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Venture capitalists 'dabble' in China, India investments

Posted: 16 Aug 2007 ?? ?Print Version ?Bookmark and Share

Keywords:China India investments? manufacturing? R&D engineering?

Venture capitalists (VC) continue to go global, with China the preferred spot for manufacturing investment and India favored for R&D and engineering, according to a recent survey.

Nevertheless, the study found that capital investment overseas is lower than has been widely assumed, with only a 1 percent increase over last year in the number of U.S. companies planning to expand offshore investments over the next five years. Indeed, survey coordinators Deloitte & Touche and the United States National Venture Capital Association concluded that U.S. VC firms are still only "dabbling" in places like China and India.

China remains the top choice for VCs investing in overseas manufacturing, while India has attracted the most venture capital for R&D and engineering projects, according to the study. But the U.S. also remains popular among foreign investors seeking to relocate R&D projects.

"There is as much interest in investing in the U.S. as there is in U.S. overseas investment," said Mark Jensen, director of Deloitte's venture capital services unit.

According to the VC survey, both U.S. and overseas investors are planning more overseas strategic alliances to solidify their local presence. "Venture capital is a 'contact sport,' and VCs have to be close to the companies they invest in," Jensen said.

Top choice

Assessing engineering projects, the study found India to be the top choice among the 528 study respondents, cited by 34 percent of the responding U.S. venture capital firms. China was the second choice for engineering projects, cited by 14 percent of U.S. respondents.

Mark Heesen, president of the National Venture Capital Association, said a "significant minority" of VCs are targeting their investments outside the U.S. "There is a small but dedicated group of venture capital pioneers who have embarked upon a global strategy and are driving foreign growth. But as a whole, the venture capital industry has not embraced direct global investment yet," Heesen said.

The survey found that two-thirds of the venture capitalists planning to expand overseas are looking at Asia, including China and India. Of those VCs surveyed, 11 percent said they will invest in Canada over the next year. While there is significant interest in investing in Israel's nascent tech industry, most investment is coming from Israeli-based venture capital firms, Heesen said.

So far, U.S. investors seem to be motivated by a desire to find the best overseas entrepreneurs and engineering talent. "The grass is always greener on the other side of the fence," Heesen said.

Contrary to a widely held view, Jensen stressed that U.S.-based firms have not rushed to invest offshore. "U.S.-based VCs are essentially dabbling in global markets," he said, with most of the U.S. VC respondents "indicating that less than 5 percent of their capital is invested overseas, generally in less than three deals per fund."

- George Leopold
EE Times

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