Oct. 12, 2006 SDF Global Venture Capital Survey

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VC: What’s Hot and What’s Not

On Thursday, October 12, 2006 at Pillsbury Winthrop Silicon Valley in Palo Alto, SDForum presented the 2006 Global Venture Capital Survey, sponsored by Deloitte & Touche LLP and the National Venture Capital Association along with other VCs from around the world.

Allison Tilley, Corporate Partner of Pillsbury Winthrop hosted panelists Brian Goncher, Deloitte’s Portfolio Company Relationship Manager, Navin Chaddha, Managing Director of the Mayfield Fund, Scott Sandell, General Partner of NEA, and Richard E. See, Investment Partner of Mitsui & Co Venture Partners.

Brian Goncher started the event with his survey overview. The survey measures changes in key attitudes of venture capitalists over time about global investing. It answers questions about the impact of regulation on investment and whether venture-backed companies are locating primary operations outside their own countries. The survey also investigates new avenues to growth such as clean technology, medical devices and new materials.

More than half of American venture capital funds are investing globally, particularly in Chinese manufacturing and Indian research and development. Conversely, many VCs in other countries are investing the U.S. Not surprisingly, Western Europe is in investing in Eastern Europe. VCs are still traveling but looking for more local expertise to handle their investments. Most VCs thought there were more barriers to doing business in China than India. One barrier was the risk of intellectual property theft. On the flip side of legal protection, the U.S. is seen as having more risk of litigation. Overall, the global investment trend in energy technology and materials is increasing.

Scott Sandell says that China is ahead in telecommunications and sees growth in IT. His firm will continue to build local expertise and partnerships there. He recommended investing with experienced management that knows how to deal with the hypergrowth of brick and mortar infrastructure. VCs must bring something unique to the market that cannot be found locally. He gave an example of an opportunity for adding value to an opportunity in China, The prospect of reserving a plane flight; hotel and rental car in one place with a credit card does not exist. Over 90% of the business transaction in China is in cash. If you can address this need you will succeed. Another phenomenon he sees is that a new idea can occur to several people at the same time. When he sees the same idea manifested in several countries at the same time, it is time to choose and invest.

Richard E. See is involved in the convergence of telecommunications and the Internet, particularly as companies move functions to the Internet. He expects not just more manufacturing or development, but a culture of innovation to arise from the large numbers of new engineers in China and India. Beyond IT, he thinks the domestic demand for ordinary things like insurance will be great. You must find ways to make connections and support that growth. The social networks and business processes in Silicon Valley simply do not exist in China. Making such an investment requires great patience in dealing with business partners and local regulators on an individual basis.

Navin Chaddha is new to Mayfield but has a long history in venture capital, from his days with Gabriel Venture Partners and Mobius Venture Capital. He continues to see exponential growth in India’s all sectors of their domestic markets. He attributes this growth to tremendous demand, business and regulatory structures similar to the U.S. in the 1960s. He thinks VCs need to think beyond the IT box and into investments brick and mortar infrastructure. As an example, he said Wal-Mart is not in India; instead there are thousands of small retailers. He sees potential in helping these small businesses connect to new markets with new technology. His best story was about establishing a national network of astrologers to help arrange marriages to create a socially acceptable experience similar to eHarmony.

The panel agreed that the unique combination of creativity and capital of Silicon Valley would continue to lead the world and drive investment for some to come.

Copyright 2006 DJ Cline All rights reserved.