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U.S. VC funds prefer Israel, China, India, Canada

Posted: 12 Dec 2007 ?? ?Print Version ?Bookmark and Share

Keywords:U.S. VC funds? venture capital? investment destinations?

A survey of venture capital associations found that Israel is one of four leading destinations for U.S. venture capital funds, alongside China, India and Canada. This is one of the findings of a survey conducted by Deloitte Touche Tohmatsu together with Israel Venture Association and its corresponding associations in the United States and Europe plus 16 additional venture capital associations worldwide.

Among U.S. venture capitalists, 70 percent rated Israel first in terms of quality deal flow, while 21 percent referred to Canada, 18 percent referred to China, 17 percent to Britain and Ireland and 10 percent to India.

Canada came first in terms of quality entrepreneurs, with 21 percent of the U.S. venture capitalists referring to Canada in this respect, while Israel came second with 20 percent.

As a destination for R&D outside the United States, 29 percent chose India, 8 percent chose China and 7 percent chose Israel.

Six percent of U.S. venture capitalists see Israel as a main destination for expanding overseas investment, compared to only 2 percent of European venture capitalists and less than one percent of the Asian-Pacific venture capitalists.

According to Yigal Brightman, head of Deloitte's high tech division, "there is no doubt that the interest of American venture capital funds in Israel will continue and grow stronger. Nevertheless, it is important to note that European funds still do not see Israel as an attractive destination for investment, in spite of the fact that Israel is close to Europe, whose venture capitalists' policy is to invest in close countries. We should attract European funds to Israel."

The survey shows that despite the fact that more venture capital funds have global investments, a large percentage still focus on their local market or on nearby countries. European funds prefer central and eastern Europe, Asian funds prefer China and other Asian countries, and only U.S. funds examine investments all over the world.

Global 'taste'
According to Brightman, "the American funds actually 'taste' what happens in the global investment market. Most of the U.S. venture capitalists in the survey said that less than 5 percent of their managed capital is invested outside of the United States. Usually it is less than three investments per fund. The American funds do their overseas investments where they can find quality deal flow, an environment which supports entrepreneurship, access to international markets, and places where the American funds have already invested and therefore feel comfortable in these places."

Almost half (46 percent) of U.S. venture capitalists said in the survey that they invest outside the United States, and 54 percent said they intend to expand their global activity in the next five years. Seventy-three percent of U.S. VC funds that do not invest overseas do not intend to change this policy in the near future.

China and India attract U.S. VC funds also because of the development of an environment which supports entrepreneurship. China is also a huge market in itself. The fact that the costs in China and India are low is a secondary reason for investing there. Canada attracts U.S. investors because it enjoys close proximity to the U.S. market, political stability and personal security, alongside an entrepreneurial culture.

There are still issues that make it harder for U.S. funds to invest overseas. The two main ones regarding Israel are the political instability and the low level of personal security. For China, the issue is the lack of intellectual property laws, and in India it is the lack of deals that fit the funds' model.

- Amir Ben-Artzi
EE Times Europe

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