On October 7, 2008 at Pillsbury Winthrop in Palo Alto, SDForum held the Quarterly Venture Breakfast Series in collaboration with PWC. They discussed trends in venture investments and how the economic landscape will change over the coming years. Text from DJCline.com.
Silicon Valley’s position as an investing center will change over the next decade. Venture capital investment in China will equal America’s in about 7 years. Beyond money, talent will be in short supply. China and India are working to meet the demand for technology professionals, creating their own investment and innovation infrastructure. Today over half the clean tech deals are outside the US. Is this the shape of things to come? Text from DJCline.com.
Sylvia Burks of Pillsbury Winthrop moderated panelists Bronwyn Dylla Bailey of SVB Capital, Tim Chang of Norwest Venture Partners, Brendon Kim of Altos Venture Partners and Robert Walker of Sierra Venture Partners. Text from DJCline.com.
Bronwyn Dylla Bailey of SVB Capital delivered a detailed report on venture capital trends around the world. Asia leads the way in investment by limited partners because of the better rates of return than in even the US. Equity investment in China in the second quarter of 2008 was at a record high of $1.3 billion. India was a lower 238 million dollars. For 2007 private equity investment in Eastern Europe excluding Russia was $3.01 billion, mostly in buyout deals. Latin America was 4.7 billion. These are mostly capital deals not early stage. They are fueled by local high growth rates, expanding middle classes, transitioning family business into professional management and fragmenting markets. Text from DJCline.com.
There are no guarantees this growth will continue in the current crisis environment. Developed markets like North America Europe and Israel have already slowed or declined. Stock markets around the world have been declining since the beginning of 2008. One of the signs of a downturn is the small number of IPOs. In the first half of 2008 there only seven VC backed IPOs in the US, four in Europe, three in India and fifteen in China. Future IPOs will have to wait for exits. Text from DJCline.com.
Bronwyn Dylla Bailey talked about establishing a network of connections in India before investing. The percentage of investments with offshore companies increases every year. Getting in early is important. As local markets develop, so does local investor competition. Partnering with firms that have offices in Silicon Valley and the local market helps. Products or services targeting the growing middle classes around the world show promise. Text from DJCline.com.
Tim Chang of Norwest Venture Partners thinks knowing the people and the local markets you are investing in is crucial. There are many shifty characters and he wants to work with people that are vouched for by people he already knows and trusts. Where a company is based is becoming almost an exercise in tax law. Developers may be in one country and manufacturers in another and the market may be in a third. There are several strategies to look for promising companies like acquiring a team, sending a partner or hiring a local inexperienced venture capitalist. He likes to bring potential partners to the US and work with them for a year before sending them back. Many greedy investors in developing markets have never seen a major downturn and will likely drop out in this current downturn. Cultural and legal complications can increase the cost of deal. In China there can be three sets of books, one for the government, one for the investors and one for the business itself. A local bank can clear up and verify the deal. China will throw bodies at problem rather than tech. He loves the chain-smoking entrepreneur who wears sneakers and a suit because they have the experience overlooked by other Silicon Valley investors. Beware of China deals that are brought to you after being passed over by local investors. He has seen the rise of oil money investors from the Middle East and Russia. He thinks many investors and companies will fail during the downturn. The recovery may see fewer US companies. We are at risk of becoming a banana republic. Despite that he sees great opportunities for companies that carefully manage their money and can get to the other side. Text from DJCline.com.
Brendon Kim of Altos Venture Partners uses human networks but is also looking for new ideas anywhere, even online. An increasing percentage of investments are outside the US but targeted toward the US market. There will be more deals that have a mix of domestic and overseas deals. Companies want to go public in the US if they can. As for doing business in another country, you have to put someone on the ground to make decisions quickly. They want to be cash positive so they donâ€™t lose their house. There is a desire by many Asian immigrants to be your own boss that drives people to become entrepreneurs. They take pride in their companies and their countries. Many locals resent investorsâ€™ interest in seeing their books but must learn that transparency is part of the deal. He likes the commitment of Korean entrepreneurs who put their money and reputation on the line. Still, if your company has a global view and skills you can compete no matter where you are. Labor costs around the world from the Ukraine to Vietnam are increasing. Text from DJCline.com.
Robert Walker of Sierra Venture Partners says the best deals still come from local networks of people you know. It is easier to pick a management team carry out due diligence and can find out whether a company is truly profitable. He feels China is overvalued. His company has twelve employees in four countries, making them small but still international. Your company goes public wherever it makes the most sense. He has seen the rise of sovereign wealth funds from the Middle East interested in clean tech. You cannot invest in Silicon Valley without understanding what is going on around the world. Partnering with locals can give you better insight to their markets. He suspects that products and services that work in one country might be profitable adapted to local markets like online travel services. He thinks Silicon Valley will be fine because unlike Europe, we want to build companies that help not just our own country but the entire world. Our entrepreneurs want to leverage resources around the world to reach global markets as a matter of course. Text from DJCline.com.
While the rest of the business world is planning for the downturn, venture capitalists are planning for the recovery. Text from DJCline.com.
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