Venture Capitalists Must Be Globally Minded
I attended an annual meeting this week in San Francisco for one of the venture capital funds in our portfolio and I came away very impressed with not only the content shared at the meeting but by the people I met there as well. There were investors there from all over the world including China, Spain, Canada, Israel, India, and several other countries. What I enjoy most about these meetings is hearing the different perspectives about what’s happening in the venture markets in other parts of the world. China is experiencing rapid growth in nearly every technology sector and has produced big, venture-backed wins such as Tencent and Alibaba. India is a nascent venture market with a staggering amount of talented technologists. The World Economic Forum reported that China had 4.7 million recent STEM graduates in 2016. India, another academic powerhouse, had 2.6 million new STEM graduates last year while the U.S. had 568,000[1].
The startup scene in Spain is very active and growing rapidly in places like Madrid and Barcelona. Israel is a Mecca for technology and the startup scene in Tel Aviv is on the best in the world. In 2017 Israeli based technology startups raised $5.4 billion [2], roughly 6.4% of the $84 billion raised by tech companies in the United States [3]. This is a staggering number for country that has a population of less than nine million people.
The world is flattening. Startup communities are forming all over the world and are producing great companies that attract global investors. For several years now venture capitalists (both domestic and international) have created or discovered compelling opportunities in markets where ‘venture’ capital formerly was not as abundant. According to Pitchbook, Since the beginning of 2015, US-based VCs have participated in deals funneling a total of $8.5 billion to companies located in India, according to the PitchBook Platform, including unicorns like Flipkart and Ola [4].
One might suggest that in order for venture capital firms to achieve adequate portfolio diversification and exposure they have to be open to investing in foreign markets. And from what I’ve seen, the majority of top-tier venture capital firms are doing just that. Several VCs like Battery Ventures, NEA, and Sequoia publicly advertise that they have dedicated teams in China, India, Israel, and the UK for the sole purpose of capitalizing on opportunities in these locations. It’s interesting to see the increase in the number of U.S. VCs investing outside of the United States in the last 10 to 20 years. I’m sure this is partly due to VCs knowing that if they aren’t thinking about investing globally then they are likely to be left behind. Cheers — KM
Sources:
[2] Times of Israel
[3] Bloomberg
[4] India
