Deloitte GlobalTrendsVentureCapitalSurvey2007

Technology, Media & Telecommunications
Global trends
in venture capital
2007 survey
Global report sponsored by
Deloitte Touche Tohmatsu
Global report sponsored

by Deloitte Touche Tohmatsu
in association with
Global trends in venture capital 2007 survey
Contents
1 Foreward
2 About the survey
5 Global report
5
Executive summary
APAC perspective
24
Europe perspective
39
U.S. perspective
53
Canada and Israel perspective
55 Global report (continued)

57
Conclusion
Foreword
I am very pleased to present the results of the Deloitte Touche Tohmatsu (DTT) Technology, Media &
Telecommunications Industry Groups (TMT) 2007 Global Venture Capital Survey. The 2007 Global
Venture Capital Survey was sponsored by the DTT TMT Industry Group and was conducted in association
with Venture Capital Associations in the Americas, Asia Pacific, Europe, Middle East, and Africa.
Following on from the survey in 2006, this years survey was again designed to provide insight into
the attitudes and intentions of venture capitalists around the world regarding specific geographic
regions and industry sectors, over the next five years.
Venture capital is often seen as the life blood of the technology industry, offering the resources and
capacity for ideas to be given the chance to develop from conception into stand-alone products/
technologies, or life changing products and services.
We may live in a global economy, but at this time the venture capital community is not broadly
embracing global investment. Rather, roughly half of the venture community has made a
commitment to a global investment strategy and even those firms are implementing that strategy
slowly and cautiously. This annual survey is based on 528 responses from general partners of
venture capital firms with assets under management ranging from less than $100 million to greater
than $1 billion. Multiple responses from the same firm were allowed, as the survey was a general
measurement of the state of global investing from general partners, not attitudes of specific firms.
Of the 528 total respondents, 281 were based in the Americas, 174 in Europe, Middle East and
Africa and 73 in Asia Pacific.
Igal Brightman
Global Managing Partner
About the survey:

The 2007 Global Venture Capital Survey was
sponsored by the Deloitte Touche Tohmatsu (DTT)
Technology, Media & Telecommunications (TMT)
Industry Group, and was conducted in association
with the following venture capital associations:
Brazilian Association of Private Equity
& Venture Capital (ABVCAP)
British Venture Capital Association (BVCA)
Canadas Venture Capital & Private Equity
Association (CVCA)
China Venture Capital Association (CVCA)
Emerging Markets Private Equity Association
(EMPEA)
European Private Equity & Venture Capital
Association (EVCA)
Finnish Venture Capital Association (FVCA)
French Private Equity Association (AFIC)
Indian Venture Capital Association (IVCA)
Irish Venture Capital Association (IVCA)
Israel Venture Association (IVA)
Italian Private Equity and Venture Capital
Association (AIFI)
Malaysian Venture Capital and Private
Equity Association (MVCA)
National Venture Capital Association (NVCA)

Polish Private Equity Association (PPEA)
Singapore Venture Capital & Private Equity
Association (SVCA)
Slovak Venture Capital Association and Private
Equity Association (SLOVCA)
Swedish Private Equity and Venture Capital
Association (SVCA)
Taiwan Venture Capital Association (TVCA)
The survey was conducted with venture
capitalists (VCs) in the Americas, Asia Pacific,
Europe, the Middle East, and Africa. There were
528 responses from general partners of venture
capital firms with assets under management
ranging from less than $100 million to greater
than $1 billion. Multiple responses from the
same firm were allowed, as the survey was a
general measurement of the state of global
investing from general partners, not attitudes
of specific firms. The highest number of
respondents 42 percent had capital under
management totaling less than $100 million;
35 percent were between $100 million and
$499 million; 12 percent were between $500
million to $1 billion; and 11 percent had more
than $1 billion in capital under management.
Countries from around the world have been

Geographically, the breakdown of responses is
aggregated into the following geographic categories: fairly representative of both the size and location
of firms in the venture capital industry around the
world. Forty-five percent of the respondents were
from the United States, 31 percent from Europe,
Americas
13 percent from APAC countries, nine percent
Canada
from the Americas (excluding the U.S.), and two
Latin America
percent from the Middle East/Africa.
United States (U.S.)
Figure 1. Location of respondents
Middle East
13%
Israel
Middle East excluding Israel
Asia Pacific (APAC)
45%
China
India
Japan
South Korea
Other Asia
Australia/New Zealand
31%
9%
2%
APAC
Europe
Austria, Germany, Liechtenstein, Switzerland
Benelux
Central & Eastern Europe
Commonwealth of Independent States
(CIS) & Russia
France, Italy, Monaco, Portugal, Spain
Nordic Countries
United Kingdom (UK) & Ireland
Europe
Middle East/Africa
The Americas (excl. U.S.)
U.S.
All charts within this report are sourced from the survey results.
Percentage labels in charts have been rounded and may not add to 100%.
Africa
Figure 2. Assets under management (all respondents)
100%
90%
80%
70%
60%
50%
55%
49% 50%
53%
38% 38%
40%
31%
30%
36%
33%
27%
20%
14%
6%
10%
19%
16% 17%
8%
1%
5%
0%
4%
0%
Less than $100 Million
$100 $499 Million
$500 $1 Billion
Greater than $1 Billion
APAC
Europe
Middle East/Africa
U.S.
The survey questions sought to discover the degree to which

venture capitalists are expanding their worldwide investment
strategy. In short, is the venture capital community serious
about implementing the strategy of investing on a broader
global basis?
The questions also endeavored to:
Identify countries or regions most attractive to venture
capitalists interested in foreign investment.
Better understand how VC business practices are changing
in order to facilitate a more global investment approach.
Identify the impediments and challenges VCs encounter
when investing in various geographic markets.
Determine the incentives that motivate VCs to overcome
the challenges of foreign investing and encourage them to
grow these investments.
This years survey questions and format closely match last

years in order to track key attitude changes about global
investing from year to year. However, this year a number of
questions drilled down further to understand the business
models and concerns of VCs who are investing globally.
Global report
Executive summary global

VC investment increasing, but
growth is slow and cautious
the greatest percentage doing so coming from European

respondents (63 percent), followed by APAC countries (58
percent), and the U.S. (46 percent). However, it should be
noted that most respondents indicated they had fewer than
five deals outside of their home country.
We may live in a global economy, but at this time the venture

capital community is not broadly embracing global investment.
Rather, only about half of the venture community has made a
commitment to a global investment strategy and even those
firms are implementing that strategy slowly and cautiously.
How different is the outlook five years out? Of the 51 percent

of investors currently investing globally, 83 percent plan to
expand their investments in the next five years. Of the 49
percent of investors currently not investing globally, 67 percent
have no plans to invest globally in the next five years.
The intentions for growth of foreign investment, as

demonstrated by this years survey data, are modest at
best, with the venture community closely split on whether
to embark upon a global investment strategy at all. This
razor-sharp squeeze has 51 percent of global respondents
currently investing outside of their home country, with
Among U.S. investors, 54 percent indicated that they would

be expanding their investment focus outside of their home
country or region in the next five years, compared with 53
percent in 2006. The enthusiasm was slightly higher among
non-U.S. respondents, growing to 61 percent this year from
58 percent last year.
Figure 3. Percentage of venture capitalists currently investing outside their home country (all respondents)
100%
90%
80%
70%
60%
63%
56%
50%
46%
40%
30%
29%
29%
Middle
East/Africa
The Americas
(excl. U.S.)
20%
10%
0%
APAC
Europe
U.S.
APAC
Europe
Middle East/Africa
U.S.
It is also important to note that given the tremendous

resources required to successfully invest abroad, it is those
investors managing the greatest amount of assets and thus
having the greatest number of resources who are most
likely to be pursuing a global investment strategy.
The venture community remains closely split regarding
whether to embark upon a global investment strategy.
Fifty-four percent of U.S. VCs stated that they are not
investing globally and 73 percent of those do not intend to
invest globally anytime soon. Adequate deal flow in their
home country was the reason indicated most frequently for
this lack of interest, although a sizeable number (23 percent)
are hindered by resource constraints, such as the lack of
partners, capital, and time. Given that these numbers have
not changed much from last year, a conclusion can fairly be
drawn that for many firms, their strategy is set.
VCs around the world are essentially dabbling

in global markets, with the majority of VC
respondents indicating that less than five percent
of their capital is invested overseas, generally in
less than three deals per fund, said Mark Jensen,
national managing partner of Deloitte & Touche
LLPs Venture Capital Services. VCs are making
the majority of their foreign investment in areas
with higher quality deal flow, entrepreneurial
environments, and access to foreign markets, as
well as places where they have experience and
thus greater comfort levels.
Figure 4. Percentage of venture capitalists indicating an increase in expanding global investment focus (all respondents)
100%
90%
80%
68%
70%
60%
60%
50%
54%
49%
36%
40%
30%
20%
10%
0%
APAC
APAC
Europe
Middle East/Africa
U.S.
Europe
Middle
East/Africa
The Americas
(excl. U.S.)
U.S.
Despite recent headlines, the relatively static nature of the

data demonstrates that while some venture investors are
certainly taking advantage of opportunities outside their
home countries, actual growth in terms of percentage of
venture investors investing globally is occurring much more
slowly than is commonly believed. And, for a lot of firms,
they are not diving deep into investing in other countries,
but dipping a toe in with one or two deals. This cautious
approach allows the venture firms to further assess the
investment environment and evaluate how their strategy may
need to be adjusted and how critical challenges, such as tax
and intellectual property (IP), impact overall performance.
There is a small but dedicated group of venture

capital pioneers who have embarked upon
a global strategy and are driving the growth
in these regions. But as a whole, the venture
capital industry in the U.S. has not embraced
direct global investment yet, said Mark Heesen,
president of the National Venture Capital
Association.
But those VCs who are looking beyond their borders are not
necessarily looking very far beyond them. While they may be
investing outside their home country, those in the Asia Pacific
region and Europe primarily are selecting other countries in
their own regions.
Asia Pacific investors, for instance, are primarily targeting

China for their investments, followed by the U.S., and then
other Asian countries. European VCs look to Central and
Eastern Europe first; then the cluster of Austria, Germany,
Liechtenstein, and Switzerland; and then finally the U.S.
Meanwhile, investors in the Americas (excluding the U.S.) are
looking at neighboring countries in the Americas and the U.S.
Only U.S. investors are going halfway around the world to
focus on China and India. Asia Pacific, European and non-U.S.
Americas investors are still sticking fairly close to home.
And, many, particularly those managing smaller amounts
of capital, are investing in domestically headquartered
companies with operations overseas as opposed to directly
investing in foreign countries. This strategy allows VCs to
build a comfort zone while they develop a presence abroad.
VCs show they need to protect and enhance their
investments by maintaining close connections which
they do now by requiring their partners to travel more
(58 percent), investing only with other investors who have a
local presence (51 percent), and developing strategic alliances
with foreign-based firms (48 percent). VCs, regardless of
where they are based, have a universal understanding that to
successfully manage and mentor their portfolio companies;
they need to be near them, one way or another.
Figure 5. Current business practices used by venture capitalists to manage foreign investment focus (all respondents)
80%
70%
58%
60%
50%
48%
51%
41%
40%
36%
33%
30%
20%
11%
7%
10%
8%
0%
Develop strategic
alliance(s) with
foreign-based
firm(s)
Invest only with

other investors that
have a local
presence
Acquire
foreign-based
firm(s)
Require partners
to travel more
Require partners to
transfer to foreign
locations
Relocate
headquarters of
portfolio companies
to be near our firm
Open new
office(s) in
foreign
location(s)
Hire investment
staff with expertise
in target
countries/regions
Invest in local
portfolio companies
with significant
operations outside
of home
country/region
Of course, it should be noted that while these respondents

