Thursday, February 26, 2009

Venture Capital Up 5% -> If you are in India or China

Venture capital investments up 5%!!

For once a positive headline about the venture capital market -- Venture Capital Investing Up 5%. However, like much good news, the trick is to read the dek -- the increase in investments was OUTSIDE the United States and focused on emerging markets like India, the PRC and Israel.

On the one hand, this could be disconcerting news to US entrepreneurs. If the money is going out of the country, then it is not here to fund your project. On the other hand, in a practical sense this is good news for entrepreneurs. The VCs are still investing in projects. The trick is to provide the VC with the sorts of returns he is expecting. I give a lot more detail on these expectations here.

Right now, the home run returns can be visualized in India and China. (Although very few have materialized to date.) And the investments are often being made in sectors that sound foreign to the VC world of the last 9 years. For example, investments are being made in education, hardware manufacturing and infrastructure. (Rather than web 2.0, Saas, cleantech and the cloud). However, when you take into account the massive and growing middle class in India and China, these investments have the potential for the kind of explosive growth that a VC is looking for. When you think about it, many of the technology fields that powered the VC boom in the last two decades are now relatively mature industries. The PC, the internet, cell phone technology, Web 1.0, even Web 2.0 in many ways. Thus, the trend of many VCs in the US moving away from traditional computer and information technology and into cleantech, biotech and medical devices.

In my mind, the takeaway from this for a budding entrepreneur should be, "how can I innovate in a manner that has the potential to generate explosive returns?" If you can do this, there is plenty of money to be had.

2 comments:

  1. Despite the decreasing amounts of VC money being raised by funds in the USA, there are still 1000s of VC backed companies out there. www.startuphire.com, a job search engine focused on venture capital backed startups, shows 1000s of jobs across the USA. Firms are still hiring, though they have the benefit of selecting from more available talent.

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  2. Tony -- an excellent point, the volume and quality of talent available right now is phenomenal. And firms are still hiring.

    Check out this earlier post of mine on the innovation that often emerges from a recession -- http://dividendsandpreferences.blogspot.com/2009/02/does-recession-boom-times-for-vcs-and.html

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Dividends and Preferences by Hank Heyming is licensed under a Creative Commons Attribution 3.0 United States License.