-educated engineers as well as the huge market potential.
The survey seemed to buttress findings by Organization for Economic Co-Operation and Development, which reported last month that foreign direct investment by American businesses hit a record high in 2004, while investment in U.S. companies by foreigners grew moderately.
Even as domestic VCs look abroad for opportunities in the energy and consumer business sectors, all U.S.-based VCs surveyed said they expect to maintain their current investment activity in the U.S. American companies should also get a boost from foreign-based VCs looking to emulate the success of their American counterparts and gain a foothold in the U.S. market. "Venture capitalism was created in the U.S., and investors from other parts of the world are still getting their feet wet," said Heesen.
Though the survey results suggest that American VCs see more growth potential abroad, Heesen said that the U.S. is still attractive because there are far fewer impediments to investing. Large percentages of investors expressed concerns about investment in China, ranging from fears over intellectual property rights to a lack of experienced local investors. However, the VCs listed "travel time and effort" as the only major impediment to investing in American companies.
Last updated: Jul 8, 2005
Senior contributing writer MAX CHAFKIN has profiled companies such as Yelp, Zappos, Twitter,
Threadless, and Tesla for the magazine. He lives in Brooklyn, New York. @chafkin