Although venture capitalists continue to expand globally, they say the U.S. remains the most attractive investment market, according to a study by Deloitte & Touche and the National Venture Capital Association.
"From a venture capital viewpoint, the perceptions of a brain drain from the United States to China and India are simply not true," Mark Jensen, national managing partner of Deloitte's Venture Capital Services, said in a statement. "The majority of VCs surveyed worldwide, including those based in the United States, still believe the United States is the best bet for entrepreneurial success."
The 2006 Global Venture Capital Survey measured the attitudes and intentions of 505 venture capitalists worldwide during the second quarter.
U.S. venture capitalists are split down the middle when it comes to global expansion. Forty-seven percent of respondents said they have no plans to expand outside of the country in the next five years, while 53% of them are looking abroad.
China and India are the top two countries VCs are eying, according to the survey. U.S. VC respondents cited India as the best country outside the U.S. for access to quality entrepreneurs, while China ranked as the best country for access to foreign markets.
However, respondents also identified downsides to investing in India and China -- travel time and effort, and the lack of knowledge and expertise in the business environment. In addition, respondents found a lack of experienced local investors in India and intellectual-property laws in China.
"India is now turning out quality entrepreneurs that rival those in the U.S. and China represents unique access to an extremely potent market," Mark Heesen, president of the National Venture Capital Association said in a statement. "Will the distance and the difference in legal and financial infrastructure in these markets outweigh the regulatory burdens here? It is uncertain, but that's what the industry thrives on -- plenty of uncertainty and making the right strategic plan."
Of non-U.S. VCs surveyed, 58% indicated an interest in international expansion, with Western Europe cited as the top destination choice, followed by the U.S.
The study showed that the U.S. has the fewest impediments to investing of all regions worldwide. Even so, 70% of U.S. respondents saw the threat of legal action as an additional financial risk associated with doing business at home -- compared to 36% of non-U.S. respondents.
"The one place we do fall down and fall down dramatically is with litigation," Heesen said, adding that the threat of legal action is really the only major impediment the U.S. has for VC investing.
According to the survey, VCs continue to target technology centers with 60% of worldwide respondents identifying the software industry as their primary target. Other popular sectors include communications and networking and semiconductor and medical device. For the second year in a row, U.S. respondents chose the energy/environment sector as the one most likely to see the highest increase in investment focus over the next five years.
"We must protect our competitive advantage if we want to remain the magnet for entrepreneurs and venture investment," Heesen said in a statement.