are looking for foreign deals, they are not putting much
money into them yet. Globally, 53 percent of VCs have
only one to two international investments in their portfolio.
Another 23 percent have between three and five. If you look
at the percentage of capital under management currently
deployed in international investments, 57 percent have
between one and five percent with another 14 percent
investing between six and ten percent.
So this is a cautious group that is approaching foreign

markets with deliberation. But this allows them to assess
the investment environment, determine the adjustments
their strategy may need, and evaluate how the inevitable
challenges in investing in a foreign country tax issues
and intellectual property issues, for example will impact
performance fundamentals.
Figure 7. Percent of capital under management investors currently have

deployed in primary country/region of expansion (all respondents)
Figure 6. Foreign investments currently held by VC firms (all respondents)
80%
70%
10%
60%
4%
57%
50%
10%
40%
30%
53%
20%
14%
7%
10%
23%
5%
3-5 Investments
6-10 Investments
11-15 Investments
16+ Investments
3%
5%
5%
0%
1-5%
1-2 Investments
4%
6-10%
11-15% 16-20% 21-25% 26-50% 51-75% 76-100%
APAC perspective
Current strategies for

making direct investments
For APAC VCs currently investing abroad, the trend is to
develop strategic alliances with foreign-based firms (55 percent)
and require partners to travel to foreign locations (53 percent)
as a means of more ably managing these investments. A large
number (47 percent) also invest only with other investors
with a local presence in the foreign country and invest in local
portfolio companies with significant operations outside of the
home country/region (45 percent), as discussed above.
Taken together, the adoption of these strategies
demonstrates the preference venture capital firms have for
physical proximity to work with management. These VCs
also recognize the importance of understanding local culture
and the benefits of having an indigenous presence in their
target countries to make good use of their know-how in that
country. To that end, some hire investment staff with local

expertise (32 percent), while others open new offices in the
foreign location (24 percent) or simply acquire foreign-based
firms (24 percent). Very few either relocate the headquarters
of a foreign portfolio firm to be near their own firm or
require partners to transfer to foreign locations.
Countries of choice for

APAC venture capitalists
APAC respondents are quite interested in foreign deals; in
fact they are far more committed than their counterparts in
other regions. Based on the survey response, they are well in
them, relative to their overall holdings. Currently, 48 percent
have only one or two international investments, while 23
percent have three to five international investments and 19
percent have at least 16 investments abroad.
Figure 8. Current business practices used by venture capitalists to manage foreign investment focus (APAC, Europe and U.S. respondents)
80%
70%
63%
60%
60%
57%
53%
55%
48%
50%
44%
40%
52%
47%
45%
40%
30%
40%
35%
24%
36%
32%
41%
30%
24%
20%
12%
10%
8%
7%
6%
8%
12%
11%
4%
0%
Develop strategic
alliance(s) with
foreign-based firm(s)
Invest only with

have a local presence
Acquire
foreign-based
firm(s)
Require partners
to travel more
Require partners
to transfer to
foreign locations
Relocate headquarters
of portfolio companies
to be near our firm
Open new
office(s) in
foreign location(s)
Hire investment
in target
countries/regions
Invest in local
portfolio companies
with significant
operations outside of
home country/region
APAC
Europe
U.S.
Where are Asia Pacific VCs looking? Among this years

respondents, 37 percent are interested in China to expand
their investments, compared with 20 percent last year.
Chinas venture capital market has continued

to mature and attract significant interest from
overseas funds in recent years, said Hugo
Shong, chairman of the China Venture Capital
Association and founding partner of IDGVC
Partners. We are confident the progressive
development of the venture capital market
will continue to target diversified sectors,
such as healthcare, consumer goods, retail and
clean technology. The Chinese government
encourages and supports venture capital
investment to facilitate the development of
the economy. Along with a sounder regulatory
environment for VCs, Sino-foreign RMBdenominated VC funds are also encouraged.
Respondents this year are less interested in the U.S. (18

percent this year, compared with 22 percent in 2006). And,
Europe does not appear this year, whereas 12 percent were
interested last year.
So, APAC VCs are staying fairly close to home. Global,
in fact, may not be the most accurate description of their
foreign investment strategy.
Figure 9. Foreign investments currently held by VC firms (APAC respondents)
19%
9%
1%
Another 27 percent are interested in other APAC countries,

including Singapore.
Singapore has recently seen an increase in

interest by both global and pan-Asian firms,
noted Kelvin Chan, chairman of the Singapore
Venture Capital & Private Equity Association.
Singapores strategic location in Southeast
Asia, together with its sound legal and financial
infrastructure, good governance practices and
pool of investment talent, make it an ideal
location for accessing buy-out and private equity
opportunities in the region. Over the past two
years, we have witnessed a significant number of
leading global and pan-Asian firms locating their
operations in Singapore including Adams, AXA,
Alliance, Carlyle, Collers, Partners and TPG.
10
48%
23%
1-2 Investments
3-5 Investments
6-10 Investments
11-15 Investments
16+ Investments
Figure 10. Primary location where investors would like to expand investment
focus (APAC respondents)
18%
27%
Of all respondents who expect to expand their foreign

investments, 86 percent manage more than $1 billion in
assets, compared with 48 percent who manage less than
$100 million. This years study continues to show a significant
percentage of mid-size firms who see opportunities in
investing outside of their home country and are building their
businesses in a way that will allow them to take advantage of
those opportunities.
Figure 11. Percentage of venture capitalists expecting to expand investment

focus outside their home country/region by capital under management
(all respondents)
3%
100%
3%
86%
90%
3%
37%
9%
80%
68%
70%
58%
60%
U.S.
50%
China
40%
India
Japan
30%
Middle East (excl. Israel)
20%
South Korea
10%
Other Asia
48%
0%
Less than
$100 Million
Resources are critical

for international investing
As respondents to this years survey clearly demonstrate, it
takes a lot of resources and a sophisticated infrastructure to
successfully manage a global investment strategy. Those with
fewer resources will be slower in expanding their investments
outside of their home country.
$100 $499
Million
$500 Million
$1 Billion
Greater than
$1 Billion
As they plan for the future, Asia Pacific investors are primarily
planning to develop strategic alliances with foreign-based
firms (30 percent). Fewer (18 percent) plan to invest only with
other investors with a local presence or hire investment staff
with local expertise. Only 13 percent expect to invest in local
portfolio companies with significant operations outside of their
home country or region, and nine percent will require partners
to travel more or open new offices in foreign locations.
Of those APAC VCs who indicated they currently have capital

deployed abroad, 63 percent see a future in that strategy.
11
Figure 12. Primary business practices venture capitalists expect to use to manage expanding investments (APAC, Europe and U.S. respondents)
80%
70%
60%
50%
40%
31%
30%
30%
20%
17%
14%
18%
20%
15%
14%
14%
9% 11%
10%
Develop strategic
alliance(s) with
Invest only with

Acquire
foreign-based
firm(s)
3% 2% 2%
Require partners
to travel more
13%
9%
3% 2%
0%
0%
18% 18%20%
Require partners
to transfer to
foreign locations
0% 0%
to be near our firm
10%
4%
3%
Open new
office(s) in
foreign location(s)
Hire investment
in target
countries/regions
Invest in local
portfolio companies
with significant
home country/region
APAC
Europe
U.S.
Contrasting this data with the previous chart concerning

current business practices, the significant drop in requiring
partners to travel more clearly indicates that the venture firms
are adopting strategies that allow them to be sensitive to
cultural differences and that they need to have a substantial
local presence to be successful.
Chinas greatest allure to APAC VCs is the emergence of

an entrepreneurial environment (42 percent). However, 25
percent are drawn to the potential of higher quality deal
flow, while 17 percent appreciate the access to its market.
Interestingly, only eight percent were attracted to China as a
lower-cost location or for access to quality entrepreneurs.
Primary reasons
for expanding globally
Other APAC countries are attractive to APAC VCs primarily

due to the diversification of industry and geographic risk
(45 percent) they represent. Investors also perceive higher
quality deal flow (33 percent), just as in the U.S. Less
significant appears to be the emergence of an entrepreneurial
environment or access to foreign markets (both at 11 percent).
At the global level, VCs are primarily interested in investing

abroad to take advantage of higher quality deal flow, but when
we focus only on Asia Pacific investors, it looks a little different.
Looking at APAC VC investments in the U.S., it is clear that
the primary reason for these investments is access to foreign
markets (50 percent), although higher quality deal flow (33
percent) and access to quality entrepreneurs (17 percent) play
a significant role.
12
Figure 13. Top locations where APAC investors are interested in expanding and why
80%
70%
60%
50%
50%
45%
42%
40%
30%
33% 33%
25%
17%
20%
8%
10%
0%
0%
Higher quality
deal flow
17%
11%
Access to quality
entrepreneurs
11%
0%
Emergence of
entrepreneurial
environment
0%
0%
Diversification
of industry
and geographic risk
8%
0% 0%
Access to
foreign markets
Lower cost
locations
0% 0% 0%
Extensive competition
for deal flow in
our local market
China
Other Asia
U.S.
Majority of VCs deploying

small percentages of their capital
outside their home country
There may be interest in investing globally, but where is
the actual capital? In truth, the percentage of capital under
management deployed in foreign locations for most venture
capitalists, even Asia Pacific VCs, is pretty low. Among APAC
investors currently investing outside of their home country,
34 percent have less than five percent of capital under
management invested in foreign locations. The number drops
to 15 percent among those who have between six and ten
percent of their capital invested abroad, and shrinks further
to six percent for those APAC VCs who have between 11
and 15 percent of their assets in international investments.
Interestingly, it does pick back up to 15 percent among those
VCs who have between 26 and 50 percent of their assets
invested in foreign companies. This is double the levels seen in
Europe and more than triple the U.S. result.
13
Figure 14. Percent of capital under management investors currently have deployed in primary country/region of expansion (APAC, Europe and U.S. respondents)
80%
70%
66%
60%
52%
50%
40%
34%
30%
20%
15% 14%
15%
15%
12%
10%
6%
4%
6%
2% 4%
6%
4%
7%
2%
4%
6%
9%
8%
3%
3%
3%
0%
1-5%
6-10%
11-15%
16-20%
21-25%
26-50%
51-75%
76-100%
APAC
Europe
U.S.
What about five years out? APAC respondents expect to have

a far greater percentage of their assets under management
in foreign investments. Indeed, a full 31 percent plan to hold
between 26 and 50 percent of their investment in foreign
companies. Another 18 percent expect to have between 21
and 25 percent of their assets under management in foreign
investments. The numbers go down in both directions and hit
zero in the one to five percent category.
Figure 15. Percent of capital under management investors expect to deploy five years from now in primary country/region of expansion (APAC, Europe and U.S. respondents)
80%
70%
60%
50%
40%
35%
31%
30%
20%
16%
20%
12%
12%12%
10%
0%
0%
Europe
U.S.
14
15%
17%
18%
13%
16%
14%
9%
7%
3%
1-5%
APAC
9%
6-10%
11-15%
16-20%
21-25%
26-50%
9% 10%
3%
51-75%
6%
8%
5%
76-100%
A case for refraining

from an overseas strategy
Figure 16. Primary reason for not expanding international investment over the next five years (APAC, Europe and U.S. respondents)
80%
70%
60%
50%
40%
40%
30%
36%
34%
28%
25%
23%
19%
19%
20%
16%
9%
10%
0%
Adequate deal flow
in existing markets
Resource constraints
(lack of partners
capital, time, etc.)
Contractual restrictions/
Limited Partner
agreement restrictions
23%
14%
6%
8%
0%
Legal restrictions
Superior returns
are available in
our local market
APAC
Europe
U.S.
Not everyone, of course, is eager to put their capital in

