Globalizing venture capital

Although the United States will likely remain at the leading edge of VC-backed innovation for many years to come, US VC fund-raising continues its decade-long decline. Elsewhere, in China, India and other emerging markets, vibrant innovation hotbeds and entrepreneurial talents are arising, and investors are focused on less risky, later-stage deals, at least for now.

Although unrealistic valuations may dampen future returns, China’s VC industry reached record heights in 2011 and will soon surpass Europe as the second-largest venture hub for fund-raising in the world.

Both China’s and India’s strong VC industries are expected to continue their rapid growth and development as they capitalize on strong GDP growth, growing domestic consumption and a dynamic entrepreneurial ecosystem. At the same time, due to Europe’s sovereign debt crisis and its muted medium-term growth potential, Europe’s VC industry has lost some of its robustness.

Globally, companies are staying private longer, due to large corporations seeking proven business models prior to an acquisition and investors that prefer companies with a proven profitability path both before and after the IPO. As angel investors have become major investors in early-stage start-ups, particularly in the US, the competition has nudged VCs toward later-stage, high-growth ventures.

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