MELISSA A. CRAIG - PRACTICAL TURNAROUND THINKING

Deloitte’s webinar today was moderated by Deloitte LLP Vice Chairman, Eric Openshaw.  Mark Heesen, President of the National Venture Capital Association, and Mark Jensen, Managing Partner of Deloitte & Touche’s National Venture Capital Services, were panelists.

Deloitte and NVCA collaborate on an annual global survey of venture capital firms in these countries: United Stated, United Kingdom, Canada, Germany, France, China, India, Brazil and Israel. This year over 500 responses came in with the largest concentration from firms with $100 - $499 million under management.

Mr. Heesen noted that the U.S. venture capital industry has “passed the worst” and that, while there are fewer acquisitions than in previous years, they are of higher quality.  There also are fewer IPOs and they are not as strong as NVCA would want to see.

To anyone following the news, the key findings are not surprising. Respondents report that:

1. The VC industry will contract in the West and grow in the emerging countries of Brazil, India and China.

2. Similarly, company valuations are not expected to increase in the West, but super-majorities of respondents in Brazil, India and China expect valuations in their countries to increase.  Companies that can’t get the valuations they want will stay in development longer and access capital markets later.  Some PE firms are creating larger funds to keep these companies private longer.  However, 39% of the 1,100 on-line participants in today’s webinar believe that it will be 2013 or beyond before IPO market returns.

3. In the West and in the emerging countries, limited partners both want and expect to see larger concentrations of capital going into the emerging markets.

4. However, cross-border investing is expected to slow.  Respondents in every country expect to invest much more in their own countries than outside.  In 2006, 53% of U.S. respondents planned to invest outside the U.S., but in 2010, only 39% planned to do the same.  Today’s panel suggests that recessions serve two important functions: 1) they bring good engineers out of corporate R&D labs where budgets have been cut, and 2) they also reduce the cost of rent and labor.  Both of these factors make the next big thing possible.  It was only in France where a majority of respondents expect to invest more venture capital outside of the country.

5. The “current reality” has caused the greatest impediments to VC investing.  The two greatest influences on growth are 1) an entrepreneurial environment and 2) government supported R&D.  Mr. Openshaw stated that “for good or for bad, it is the new reality” that policies by governments at all levels have a significant effect on venture capital and on entrepreneurial activity in general.  The greatest impediment to increased VC activity is the difficulty in achieving an exit.

Two other interesting findings are that, after years of being seen as having a very stable regulatory environment, the U.S. is regarded by over 50% of respondents as having an unstable regulatory environment .  The survey also finds that the areas of clean technology, life sciences and cloud computing are expected to experience the highest rates of growth.  The slides containing all the survey results can be found here.

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