companies abroad. It can be very challenging to invest
overseas and not always profitable. For APAC respondents,
the primary reason among those not expanding their
international portfolio in the next five years is resource
constraints the partners, capital, and time needed to
effectively manage the foreign investment are lacking. Given
the relatively recent emergence of venture capital in Asia, it
is not surprising that resource constraints are keeping VCs
close to home in some ways the APAC VC industry is still in
its infancy. Almost as important to these investors is existence
of adequate deal flow in their existing markets (28 percent).
Related to that, the respondents noted, were the superior
returns they already receive in their local market (23 percent).
15
Investing globally
by investing locally
Of course, one way to address resource constraints, as mentioned
above, and to build a comfort zone for global investing, is to
invest locally in companies with operations abroad.
A full 79 percent of APAC respondents noted that at least some
portion of their portfolio has significant operations outside the
country in which their companies are headquartered.
The numbers, however, are still low when the percentages of

the portfolio are examined. More than one-third (38 percent)
identify only one to ten percent of their portfolio companies as
having operations located abroad. Another 18 percent indicate
that 11 to 25 percent of their portfolio had significant foreign
operations. The number drops to 13 percent at the 26 to 50
percent level, nine percent at the 51 to 75 percent level and
a mere one percent as it goes from 76 to 100 percent. These
numbers represent a modest change from the past for APAC
respondents. Among those who noted zero percentage of
significant operations outside the headquarter country, the
number dropped minimally from 23 to 21 percent.
Figure 17. Percent of portfolio companies with significant operations outside the country/region of headquarters (APAC, Europe and U.S. respondents)
40%
38%
32%
30%
30%
28%
23%
20%
21%
18% 18%
18%
14%
15%
13%
12%
9%
10%
5%
1%
2%
0%
0%
APAC
Europe
U.S.
16
1-10%
11-25%
26-50%
51-75%
76-100%
3%
Those APAC investors with assets in local companies with

foreign operations have different targets depending on
the activity. Not surprisingly, China is the clear choice for
manufacturing operations (38 percent), followed by other
Asian countries (18 percent), India (three percent), and the
U.S. (one percent).
For research and development, APAC investors prefer the
U.S. (28 percent), with China (13 percent), other Asian
countries (seven percent), and India and South Korea
(both at one percent) trailing behind.
APAC investors again look primarily to China for engineering,
although at a lower level (15 percent). And, interest flattens
out among the other countries: Other Asian countries and
the U.S. (nine percent), India (six percent), and South Korea
and the Middle East excluding Israel (one percent).
For back office operations, Asian countries other than
China are the top selection (15 percent), followed by India
(12 percent), China (ten percent), and the U.S. (three
percent). For Global VCs, clearly China and India are the
favorites among APAC nations for manufacturing and R&D
operations. Globally, China, at 30 percent, is the country
of choice for manufacturing, while India leads in R&D
(15 percent), engineering (18 percent), and in back office
operations (25 percent).
Recent years have witnessed a steady increase

in the number of tier one venture capital firms
from the U.S. and Europe establishing their
offices in India, with the objective to make
direct investments, rather than mere support
of portfolio back office operations, observed
Jaswinder Kaur, executive director of the Indian
Venture Capital Association. We anticipate
continued growth in VC investment in India in
2008 as global investors continue to recognize
the quality of deal flow and management talent.
While European respondents are mixed about relocating
operations in the Asia Pacific region as opposed to being
closer to home in other European countries, U.S. VCs have
strong preferences for China and India. They by far would
relocate manufacturing operations to China (41 percent),
and R&D (29 percent), engineering (34 percent), and back
office operations (42 percent) to India. No other country
even remotely comes close.
Taken together, it can be seen that while directly investing
in foreign companies remains a slow moving trend, global
investing is spreading, albeit primarily through foreign
operations. It also reflects the new reality that many companies
are global from the day of their inception. And, as an investment
strategy, selecting companies with overseas operations allows
portfolio companies (and investors) to take advantage of cost
savings and access to talent in foreign markets.
Figure 18. Location of choice when relocating significant operations outside country/region of headquarters (APAC respondents)
40%
38%
30%
20%
28%
18%
15%
13%
10%
0%
9%
7%
3%
1%
0% 0% 0% 0%
Manufacturing
China
South Korea
Other Asia
India
Canada
U.S.
Latin America
15%
10%
9%
12%
6%
1%
1%
0% 0% 0%
Research & Development
1% 1%
Engineering
3%
0% 0%
0% 0% 0% 0%
Back Office Operations
17
Impediments to global investing
The U.S. is often perceived as a country in which the cost of

complying with regulation is too high. On the other hand,
the opposite issue has struck a chord among all respondents,
even including APAC VCs: the laxness of regulation in specific
foreign countries and the additional business risk this creates.
Countries/regions hit hardest by this criticism were India,
Central and Eastern Europe, and China. This could explain why
VCs are going so slowly and waiting to see how things develop
before committing larger percentages of their capital.
While global investing remains an ideal due to the perceived

benefits of getting into new markets, obtaining the talents of
foreign entrepreneurs and other professionals, and perhaps
lowering costs there is no doubt that VC firms encounter a
variety of risks and challenges in executing this strategy.
Figure 19. Top locations where regulation is too lax and creates additional business risk (APAC, Europe and U.S. repsondents)
80%
70%
60%
50%
40%
30%
33%
26% 26%
20%
10%
16%
16%
11% 11%
5% 5%
0% 0% 0%
APAC
China
Africa
Canada
Other Asia
UK & Ireland
CIS & Russia
India
18
16%
11%
0%
South Korea
29%
25%
2%
2%
5% 4%
Europe
8%
4% 2%
3%
5%
0%
U.S.
8%
2%
2% 2%
Protection of intellectual property continues to be a concern,

particularly in China. Globally, 59 percent of respondents
pointed to China as a country where intellectual property laws
create additional risk, breaking down to 60 percent of U.S.
respondents and 57 percent of non-U.S. respondents. This
number jumped significantly from last year both on the part of
U.S. (37 percent) and non-U.S. respondents (49 percent). While
some of this may be the result of VCs gaining more experience
in China, there undoubtedly is a lot of fallout from various
significant IP-related issues reported in the press recently.
Figure 20. Top locations where intellectual property laws create additional financial risk (APAC, Europe and U.S. repsondents)
80%
70%
60%
60%
59%
58%
50%
40%
30%
25%
20%
17%
10%
0%
17%
16%
6%
0% 0% 0% 0% 0% 0% 0%
APAC
6% 6%
3% 3%
Europe
0% 0% 0%
2%
1% 1%
3% 3%
1% 1%
3%
U.S.
China
India
Other Asia
U.S.
Latin America
Israel
Africa
Canada
19
Comparing this years survey results to the previous year,

impediments to investing in both India and China were
down in almost all categories. This trend may be due to
investors becoming more comfortable with the investment
environments in these countries as they gain more
experience in these regions.
Figure 21. Impediments to investing in China (APAC, Europe and U.S. respondents)
40%
30%
25%
20%
14%
12%
10%
11%
11%
10%
13%
11%
10%
10%
7%
6%
13%
13%
10%
9%
8%
14%
10%
9%
6% 6%
5%
1%
2%
1%
1%
2%
3%
5%
4%
3%
2%
2% 2%
1%
1% 2%
0%
Difficulty in
achieving
succesful exits
Lack of
quality deals
that fit
investment
profiles
Lack of
experienced
local investors
Lack of
Lack of
talented
skilled workers
portfolio
management
team
Unstable
economy
Unstable
political
environment
Exchange
rate risk
Intellectual
property laws
Tax
environment
Litigation
environment
Regulatory
environment
0%
Personal
safety
and security
concerns
APAC
Europe
U.S.
Figure 22. Impediments to investing in India (APAC, Europe and U.S. respondents)
40%
30%
20%
12%
10%
10%
10%
9%
8% 8%
10%
6%
7%
6%
5%
4%
4%
1% 1%
0%
Difficulty in
achieving
succesful exits
APAC
Europe
U.S.
20
Lack of
quality deals
that fit
investment
profiles
Lack of
experienced
local investors
6%
Lack of
Lack of
talented
skilled workers
portfolio
management
team
2%
0%
Unstable
economy
4% 4%
4% 4%
3%
3%
1%
7%
5%
4%
1%
3%
3% 3%
2%
Unstable
political
environment
3% 3%
2%
Exchange
rate risk
Intellectual
property laws
Tax
environment
Litigation
environment
1% 1%
Regulatory
environment
2%
Personal
safety
and security
concerns
While venture capitalists realize it takes a great

deal of work and resources to be successful in
foreign markets, they are citing fewer concerns
overall because their experience levels in these
markets is growing, Jensen said. While
cautiousness still reigns, venture capital is an
industry of fast followers. Barring any significant
negative experiences in foreign markets, we will
see continued growth in global VC investment.
Figure 23. Impediments to investing in Japan (APAC, Europe and U.S. respondents)
40%
30%
20%
15%
10%
8%
7% 7%
4%
4%
6%
5% 5%
3% 3%
0%
0%
Difficulty in
achieving
succesful exits
Lack of
quality deals
that fit
investment
profiles
Lack of
experienced
local investors
1%
0% 0%
Lack of
Lack of
talented
skilled workers
portfolio
management
team
0% 0%
1%
Unstable
economy
0% 0% 0%
Unstable
political
environment
3%
1%
1%
Exchange
rate risk
0% 0%
1%
Intellectual
property laws
1% 2%1%
Tax
environment
2%
0%
0%
Litigation
environment
4% 3%
0%
Regulatory
environment
1%
0% 0%
Personal
safety
and security
concerns
APAC
Europe
U.S.
21
Among other APAC countries, such as Japan, South Korea,

Australia, and New Zealand, there were some concerns noted
by a modest number of VCs. The only notable issue and
by U.S. investors had to do with a lack of quality deals that
fit their investment profile. For Japan, 15 percent of U.S.
investors found that to be an impediment. It was an issue in
South Korea for 14 percent of U.S. investors and 13 percent
identified that for Australia and New Zealand. For other
APAC countries, that number was 15 percent.
These numbers indicate that the level of concern for investors
in APAC countries are fairly low, with the exception of IP
laws, and overall concerns seem to be declining.
Figure 24. Impediments to investing in South Korea (APAC, Europe and U.S. respondents)
40%
30%
20%
14%
10%
7%
7%
5%
7% 7%
6%
5% 5%
4%
3% 3%
0%
0%
Difficulty in
Lack of
achieving
quality deals
succesful exits
that fit
investment
profiles
APAC
Europe
U.S.
22
Lack of
experienced
local investors
Lack of
talented
portfolio
management
team
1% 0% 0%
Lack of
skilled workers
1%1%
2%
Unstable
economy
1%
2%
Unstable
political
environment
0%
2%
4%
3%
Exchange
rate risk
1%
2% 2%
Intellectual
property laws
0% 0% 1%
1% 1% 0%
Tax
Litigation
environment environment
2%
3%
Regulatory
environment
0% 1% 0%
Personal
safety
and security
concerns
Figure 25. Impediments to investing in Other Asia (APAC, Europe and U.S. respondents)
40%
30%
20%
15%
12%
10%
9%
10%
6% 5% 6%
5% 5%
7%
6%
3% 4%
1% 1% 0%
0%
Difficulty in
Lack of
achieving
quality deals
succesful exits
that fit
investment
profiles
Lack of
experienced
local investors
Lack of
talented
portfolio
management
team
Lack of
skilled workers
1%
2%
3%
Unstable
economy
4%
3%
Unstable
political
environment
3%3%
2%
Exchange
rate risk
3%
2%
3%
Intellectual
property laws
3%
3%
0% 0%
4%
2%
0%
Tax
Litigation
environment Environment
1%
2%
Regulatory
Environment
0%
2%
0%
Personal
safety
and security
concerns
APAC
Europe
U.S.
Figure 26. Impediments to investing in Australia/New Zealand (APAC, Europe and U.S. respondents)
40%
30%
20%
13%
10%
10%
8%
6%
6%
6%
4%
6%
3%
3%4%
5%
0% 0% 1%
0%
Difficulty in
Lack of
achieving
quality deals
succesful exits
that fit
investment
profiles
Lack of
experienced
local investors
Lack of
Lack of
talented
skilled workers
portfolio
management
team
2%
3%
0% 0% 0%
0% 0% 0%
1%
Unstable
economy
Unstable
political
environment
Exchange
rate risk
0%
0% 0%
Intellectual
property laws
1%
2%
0%
0%
2%
0%
Tax
Litigation
environment Environment
2%
0%
0%
Regulatory
Environment
0%0% 0%
Personal
safety
and security
concerns
APAC
Europe
U.S.
23
Europe perspective
Current strategies
for foreign investing
Clearly, these strategies demonstrate that European venture

