LPs are adopting an increasingly global focus when it comes to venture capital investing, according to a recent report sponsored by Deloitte Touche Tohmatsu entitled Global Trends in Venture Capital 2006 Survey.
The survey results indicate an increase in global focus by limited partners. Around 57% of all survey respondents identified the US as their largest source of investors; for US respondents, the number was 88%. The next largest investor pool collectively identified by all respondents was Continental Europe, followed by the UK and Canada. China and India accounted for six and four per cent, respectively, of the total investor pool. Based on data from the European Private Equity and Venture Capital Association (EVCA), in 2005, European private equity funds raised their capital predominately from UK (29%) and US (24%) investors, followed from a distance by French investors (9%). In total, 34% of European fund raising in 2005 came from LPs from outside Europe.
When asked if the location of the fund’s investor base was expected to change in the next five years, 17% of the US general partners surveyed believed they would experience a decline in US investors (and an increase in investors from other locations) while all other territories surveyed indicated they expected to see an increase in interest from US investors. This clearly indicates the confidence US investors place on the future of the venture capital market outside the US. The data clearly suggest that limited partners are looking beyond their current borders and will also be part of the global trend.
Data responses differed when identifying the top territories where VCs intend to expand internationally. While US respondents identified China and India as their top two destinations, approximately 60% of European and Asian respondents indicated a strong interest in investing in territories located in their respective continents. European respondents indicated an overwhelming interest in investing in Continental Europe. While the strongest interest remained in Western Europe, the data suggests Central and Eastern Europe is generating significant interest as an emerging entrepreneurial environment, while European investors consider the Asia Pacific region primarily as a lower cost location.
The annual survey, conducted in April and May 2006, is based on 505 responses from general partners of venture capital companies with assets under management ranging from less than US$100m to greater than US$1bn. Of the 505 total respondents, 279 were based in the Americas, 140 in Europe, Middle East and Africa and 86 in Asia Pacific.