capital firms prefer to have some kind of physical proximity
to their portfolio companies in order to work more effectively
with management. They understand the importance to the
success of their investment of being familiar with the local
culture. And, they realize that there are benefits in having
a local presence and know-how in their target countries.
To that end, more than one-third of European VCs hire
investment staff with local expertise (36 percent) or open
new offices in the foreign location (35 percent). Very few
acquire foreign-based firms, relocate the headquarters of a
foreign portfolio firm to be near their own firm, or require
partners to transfer to foreign locations.
European venture capitalists who are currently investing

abroad have established several strategies to manage their
foreign investments. Leading with 60 percent is the practice
of investing only with other investors who have a local
presence. They also require their partners to travel more
to foreign locations (57 percent) and develop strategic
alliances with foreign-based firms (48 percent). A significant
number (30 percent) invest in local portfolio companies
with operations abroad.
Figure 27. Current business practices used by venture capitalists to manage foreign investment focus (APAC, Europe and U.S. respondents)
80%
70%
63%
60%
60%
57%
53%
55%
48%
44%
50%
40%
52%
47%
45%
40%
30%
40%
35%
24%
36%
32%
41%
30%
24%
20%
12%
10%
8%
7%
6%
8%
12%
11%
4%
0%
Develop strategic
alliance(s) with
APAC
Europe
U.S.
24
Invest only with

Acquire
foreign-based
firm(s)
Require partners
to travel more
Require partners
to transfer to
foreign locations
to be near our firm
Open new
office(s) in
foreign location(s)
Hire investment
in target
countries/regions
Invest in local
portfolio companies
with significant
home country/region
Primary target countries for

European venture capitalists
Figure 29. Primary locations where investors would like to expand

investment focus (Europe respondents)
European VCs are very active in foreign investing, although

these investments actually are less global than they are
regional, since European VCs actually focus more on other
European countries as opposed to Asia or the Americas.
Currently 51 percent have only one or two international
investments. However, 24 percent of European VCs have
three to five foreign investments, 12 percent have six to
ten foreign investments, and ten percent have 16 or more
investments abroad in their portfolio.
By far, European VCs are sticking close to home when
assessing future investment opportunities, with 23 percent
most interested in Central and Eastern Europe and another
19 percent interested in the cluster of Austria, Germany,
Liechtenstein, and Switzerland. The U.S. appeals to 17
percent of European investors, and 12 percent show interest
in the Nordic countries. Only nine percent are interested in
expanding their investment focus to China. Altogether, 66
percent of European respondents show a strong preference
for investing in other parts of Europe.
3%
1%
4%
4%
23%
3%
5%
9%
19%
12%
17%
U.S.
Nordic Countries
China
UK & Ireland
Figure 28. Foreign investments currently held by VC firms (Europe respondents)
Benelux
CIS & Russia
India, Other Asia, Japan, South Korea
10%
Other*
3%
* Africa, Israel, Middle East (excl. Israel)
12%
These results are in sync with Asia Pacific respondents, who are
primarily interested in other Asian countries, and contrast with
U.S. investors, who are primarily focused on China and India.
51%
24%
1-2 Investments
3-5 Investments
6-10 Investments
11-15 Investments
16+ Investments
25
Resources are critical for

international investing
Investing globally takes a tremendous number of resources
to be successful. It also requires a uniquely sophisticated
infrastructure. Those VCs with fewer resources are certainly
going to move more slowly to expand their investments
abroad and may find it to be prohibitive.
Globally, among those respondents who plan to expand
their investments overseas, 86 percent manage more than
$1 billion in assets, compared with 48 percent who manage
less than $100 million.
Figure 30. Percentage of venture capitalists expecting to expand investment focus outside their home country/region by capital under management (all respondents)
100%
86%
90%
80%
68%
70%
58%
60%
50%
48%
40%
30%
20%
10%
0%
26
$100 - $499 Million
$500 Million - $1 Billion
Future business practices

Of those European VCs who currently have capital deployed
abroad, 85 percent of firms plan to expand those investments
over the next five years. As these European investors look and
plan ahead, how do their strategies change from their current
practices? Thirty-one percent expect to invest only with other
investors with a local presence, while 18 percent plan to hire
investment staff who have local expertise. Another 17 percent
intend to develop strategic alliances with foreign-based firms.
Fewer plan to open new offices in foreign locations (14
percent), or require their partners to travel more (11 percent).
Figure 31. Primary business practices venture capitalists expect to use to manage expanding investments (APAC, Europe and U.S. respondents)
80%
70%
60%
50%
40%
31%
30%
30%
20%
17%
14%
18%
20%
15%
10%
3% 2%
0%
0%
Develop strategic
alliance(s) with
Invest only with

14%
14%
9% 11%
Acquire
foreign-based
firm(s)
20%
13%
9%
3% 2% 2%
Require partners
to travel more
18% 18%
Require partners
to transfer to
foreign locations
0% 0%
to be near our firm
10%
4%
3%
Open new
office(s) in
foreign location(s)
Hire investment
in target
countries/regions
Invest in local
portfolio companies
with significant
home country/region
APAC
Europe
U.S.
27
One technique that VCs currently use to manage global

investments, requiring partners to travel more, showed a
significant decline. This reflects the growing realization that
successful international investing requires more than regular
visits from the home office that instead firms need to be
culturally sensitive and have a significant local presence.
Access to quality entrepreneurs and to foreign markets (both 21

percent) also make the U.S. an attractive target for expansion.
The main attraction of European investors to China is due
to the emergence of an entrepreneurial environment there
(50 percent). Access to foreign markets draws 30 percent
of European VCs. Another 20 percent are attracted by the
potential of higher quality deal flow.
Primary reasons venture

investors are expanding globally
Central and Eastern Europe are of less interest to investors

globally, but nonetheless, 23 percent of European VCs are
looking at higher quality deal flow and the emergence of
an entrepreneurial environment, while 12 percent see the
region as having access to quality entrepreneurs. Among U.S.
venture capitalists, nine percent are interested in investing in
the UK and Ireland, while seven percent are interested in the
remainder of Europe.
Globally, the most frequently reason stated for investing in

foreign countries or regions is to take advantage of higher
quality deal flow. Of course, when individual countries are
identified as investment targets, the motivations can shift.
European investors definitely continue to see higher
quality deal flow in Nordic countries (57 percent); the U.S.
(48 percent); and Austria, Germany, Liechtenstein, and
Switzerland (42 percent).
Figure 32. Top locations where European investors are interested in expanding and why
80%
70%
57%
60%
50%
48%
50%
42%
40%
29%
30%
20%
23%
20%
24%
21%
12%
14%
5%
0%
Higher quality
deal flow
Access to quality
entrepreneurs

China
Nordic Countries
U.S.
28
21%
14%
10%
0%
30%
24%
23%
0%
0%
Emergence of
entrepreneurial
environment
5%
0%
Diversification
of industry and
geographic risk
12%
10%
8%
8%
0%
Access to
foreign markets
0%
0% 0% 0%
Lower cost locations
0%
0% 0% 0%
for deal flow in
our local market

While European VCs are engaging in foreign investment
deals, they do not represent a significant percentage of their
capital under management. Among European investors
currently investing abroad, 52 percent have less than five
percent of capital under management invested in foreign
locations. Only 14 percent have between six and ten percent
of their capital invested abroad, and just four percent have
between 11 and 15 percent of their assets in international
investments. However, the percentages begin to rise a
bit, with nine percent of European VCs having foreign
investments between 51 to 75 percent of capital invested
abroad, triple the level of the U.S and double that of APAC.
80%
70%
66%
60%
52%
50%
40%
34%
30%
20%
15% 14%
15%
15%
12%
10%
6%
4%
6%
2% 4%
6%
4%
7%
2%
4%
6%
9%
8%
3%
3%
3%
0%
1-5%
6-10%
11-15%
16-20%
21-25%
26-50%
51-75%
76-100%
APAC
Europe
U.S.
29
The numbers even out somewhat when investors

look five years in the future, shifting dramatically from
disproportionately being in the one to five percent range to
a broader spectrum of capital under management, with the
bulk of anticipated international investments ranging from
11 percent to 50 percent of capital under management. This
demonstrates a far greater commitment to investing in foreign
deals in the next five years than what we are seeing currently.
80%
70%
60%
50%
40%
35%
31%
30%
20%
16%
20%
12%
12%12%
10%
0%
0%
Europe
U.S.
30
17%
18%
13%
16%
14%
9%
7%
3%
1-5%
APAC
9%
15%
6-10%
11-15%
16-20%
21-25%
26-50%
9% 10%
3%
51-75%
6%
8%
5%
76-100%

For some venture capitalists, there are either too many
hurdles or too few incentives to invest abroad. Among
European VCs, it is mostly a matter of not enough incentives.
The greatest number of respondents (40 percent) cited
adequate deal flow in existing markets as the primary reason
for not expanding their international portfolio in the next five
years. However, 19 percent also identify resource constraints
and contractual restrictions or LP agreement restrictions
as primary reasons for not expanding their international
investments. Another 14 percent note legal restrictions.
80%
70%
60%
50%
40%
40%
30%
36%
34%
28%
25%
23%
19%
19%
20%
16%
9%
10%
0%
Adequate deal flow
in existing markets
Resourse constraints
(lack of partners
capital, time, etc.)
Contractual restrictions/
Limited Partner
23%
14%
6%
8%
0%
Legal restrictions
Superior returns
are available in
our local market
APAC
Europe
U.S.
31
Investing globally
their eventual exit strategy. By launching significant operations

abroad, investors are developing the company into a global
market leader to prepare it for acquisition by a global buyer.
Obviously, there is no single way to invest globally. Indeed

globalization manifests itself at various business levels.
While investing directly in a foreign company is the most
conventional approach, there are certainly other options
available to investors, including investing locally in portfolio
companies with overseas operations.
More than a quarter (28 percent) identify only one to ten

percent of their portfolio companies as having operations
located abroad. Another 23 percent indicate that 11 to 25
percent of their portfolio had significant foreign operations.
The number drops to 18 percent at the 26 to 50 percent
level, 15 percent at the 51 to 75 percent level and two
percent as it goes from 76 to 100 percent. Nevertheless,
these latter numbers are higher than their APAC VC
counterparts. Among U.S. VCs, the numbers are slightly
higher than European VCs at the low end of the scale,
evening out at 18 percent when both groups of respondents
reach the 25 to 50 percent mark. U.S. VCs are far behind
both European and APAC investors when reaching the 51 to
75 percent range. However, they slightly exceed European
and APAC investors at the highest level.
Additionally, given that resource constraints can put a

damper on international investment, it makes sense that
some VCs find investing in local companies with operations
abroad attractive. This strategy can help VCs gain exposure
in foreign markets with greater ease of mind and less risk.
Among European respondents, 86 percent acknowledged that
at least some part of their portfolio has significant operations
manufacturing, R&D, engineering, and back office located
outside the country in which their companies are based.
One point this brings out is that many companies that are
venture backed are developed as global companies from day
one. It is, of course, a competitive necessity as VCs anticipate
This is a modest change from last year for European

respondents. Among those VCs who stated zero percentage
of significant operations outside the headquarter country, the
number fell from 18 to 14 percent.
40%
38%
32%
30%
30%
28%
23%
20%
21%
18%
14%
18% 18%
15%
13%
12%
9%
10%
5%
1%
2%
3%
0%
0%
APAC
Europe
U.S.
32
1-10%
11-25%
26-50%
51-75%
76-100%
Obviously, the geographic destination of these assets is

influenced by the primary business activity in which these
foreign operations engage. Even among European VCs, China
is the most popular choice for manufacturing (19 percent),
although Central and Eastern Europe are close behind (17
percent). The U.S. (five percent), other Asian countries (five
percent), and India (three percent) are of far less interest.
When it comes to R&D, the U.S. (15 percent) and Central
and Eastern Europe (13) percent are preferred by European
investors, with all other countries/regions of negligible interest.
European investors are staying close to home in the
engineering arena, with Central and Eastern Europe the
most favored at 14 percent, followed by the U.S. (eight
percent) and Austria, Germany, Liechtenstein, and
Switzerland (four percent).
Back office operations are equally split at ten percent between

Central and Eastern Europe and India as the location of choice.
The U.S. shows up among four percent of European VCs.
These numbers show that global investing is a slow moving
trend, but it is moving, with global investing spreading
primarily through a strategy of selecting local companies
and building operations abroad. This approach helps enable
portfolio companies and investors to take advantage of
cost savings and access to talent in foreign markets. Among
European VCs specifically, while China and the U.S. are the
first choices for manufacturing and R&D respectively, with
European countries barely trailing after them, it is clear there
is a tendency to choose companies whose foreign operations
remain fairly close to home. With operations located primarily
in nearby foreign countries, VCs feel they can reap the
benefits of proximity and cultural understanding while also
enjoying the foreign countrys local talent and reduced costs.
Figure 37. Location of choice when relocating significant operations outside the country/region of headquarters (Europe respondents)
40%
30%
20%
19%
17%
15%
13%
14%
10%
10%
10%
8%
5% 5%
3%
1% 1% 1% 1%
0%
3%
0%
Manufacturing
1%
3%
1%
2%
1% 1%
2%
4%
1%
4%
3%
0%
Engineering
1% 1%
2%
4%
1%
1%
1% 1% 1%
2%
1%
China
U.S.
Other Asia
India
Africa
CIS & Russia
France, Italy, Monaco, Poland
Nordic Countries
33
Impediments to global investing
Central and Eastern Europes greatest challenges (although

still low in absolute terms) tended to be in the areas of lack of
quality deals that fit the investment profile (13 percent from
European and U.S. investors) and both difficulty in achieving
successful exits and lack of experienced local investors (ten
percent from European VCs). Only three percent of APAC or
European investors and none from the U.S. cited IP laws.
It would be unwise to look at global investing without taking

note of the risks and challenges VCs undoubtedly encounter.
One of the toughest issues globally is intellectual property
protection. China is, by far, the most frequently cited country
in which VCs identify financial risk in this arena. Among
European VCs, 59 percent identify China as having IP laws
that create additional financial risk. India was a distant
second with 16 percent.
The UK and Ireland drew even fewer responses in the various

risk areas. Nine percent of U.S. VCs were discouraged by a
lack of quality deals. Seven percent of APAC investors noted
difficulty in achieving successful exits.
When it comes to other investors around the world looking

at Europe and its sub-regions as a destination for capital,
the number of VCs who identified problems was fairly low
across the board.
Figure 38. Impediments to investing in Central & Eastern Europe (APAC, Europe and U.S. respondents)
40%
30%
20%
13%13%
10%
10%
7%
6%
10%
7%
6%
3%
7%
6%
5%
3%
4%
1% 1%
0%
Difficulty in
achieving
succesful exits
APAC
Europe
U.S.
34
4%
Lack of
quality deals
that fit
investment
profiles
Lack of
experienced
local investors
Lack of
talented
portfolio
management
team
Lack of
skilled workers
1%
2%
Unstable
economy
4%
6%
3%
1%
Unstable
political
environment
2%
3% 3%
1%
Exchange
rate risk
Intellectual
property laws
6% 6%
4% 4%
2%
0%
Tax
environment
0%
Litigation
environment
2%
Regulatory
environment
3%4%
2%
Personal
safety
and security
concerns
Figure 39. Impediments to investing in the UK & Ireland (APAC, Europe and U.S. respondents)
40%
30%
20%
9%
10%
7%
5% 5%
4% 4%
4%
1%
0%
0%
Difficulty in
Lack of
achieving
quality deals
succesful exits
that fit
investment
profiles
Lack of
experienced
local investors
5%
4% 4%
1%
Lack of
talented
portfolio
management
team
3%
0% 0% 0%
0% 0% 0%
0% 0% 0%
Lack of
skilled workers
Unstable
economy
Unstable
political
environment
0%
1% 1%
Exchange
rate risk
0% 0%
1%
Intellectual
property laws
0%
0%
2%
0%
Tax
Litigation
environment environment
2%3%
0%
Regulatory
environment
0% 0% 0%
Personal
safety
and security
concerns
APAC
Europe
U.S.
Figure 40. Impediments to investing in France, Italy, Monaco, Portugal, Spain (APAC, Europe and U.S. respondents)
40%
30%
20%
12%
10%
9%
7%
5%
6%
7%
6%
0%
0%
Difficulty in
achieving
succesful exits
4%4%
4%
Lack of
quality deals
that fit
investment
profiles
2%
Lack of
experienced
local investors
1%
3%
1% 0%1%
Lack of
Lack of
talented
skilled workers
portfolio
management
team
0% 0% 0%
0% 0% 0%
0% 0% 1%
Unstable
economy
Unstable
political
environment
Exchange
rate risk
0% 1% 0%
Intellectual
property laws
1%
Tax
environment
4%
3%
1%
1%
Litigation
environment
5%
1%
Regulatory
environment
0% 0% 0%
Personal
safety
and security
concerns
APAC
Europe
U.S.
35
Investors looking at France, Italy, Monaco, Portugal, and Spain

were not discouraged by much, regardless of the issue. Only
12 percent of U.S. VCs and seven percent of APAC VCs found
that there was a lack of quality deals for their investment
profile among these countries. Nine percent of APAC investors
cited a difficulty in achieving successful exits. Seven percent of
European VCs were concerned about their tax environment.
issue with Austria, Germany, Liechtenstein, and Switzerland,

as well as Belgium, the Netherlands, and Luxembourg. The
number fell to ten percent when looking at Nordic countries,
from a U.S. investor perspective.
The levels of these numbers remain consistent, regardless of

the country or region within Europe. Fourteen percent of U.S.
investors noted a lack of quality deals in Russia and other
former Soviet Union countries, and 11 percent had the same
Altogether, this years survey demonstrates that for VCs

around the world who are looking at European countries as
investment targets, it is more a question of the right fit than
of any specific issue that would create additional risk.
Figure 41. Impediments to investing in Austria, Germany, Liechtenstein, Switzerland (APAC, Europe and U.S. respondents)
40%
30%
20%
11%
10%
7%
7%
5%
5%
4%
2%
0%
0%
Difficulty in
achieving
succesful exits
APAC
Europe
U.S.
36
8%
7%
Lack of
quality deals
that fit
investment
profiles
Lack of
experienced
local investors
4%
6%
1%
Lack of
talented
portfolio
management
team
4% 5%
1%
0% 0%
Lack of
skilled workers
0%0%0%
0%0%0%
0%0% 0%
Unstable
economy
Unstable
political
environment
Exchange
rate risk
0%
1%
0%
Intellectual
property laws
1%
2%
Tax
environment
0%
1%
0%
Litigation
environment
0%
Regulatory
environment
0% 0%0%
Personal
safety
and security
concerns
Figure 42. Impediments to investing in Benelux (APAC, Europe and U.S. respondents)
40%
30%
20%
11%
10%
9%
8%
6%
7% 7%
4%
1% 2%
3%4% 4%
3%
0% 0%
0%
Difficulty in
achieving
succesful exits
Lack of
quality deals
that fit
investment
profiles
Lack of
experienced
local investors
Lack of
talented
portfolio
management
team
Lack of
skilled workers
1%
0%0%
Unstable
economy
1%
0%0%
Unstable
political
environment
1%
0% 0%
Exchange
rate risk
1% 1%
3%3%
0%
Intellectual
property laws
4%
1%
Tax
environment
1%
3%
0%
Litigation
environment
3%
2%
Regulatory
environment
1%
0%0%
Personal
safety
and security
concerns
APAC
Europe
U.S.
Figure 43. Impediments to investing in CIS & Russia (APAC, Europe and U.S. respondents)
40%
30%
20%
14%
11%
10%
8%
7%
9%
7%
7%
5%
5%
1%
0%
Difficulty in
achieving
succesful exits
Lack of
quality deals
that fit
investment
profiles
Lack of
experienced
local investors
5%
3%
6%
6%
Lack of
talented
portfolio
management
team
3%
1%
0%
Lack of
skilled workers
3%
0%
Unstable
economy
6%
1%
Unstable
political
environment
5%
0%
3%
1%
Exchange
rate risk
1%
2% 3%
3% 2%
3% 3%
0%
Intellectual
Tax
property laws environment
3%
3%
4%
5% 5%
0%
Litigation
environment
Regulatory
environment
Personal
safety
and security
concerns
APAC
Europe
U.S.
37
Figure 44. Impediments to investing in Nordic Countries (APAC, Europe and U.S. respondents)
40%
30%
20%
10%
10%
7%
6%
6%
4% 4%
5%
1% 1%
0%
Difficulty in
Lack of
achieving
quality deals
succesful exits
that fit
investment
profiles
Lack of
experienced
local investors
5%
4% 3%
1%
Lack of
talented
portfolio
management
team
1% 0% 0%
0% 0% 0%
0% 0% 0%
Lack of
skilled workers
Unstable
economy
Unstable
political
environment
0%1% 0%
Exchange
rate risk
0% 0% 0%
Intellectual
property laws
1%
4%
1%
Tax
environment
1%1% 0%
Litigation
environment
1%1%
0% 0% 0%
Regulatory
environment
Personal
safety
and security
concerns
APAC
Europe
U.S.
Point of view:
Helmut Schhsler, EVCA Current Chairman,
Managing Partner of TVM Capital
Target industries are increasingly international,
and in order to follow the opportunities, we
need to broaden our approach to deal making.
European VCs are well equipped to handle the
challenges of globalization due to the crossborder experience they gained from deal making
within Europe.
For example, TVM Capital is a European venture
investor with traditionally strong international
scope. Nevertheless, without being truly local it
is difficult for a venture capitalist to grow market
leaders, since it cannot be a good partner to the
local investment community whether due to
lack of local knowledge or time availability.
38
Another example is that TVM Capital allocates

up to 50 percent of its capital under management
in the U.S. market. As a result, we opened an
office there in 1986. Keeping astute for new
opportunities, wherever they might arise in the
world, leads venture capitalists to grow larger and
more specialized teams, with an increasing variety
of local backgrounds and foreign languages.
With various business cultures and languages
found in Europe, European VCs have a lead in
building such teams, well fit for the complex
world around us, flat or not.
U.S. perspective
VCs are taking advantage of opportunities by investing in

domestic companies with global operations and partnering with
firms and investors who have track records in target countries.
It is clear from the numbers that a significant percentage of U.S.
VCs believe that they can maximize returns for their investors
by taking advantage of the opportunities that exist in emerging
markets. Entrepreneurship is growing across all regions of the
globe. However, because many VCs recognize the increased
risks and costs associated with investing directly in a foreign
country or region, they are pushing forward quite aggressively
by investing in domestic companies with operations overseas.
This year 88 percent of U.S. respondents had some portion

of their portfolio investments in domestic businesses with
significant operations outside of the United States primarily
China and India almost twice as many compared to last
years survey. Yet, more than half of those who responded
that they had portfolio companies with significant operations
outside their home countries indicated that less than 25
percent of their portfolio fell into this category.
Figure 45. Percent of portfolio companies with significant operations outside the country/region of headquarters (all respondents)
40%
32%
32% 32%
30%
30%
25%
20%
20%
18%
17% 18%
15%
15%
13%
12%
9%
10%
5%
2%
3%
2%
0%
0%
1-10%
11-25%
26-50%
51-75%
76-100%
Global
U.S.
Non-U.S.
39
Clearly, this approach can provide a number of benefits to

investors, particularly smaller firms without the resources
to manage direct global investments. It reduces costs. It
alleviates many concerns over issues such as intellectual
property protection. It lessens the challenges of working
within an unfamiliar culture.
Figure 46. Location of choice when relocating significant operations outside the country/region of headquarters (U.S. respondents)
80%
70%
60%
50%
40%
42%
41%
34%
29%
30%
20%
14%
10%
5% 4% 3%
0%
8%
1% 1% 1% 1% 1% 0%
Manufacturing
China
Latin America
Other Asia
India
UK & Ireland
CIS & Russia
South Korea
Israel
40
0% 1%
3%
7%
1% 0% 0% 0%
0% 0%
4%
2% 1% 1%
0% 0%
Engineering
3%
0%
2%
0% 1% 0% 0% 0% 0%
Current strategies
Among those VCs who are currently investing abroad,
48 percent have developed strategic alliances with a
foreign-based firm and 51 percent invest only with other
investors who have a local presence. This underscores the
need in venture capital to be physically close to the portfolio
companies, in order to work with management. Firms
also indicated that to succeed, they need to understand
local culture, and to do so they must have a local presence
in their target countries to take advantage of in-country
expertise. To this end, they also are hiring investment staff
with expertise in target countries (41 percent) and requiring
their partners to travel more (58 percent).
Figure 47. Current business practices used by venture capitalists to mange foreign investment focus (all respondents)
80%
70%
63%
58%
55%
58%
60%
50%
48%
44%
50%
40%
52%
51%
40%
40%
41%
34%
33%
41%
36%
33%
29%
30%
20%
11%
10%
4%
7% 8% 6%
7%
8%
12%
6%
0%
Develop strategic
alliance(s) with
Invest only with

other investors
that have a
local presence
Acquire
foreign-based
firm(s)
Require partners
to travel more
Require partners to
Relocate
transfer to foreign
headquarters of
locations
portfolio companies to
be near our firm
Open new
office(s)
in foreign
location(s)
Hire investment
in target
countries/regions
Invest in local portfolio

companies with
significant operations
outside of home
country/region
Global
U.S.
Non-U.S.
41
Those who are investing directly in global

markets believe a hands-on approach that has
people on the ground, local connections and
an understanding of the culture is necessary to
succeed when investing globally. You can not
manage these investments from across an ocean,
said Mark Heesen, president of the National
Venture Capital Association.
China, India, Israel and Canada

are primary target countries for
U.S. venture capitalists
There continues to be a consensus among U.S. venture
capitalists regarding where the most opportunities exist
globally. Most of the U.S. firms who have invested globally
are making investments in China, India, Israel, and Canada.
However, even in these countries, the majority of U.S.
respondents are essentially dabbling, making only one to
two investments thus far.
Allocations by U.S. and non-U.S. firms alike for the most part
represent less than five percent of capital invested overseas in
fewer than three to five deals. Survey results indicate that there
will likely not be significant change during the next five years.
While China, India, Israel, and Canada are by far the most
seductive target markets for investment by U.S. firms,
non-US venture capitalists have a different focus.
By far the greatest contrast is among European respondents,
who indicated a strong preference for investing in other parts
of Europe (66 percent) and the United States (17 percent),
with the remainder focused on Asia. Asian respondents had a
similar level of interest in the United States (18 percent), but
looked primarily inward to other Asian countries (79 percent),
with the remainder focused on the Middle East. This data
shows that while non-U.S. investors are interested in making
deals outside of their home countries, there is still a desire
to remain somewhat close to home and do business with
cultures close to theirs.
Figure 49. Primary locations where investors would like to expand investment
focus (U.S. respondents)
5%
7%
4%
Figure 48. Foreign investments currently held by VC firms (U.S. respondents)

34%
6%
12%
4%
9%
8%
11%
24%
53%
China
India
23%
Canada
UK & Ireland
Israel
Australia/New Zealand, Other Asia, South Korea
1-2 Investments
3-5 Investments
Other Europe *
Other **
6-10 Investments
11-15 Investments
16+ Investments
42
* Austria, Germany, Liechtenstein, Switzerland, Central & Eastern Europe, Nordic Countries
** Africa, Latin America, Middle East (excl. Israel)
Resources are critical for

international investing
The survey findings indicate that global investing will
likely broaden among U.S. VC firms, at a slow pace for
the foreseeable future. Of those VCs who indicated they
currently have capital deployed abroad, more than half of
U.S. respondents (54 percent) expect to expand their global
investment focus over the next five years, and 61 percent of
non-U.S. firms also see a future in investing outside of their
home country.
Not surprisingly, larger VC firms are most likely to be

investing outside the United States and plan to increase
their overseas investment. In fact, 85 percent of U.S. firms
with capital management over $1 billion indicated plans
to increase their foreign investments. Interestingly, among
mid-size firms, 47 percent of the VCs with $100 to $499
million capital under management are investing outside the
U.S. This underscores that global investing requires additional
resources and a sophisticated infrastructure in order to
manage a global investment strategy. That said, the study
also shows that a significant percentage of mid-size firms
recognize that opportunities exist outside their home country
and are cautiously building their franchise in a way that can
enable them to take advantage of those opportunities.
Figure 50. Percentage of venture capitalists expecting to expand investment focus outside their home country/region by capital under management (all respondents)
100%
86%
90%
92%
85%
80%
65%
70%
60%
50%
40%
55%
48%
68%
69%
65%
58%
47%
34%
30%
20%
10%
0%
$100 $499 Million
$500 Million $1 Billion
Global
U.S.
Non-U.S.
43
As these U.S. VCs look toward the future, they expect to

open new offices in foreign locations (20 percent) and hire
investment staff with local expertise (20 percent). Fewer
plan to invest only with other investors who have a local
presence (15 percent), require their partners to travel more
(14 percent) or develop strategic alliances with foreign-based
firms (14 percent). Some plan to invest in local portfolio
companies with significant operations outside of the U.S.
(ten percent.)
Figure 51. Primary business practices venture capitalists expect to use to manage expanding investments (all respondents)
80%
70%
60%
50%
40%
30%
19%
20%
23%
14%
23%
27%
20%
15%
12%
10%
15%
14%
11%
2% 2% 2%
2% 2% 2%
1% 3% 0%
Require partners
to transfer to
foreign locations
to be near our firm
0%
Develop strategic
alliance(s) with
Global
U.S.
Non-U.S.
44
Invest only with

other investors
that have a
local presence
Acquire
foreign-based
firm(s)
Require partners
to travel more
17%
20%
16%
11%
Open new
office(s) in
foreign location(s)
9% 10% 8%
Hire investment
in target
countries/regions
Invest in local portfolio

companies with
significant operations
outside of home
country/region
Primary reasons venture

investors are expanding globally
Among the primary reasons VCs around the world are
interested in investing globally is to take advantage of higher
quality deal flow a benefit perceived to exist particularly
in the United States, China, parts of Europe, and Israel.
A second reason is the emergence of an entrepreneurial
environment, again and notably in China, but also India.
Among U.S. firms, this latter rationale is the most significant
motivation for investing globally. Other motivators include
access to quality entrepreneurs, diversification of industry and
geographic risk and access to foreign markets.
Figure 52. Top locations where U.S. investors are interested in expanding and why
80%
70%
70%
60%
50%
42% 42%
40%
29%
30%
20%
21%
18%
21%
20%
17%
13%
10%
10%
22%
21%
22%
17%
11%
6%
4%
0%
0%
Higher quality
deal flow
21%
Access to quality
entrepreneurs
Emergence of
entrepreneurial
environment
0%
13%
10% 11%
10%
10%
8%
6%
0%
Diversification of industry
and geographic risk
0%
0% 0%
Access to
foreign markets
Lower cost
locations
3% 4%
0%
for deal flow in our
local market
Canada
China
India
Israel
UK & Ireland
45

of capital under management invested in foreign locations.

The number of respondents who have invested between as
little as six to ten percent of their capital abroad is strikingly
smaller. Among U.S. investors, it is 12 percent. And, these
numbers sink further as the percentage of capital goes up.
Expressions of interest not withstanding, when it comes

down to actual capital being deployed in another country,
the percentage of foreign capital under management for
most venture capitalists is quite low. Among U.S. investors,
of those who are currently investing outside the U.S., 66
percent of respondents said they have less than five percent
80%
70%
66%
60%
52%
50%
40%
34%
30%
20%
15%
15% 14%
12%
10%
6%
4%
15%
6%
2%
4%
0%
1-5%
APAC
Europe
U.S.
46
6-10%
11-15%
16-20%
6%
4%
7%
2%
21-25%
4%
26-50%
6%
9%
8%
3%
51-75%
3%
3%
76-100%
Will the percentages rise five years from now? Respondents,

who were asked to forecast the percentage of capital under
management they intend to invest in the future, indicated
that these percentages will grow over time. Among U.S.
firms, in five years, 64 percent of firms indicated they
intend to deploy at least 6 to 20 percent of capital under
management in a foreign location. Globally that number is
56 percent and among non-U.S. firms, it is 51 percent.
80%
70%
60%
50%
40%
35%
31%
30%
20%
20%
12%
12% 12%
10%
0%
0%
16%
9%
15% 17%
18%
13%
16%
14%
9%
7%
3%
1-5%
6-10%
11-15%
16-20%
21-25%
26-50%
9% 10%
3%
51-75%
6%
8%
5%
76-100%
APAC
Europe
U.S.
47

Although there are challenges to investing overseas, the
most common reason why VCs do not do so is insufficient
motivation: the primary factor cited globally and fairly
evenly among both U.S. and non-U.S. firms is that they
already have adequate deal flow domestically. As in the
2006 survey, close to 60 percent of U.S. respondents cited
adequate deal flow and superior returns in the U.S. as the
primary reason for not expanding globally.
A secondary reason cited was resource constraints, such

as a lack of partners or capital. Interestingly, among U.S.
respondents, more cited resource constraints this year
(25 percent) than in 2006 (16 percent). This could well be
due to the fact that as firms become more experienced
in overseas investing, they are developing a more realistic
picture of what is required to expand globally. Given that the
trend in the U.S. is to smaller fund sizes, some VC firms have
correspondingly fewer partners and other resources to deploy
towards global strategies.
80%
70%
60%
50%
40%
40%
30%
36%
34%
28%
25%
19%
20%
19%
9%
10%
Adequate deal flow in

existing markets
Europe
U.S.
48
14%
8%
6%
0%
0%
APAC
23%
23%
16%
Resource constraints
(lack of partners, capital,
time, etc.)
Contractual
restrictions/Limited Partner
Legal restrictions
Superior returns are

available in our local
market
Investing globally
As mentioned earlier, one way to build a comfort zone for
global investing and to take advantage of opportunities
abroad is to invest locally in companies with operations outside
the home country, as opposed to investing directly in foreign
countries. This year, there was a hefty increase in the number
of respondents who indicated that a sizeable number of their
portfolio companies have significant operations outside the
country in which they are headquartered.
A noteworthy number, 88 percent of U.S. respondents,
indicated that at least some portion of their portfolio has
significant operations outside of the U.S. Again, moderation
is evident as more than half of those indicated that less
than 25 percent of their portfolio had significant foreign
operations. Nonetheless, these numbers have increased
significantly from the prior years and reflect an increased
trend in this method of investment.
80%
70%
60%
50%
38%
40%
28%
30%
30%
23%
21%
20%
32%
18%
14% 12%
13%
18% 18%
15%
9%
10%
4%
1%
2%
3%
0%
0%
1-10%
11-25%
26-50%
51-75%
76-100%
APAC
Europe
U.S.
49
Where are these operations landing? Clearly, it depends on

the activity and who is making the call. Globally and among
U.S. respondents, China has become the primary choice for
locating manufacturing operations, while India is the primary
choice for R&D operations. Engineering operations tend to
land in India as well, but China is also a popular location.
For back office activities, again, the choice is India.
One reason why this approach is taking off is that investors are
concerned about intellectual property and liquidity events and,
in general, they feel a need to be closer to top management.
This also reflects a new reality that VCs are now investing in
companies that operate globally from day one companies that
reflect a larger global entrepreneurial sector. This strategy allows
the portfolio companies (and investors) to take advantage of cost
savings and access to talent in foreign markets, while protecting
intellectual property. There are, however, concerns that over time
such a trend could result in the U.S. losing its R&D edge.
Impediments to
global investing
For all the benefits of overseas investing, VC firms encounter
a variety of risks and challenges abroad.
Both U.S. and non-U.S. firms perceive the U.S. as the country
where the cost of complying with regulation is too high. In fact,
the percentage of non-U.S. respondents who indicated this as
a concern leaped from 28 percent last year to 41 percent this
year. Globally, four percent more, 44 percent, saw this issue as
a concern. Forty-six percent of U.S. respondents believe the cost
of complying with corporate governance is too high.
Figure 57. Top locations where the cost of complying with corporate governance regulation is too high (all respondents)
80%
70%
60%
50%
44%
46%
41%
40%
30%
20%
8% 9% 7%
10%
7%
9%
5%
5%
7%
2%
5% 5% 5%
4% 3% 5%
3% 5% 2%
3% 5% 2%
3% 3% 4%
Austria,
Germany,
Liechtenstein,
Switzerland
Israel
China
Nordic
Countries
France, Italy,
Monaco,
Portugal, Spain
3% 2%
5%
0%
U.S.
Global
U.S.
Non-U.S.
50
UK & Ireland
Canada
India
Benelux
The ongoing debate in the U.S. over regulatory issues and

the resulting press coverage, may be contributing to the
tremendous increase of non-U.S. respondents attitudes that
the U.S. regulatory environment is too costly.
Another significant issue regarding the U.S. is the perception
that the litigation environment creates additional financial
risk. Globally, 35 percent of respondents cited this as a
problem for the U.S., compared with 46 percent last year.
Among non-U.S. respondents the number is also down from
36 percent last year to 25 percent this year. And, among
U.S. respondents the number was 58 percent, down from
last years 70 percent. The drop in the percentage of all
respondents to the perception of this issue as a challenge,
may reflect the overall slow down in corporate litigation.
Given the above, it is important to note that no other
impediments were significant when investors considered the U.S.
Figure 58. Top locations where litigation environment creates additional financial risk (all respondents)
70%
58%
60%
50%
40%
35%
30%
25%
20%
10%
10%
13%
3%
8%
10%
3%
0%
U.S.
Central &
Eastern
Europe
Israel
12%
8%
7% 6% 7%
7% 6% 7%
0%
China
Latin America
India
5%
3%
6%
CIS & Russia
4% 3% 4%
4%
3%
0%
Nordic
Countries
Canada
6%
2%
0%
Africa
Global
U.S.
Non-U.S.
51
Figure 59. Impediments to investing in the United States (APAC, Europe and U.S. respondents)
40%
30%
20%
10%
3%
0%
4% 4% 5%
APAC
Europe
U.S.
3%
Lack of quality
deals that fit
investment
profile
Lack of
experienced
local investors
0%
12%
10%
9%
9%
4%
4%
3%
1% 0%
0%
Difficulty in
achieving
successful exits
52
7%
7%
1%
Lack of
talented
portfolio
management
team
1% 1%
0% 1% 1%
0% 1% 0%
Lack of skilled
workers
Unstable
economy
Unstable
political
environment
2%
0%
Exchange
rate risk
0%
0%
Intellectual
property laws
11%
8%
4%
3%
0%
Tax
environment
Litigation
environment
Regulatory
environment
Canada and Israel

perspective
While this report focuses on the larger geographical regions in

which the most venture capital activity is taking place (and the
most responses were received), it is important to also discuss
two countries outside of those regions in which there has been
significant interest Canada and Israel.
Canada has grabbed the attention of 11 percent of U.S. VCs
as a primary country of expansion (although it did not show
up at all in responses from non-U.S. investors). In fact, where
the U.S. is concerned, it lags only behind China and India.
In addition to the historical reasons why Canada has been
attractive to U.S. VCs (primarily geographic proximity and
political/economic stability), survey responders also highlighted
lower costs, lower regulatory compliance and legal costs than
the U.S. In fact, none identified Canada as having a litigation
environment that created additional financial risk. And Canada

was viewed as safer than China, India, and Israel.
When it comes to investing in Canada, the only significant
drawback identified was its perceived unfavorable tax
environment. Forty percent of U.S. respondents and 43
percent of Americas respondents (excluding the U.S.) cited
Canadas tax laws as an issue. However, only six percent of
APAC, respondents and five percent of European respondents
were troubled by this. On the other hand, Canada was not
seen as having some of the negatives as the U.S., such as the
cost of complying with corporate governance or the litigation
environment, or perceived barriers of other countries, such as
weak intellectual property laws and lax regulation.
Figure 60. Top locations with an unfavorable tax environment (all respondents)
60%
50%
40%
40%
30%
28%
20%
16%
16%
12%
8%
10%
9% 8% 11%
7% 7% 8%
11%
7%
4%
6% 7% 5%
6% 5% 7%
9%
5% 4% 5%
5%
4% 4% 4%
0%
0%
Canada
Nordic Countries
Austria,
Germany,
Liechtenstein,
Switzerland
India
France, Italy,
Monaco,
Portugal, Spain
UK & Ireland
Israel
China
U.S.
Australia/New
Zealand
Global
U.S.
Non-U.S.
53
Israel has also drawn the interest of U.S. VCs, although less
than countries like Canada. It can claim six percent of U.S.
respondents that consider it a primary country of expansion.
Only two percent of European respondents consider Israel
of interest and it did not show up among APAC countries.
Among those interested in investing in Israel, the primary
reason for expanding there was due to higher quality deal
flow. As Israel has its own venture capital community, it
appears that new foreign investment interest is less significant.
Among the challenges Israel faces in attracting U.S. investors,
however, is a perceived lack of talented portfolio management
teams. Also cited as significant impediments were difficulty in
achieving successful exits, a lack of quality deals, personal safety
and security concerns, and an unstable political environment.
For Canadian venture capitalists, 44 percent of respondents
are currently investing abroad, some of which is being done
through investing in local companies with operations in
foreign countries. Forty-four percent of Canadian respondents
have between one and ten percent of their investments in
companies that have significant operations in another country,
another 22 percent have between 11 and 25 percent, and
19 percent have between 26 and 50 percent located abroad.
Among Israeli VCs, only 29 percent are engaged in
investments outside of home.
Of those Canadians who are involved in foreign investing,
75 percent invest only with other investors who have a local
presence, while 58 percent develop strategic alliances with
foreign-based firms. And, 50 percent require their partners
to travel more to manage their investments. Among Israeli
VCs, the options they choose for managing their foreign
investments are equally split among developing strategic
alliances with foreign-based firms, requiring partners to travel
more, relocating the headquarters of portfolio companies
to be closer to the investment firm, hiring investment staff
with expertise in the target country or region and investing in
local portfolio companies with significant operations outside
of Israel. And, while 78 percent of those Canadian VCs plan
to expand their investment activities over the next five years,
only 20 percent of Israelis intend to expand.
54
Global capital markets are critical to the

Canadian venture capital community. Although
Canada is among the top destinations for
increased foreign investment in this sector, as
the supply of venture capital across this country
continues to decline, global investors are
finding it more difficult to partner with local
firms. Since global investors prefer to co-invest
with local VC investors, we must continue to
build a strong domestic base of venture capital
funds and local venture capital partners to
ensure there are no barriers preventing foreign
flows of investment capital from crossing our
borders, said John Ruffolo, National Leader,
Industry Group, Deloitte Canada.
Years ago, Israels technology community looked largely to
the U.S. venture capital community. It now appears that
home-grown Israeli investors have matured to the point
where they are capable of funding and supporting new
companies. Accordingly, the VCs in Israel are focusing on
their local entrepreneurs, and foreign investors have fewer
opportunities to invest.
Global Report (continued)

VCs capital source
becoming more global
Although venture capitalists are expanding their global
presence slowly (if at all), a majority believe that their limited
partner base will become increasingly international. Fifty-nine
Figure 61. APAC respondents
percent of all respondents expected that the number of their

investors located outside their home country/region would
increase over the next five years. That number was fairly
consistent between U.S. and non-U.S. respondents at 60 and
58 percent respectively. About 39 percent globally believed
the number would remain the same.
Figure 62. Europe respondents
Figure 63. Middle East/Africa respondents
58%
41%
50%
50%
44%
52%
1%
4%
Figure 64. The Americas (excl. U.S.) respondents

Increase
Decrease
Increase
Figure 64. The Americas (excl. U.S.) respondents
Decrease
Remain the same
Increase
Figure 65. U.S. respondents
Decrease
Remain the same
Remain the same
27%
27%
39%
73%
60%
73%
1%
Increase
Decrease
Remain the same
Increase
Increase
Decrease
Decrease
Remain the same
Remain the same
55
Change in location of VC
Firms Limited Partners
over the next five years
Taken together, it appears that capital is flowing from

the United Kingdom and the United States to emerging
markets, which demonstrates the increasing globalization of
capital markets. It also brings up some intriguing challenges
for venture capitalists when it comes to managing an
increasingly international LP base, such as tax considerations
when exiting deals.
More detailed analysis shows that 63 percent of U.S.

respondents indicated that their LP base would increase from
Ireland and the United Kingdom, and, to a lesser extent, from
other European countries. Sixty-three percent of Asia Pacific
respondents indicated that the LP base would expand from
the United States and, to a lesser extent, from the United
Kingdom and Ireland. Similarly, 53 percent of European
respondents indicated that their LP base would increase
primarily from the United Kingdom and Ireland and, to a
lesser extent, from the United States.
Figure 66. Increase of Limited Partners in country/region over the next five years (all respondents)
100%
90%
88%
86%
80%
71%
70%
61%
60%
50%
63%
63%
53%
49%
48%
48%
46%
43%
40%
43%
37%
36%
32%
28%
30%
20%
11%
10%
14%
20%
APAC
Europe
Middle East/Africa
U.S.
14%
9%
Austria,
Germany,
Liechtenstein,
Switzerland
France, Italy,
Monaco,
Portugal,
Spain
22%
20%
14%
6%
3%
0%
UK & Ireland
56
22%
5%
0%
U.S.
27%
20%
Middle East
(excl. Israel)
Nordic
Countries
26%
24%
23%
17%
14%
9% 11%
9%
9%
12% 11%
14%
9%
9%
5%
0%
China
0%
Central &
Eastern
Europe
0%
0%
Benelux
Canada
In conclusion an evolution,
not a revolution
reach out abroad may find they are more successful in making
the kinds of deals that bring new opportunities to them, their
investors, and the entrepreneurs they finance.
If global investing is a gradually forward-moving strategy, it is

because many venture capitalists around the world are savvy
to the possibilities that new markets, ideas, and talent can
bring. But, they are also acutely conscious of the challenges
and expense that investing abroad entails. Caution is the
operative word as they enter new territories, and that means
starting out small, both in terms of the percentage of assets
managed that they allocate to foreign investments and the
actual number of deals entered into. And, while large firms
are more likely to have the resources that create the potential
for direct global investment, firms managing smaller amounts
of assets, can get in the game, too, if indirectly, by investing
in domestic companies with operations abroad.
With APAC VCs, this years survey reveals a strategy of

investing within the region as well as looking at the U.S.,
even as the U.S. is contemplating investing in APAC
countries. These emerging networks of VCs create an
interesting albeit increasingly competitive environment for
investing in developing countries.
Fundamentally, all VCs are looking for better returns and for
the next big thing. They are looking for talent for their
companies, no matter where it may be in the world. Rather
than being deterred by perceived impediments, they are
learning what they need to do to overcome them or simply
weighing them against the benefits of the investment. And,
since companies are able to operate globally, thanks to the
networks and crucial technology these VCs are developing,
global borders are not a constraint. Even emerging countries,
burgeoning with talent, are seen as prime opportunities.
Some interesting trends appear to have emerged, based
on the responses to the survey questions this year.
Among U.S. investors, it is clear that they are slowly but surely
investing abroad. However, U.S. VCs must make the necessary
adaptations fundamental to succeeding in a global market,
including making a concerted effort to develop global networks
through strategic alliances and outreach. That may also mean
looking beyond China and India to places like Brazil, where
there is an excellent engineering talent pool thus far untapped
by U.S. firms. Far-sighted investors who do their research and
In one significant way European investors are similar to their

APAC counterparts: their primary investment focus appears
to be in countries in their own region. Their investments may
be foreign, but are not particularly global. And that does
not appear to be changing anytime soon. Some 67 percent
of European VCs have indicated that they will expand their
investment focus by looking at other European countries, either
German speaking (mainly due to higher quality deal flow) or
Central and Eastern Europe (mainly due to deal flow and the
emergence of an entrepreneurial environment). Europeans, like
APAC VCs, also look to the U.S. for investments and to a lesser
extent China. Non-European VCs might ask themselves if they
are missing opportunities seen by European VCs when it comes
to investing in European companies.
So, what does the future hold for global investing? Based on
the responses to this years survey, venture capitalists are being
conservative in their investments, but they are moving forward.
The brave new world that global investing represents is full
of potential, but also full of uncertainty and challenges for
venture capitalists. With so much at stake, it is no wonder that
the pace forward is incremental. Nevertheless, the course has
been set. Certainly, as more of these current deals make their
way through their lifecycle and investors develop a greater
expertise in doing business outside of their home countries,
the expansion forecasted by this years respondents could
become the new story of the future.
57
Recent thought leadership
The trillion dollar challenge: Principles for profitable

convergence, Deloitte Touche Tohmatsu
Growing their own, 2007 Global survey of CEOs in the

Deloitte Technology Fast 500, Deloitte Touche Tohmatsu
Knowledge is power: Technology, Media & Telecommunications

Global Industry Group, Deloitte Touche Tohmatsu
Technology Predictions, TMT Trends 2007, Deloitte Touche

Tohmatsu
The hundred year storm: Wireless disruption in

telecommunications, Deloitte Touche Tohmatsu
Media Predictions, TMT Trends 2007, Deloitte Touche

Tohmatsu
Television networks in the 21st century: Growing critical

mass in a fragmenting world, Deloitte Touche Tohmatsu
Telecommunications Predictions, TMT Trends 2007,

Getting off the Ground: Why the move to VoIP is a decision

for all CXOs, Deloitte Touche Tohmatsu
Convergence Conversations, Deloitte Touche Tohmatsu
Changing China: Will Chinas technology standards reshape

your industry?, Deloitte Touche Tohmatsu
Global trends in venture capital 2006 survey, Deloitte

Touche Tohmatsu
Turn on to digital: Getting prepared for digital content
creation and distribution in 2012, Deloitte & Touche LLP
Turn the page: The net benefit of digital publishing,
Deloitte & Touche LLP
Protecting the digital assets: The 2006 Technology, Media
& Telecommunications Security Survey, Deloitte Touche
Tohmatsu
Eye to the future: How TMT advances could change the way
we live in 2010, Deloitte Touche Tohmatsu
Strategic Flexibility in media and entertainment: Scenarios,
options, action!, Deloitte Touche Tohmatsu
TMT Trends: Predictions, 2006 A focus on the technology
sector, Deloitte Touche Tohmatsu
TMT Trends: Predictions, 2006 A focus on the media
sector, Deloitte Touche Tohmatsu
TMT Trends: Predictions, 2006 A focus on the
telecommunications sector, Deloitte Touche Tohmatsu
Be prepared: Imperatives for TMT executives, 2005-2010,
58
Moores Law and electronic games: How technology

advances will take electronic games everywhere, Deloitte
Touche Tohmatsu
Making the offshore call: The road map for communications
operators, Deloitte Touche Tohmatsu
About TMT
The Deloitte Touche Tohmatsu (DTT) Technology, Media &
Telecommunications (TMT) Industry Group consists of the
TMT practices organized in the various member firms of
DTT. It includes more than 6,000 member firm partners,
directors and senior managers supported by thousands
of other professionals dedicated to helping their clients
evaluate complex issues, develop fresh approaches to
problems and implement practical solutions. There are
dedicated TMT member firm practices in 44 countries and
centers of excellence in the Americas, EMEA and Asia Pacific.
DTTs member firms serve nearly 90 percent of the TMT
companies in the Fortune Global 500. Clients of Deloitte
member firms TMT practices include some of the worlds
top software companies, computer manufacturers, wireless
operators, satellite broadcasters, advertising agencies and
semiconductor foundries as well as leaders in publishing,
telecommunications and peripheral equipment manufacturing.
Contacts at Deloitte Touche Tohmatsu (DTT)

and its member firms
Igal Brightman
Israel
Global Managing Partner
+972 3608 5500
ibrightman@deloitte.co.il
Americas
Alberto Lopez Carnabucci
Argentina
+54 11 4320 2700
alopezcarnabucci@deloitte.com
Marco Antonio Brandao Simurro

Brazil
+55 11 5186 1232
mbrandao@deloitte.com.br
John Ruffolo
Canada
+1 416 601 6684
jruffolo@deloitte.ca
Arturo Platt
Chile
+562 2703 361
aplatt@deloitte.com
Elsa Victoria Mena Cardona

Colombia
+571 546 1815
emenacardona@deloitte.com
Carlos Gallegos Echeverria

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Mexico
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Mark E. Jensen
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mejensen@deloitte.com
Jos Luis Rey

Uruguay
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jrey@deloitte.com
Carlos Brown
Venezuela
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Georg Krause
Austria
+43 153 700 4810
gkrause@deloitte.at
Lieve Creten
Belgium
+32 2600 6240
lcreten@deloitte.com
Garret Byrne
Central Europe
+420 246 042 339
gbyrne@deloittece.com
Gennady Kamyshnikov
CIS & Russia
+7 495 787 0600
gkamyshnikov@deloitte.ru
Kim Gerner
Denmark
+45 33 76 33 33
kgerner@deloitte.dk
Jussi Sairanen
Finland
+358 40 752 0082
jussi.sairanen@deloitte.fi
Eric Morgain
France
+33 1 5561 2798
emorgain@deloitte.fr
Steffen Saeuberlich
Germany
+49 30 2546 8252
ssaeuberlich@deloitte.de
Tom Cassin
Ireland
+353 1417 2210
tcassin@deloitte.ie
Asher Mechlovich
Isreal
+972 3 608 5524
amechlovich@deloitte.co.it
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Italy
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tlaudisio@deloitte.it
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Luxembourg
+352 451 452 621
darendt@deloitte.lu
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jhakimian@deloitte.com
Piet Hein Meeter

Netherlands
+31 20 582 4351
pmeeter@deloitte.nl
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Norway
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jborchgrevink@deloitte.no
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Portugal
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joaolsilva@deloitte.pt
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+27 12 482 0284
pedevilliers@deloitte.co.za
Eduardo Sanz
Spain
+34 91 514 5000
edsanz@deloitte.es
Birgitta Loof
Sweden
+468 5067 1131
bloeoef@deloitte.se
Sait Gozum
Turkey
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sgozum@deloitte.com
Damien Tampling
Australia
+61 2 9322 5890
idtampling@deloitte.com.au
Arthur Wong
China
+86 10 8520 7101
arthurwong@deloitte.com.cn
N. Venkatram
India
+91 22 5667 9125
nvenkatram@deloitte.com
Yoshitaka Asaeda
Japan
+813 6213 3488
yoshitaka.asaeda@tohmatsu.co.jp
Alex Ooi
Malaysia
+603 7723 6500
alexooi@deloitte.com
John Bell
New Zealand
+64 9303 0853
jobell@deloitte.co.nz
Hyun Chul Jun

South Korea
+822 6676 1307
hjun@deloitte.com
Shariq Barmaky
Singapore
+65 6530 5508
shbarmaky@deloitte.com
Europe/Middle East/Africa
Joel Greenwood
United Kingdom
+44 20 7303 4296
jgreenwood@deloitte.co.uk
Asia Pacific
Clark C. Chen
Taiwan
+886 2 2545 9988 x3065
clarkcchen@deloitte.com.tw
59
For more information,

please contact
Noel J. Spiegel
United States
Partner in Charge of DTT TMT Marketing
+1 212 492 4135
nspiegel@deloitte.com
Francois Van Der Merwe
Director of DTT TMT Marketing
+612 9322 5406
francoisvandermerwe@deloitte.com.au
Amanda Goldstein
DTT TMT Marketing
+1 212 436 5203
agoldstein@deloitte.com
Craig Fowler
United Kingdom
Director of EMEA TMT Marketing
+44 2073 035 293
crfowler@deloitte.co.uk
Yvonne Dow
China
Director of Asia Pacific TMT Marketing
+852 2852 6611
ydow@deloitte.com
60
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Global trends in venture capital 2007 survey

Canada and Israel perspective

55 Global report (continued)

Global trends in venture capital 2007 survey

Global trends in venture capital 2007 survey

About the survey:

National Venture Capital Association (NVCA)

Global trends in venture capital 2007 survey

Countries from around the world have been

Asia Pacific (APAC)

Global trends in venture capital 2007 survey

Figure 2. Assets under management (all respondents)

$100 $499 Million

Greater than $1 Billion

The survey questions sought to discover the degree to which

This years survey questions and format closely match last

Global trends in venture capital 2007 survey

Executive summary global

the greatest percentage doing so coming from European

We may live in a global economy, but at this time the venture

How different is the outlook five years out? Of the 51 percent

The intentions for growth of foreign investment, as

Among U.S. investors, 54 percent indicated that they would

Global trends in venture capital 2007 survey

It is also important to note that given the tremendous

VCs around the world are essentially dabbling

Global trends in venture capital 2007 survey

Despite recent headlines, the relatively static nature of the

There is a small but dedicated group of venture

Asia Pacific investors, for instance, are primarily targeting

Invest only with

Global trends in venture capital 2007 survey

Of course, it should be noted that while these respondents

So this is a cautious group that is approaching foreign

Figure 7. Percent of capital under management investors currently have

11-15% 16-20% 21-25% 26-50% 51-75% 76-100%

Global trends in venture capital 2007 survey

Current strategies for

country. To that end, some hire investment staff with local

Countries of choice for

Invest only with

Global trends in venture capital 2007 survey

Where are Asia Pacific VCs looking? Among this years

Chinas venture capital market has continued

Respondents this year are less interested in the U.S. (18

Figure 9. Foreign investments currently held by VC firms (APAC respondents)

Another 27 percent are interested in other APAC countries,

Singapore has recently seen an increase in

Global trends in venture capital 2007 survey

Of all respondents who expect to expand their foreign

Figure 11. Percentage of venture capitalists expecting to expand investment

Middle East (excl. Israel)

Resources are critical

Of those APAC VCs who indicated they currently have capital

Global trends in venture capital 2007 survey

Invest only with

Contrasting this data with the previous chart concerning

Chinas greatest allure to APAC VCs is the emergence of

Other APAC countries are attractive to APAC VCs primarily

At the global level, VCs are primarily interested in investing

Global trends in venture capital 2007 survey