Deals

Venture capitalists face a more competitive, global market

Above: A venture capitalist

Image Credit: Flickr / Darius Monsef

2013 was a turning point for venture capital.

According to financial services firm Ernst&Young, global venture capital investment in 2013 increased 2 percent compared to 2012, to $48.5 billion. Meanwhile, economic conditions improved in many geographic markets due to increased levels of liquidity and a boost in investor confidence.

The upshot: More investors are competing to invest in promising startups and entrepreneurs, especially outside the U.S.

The most stunning shift was a cultural one. In 2013, hot startups were able to access capital from a wider variety of sources than ever before — not just the prestigious venture capital firms of Sand Hill Road. Angel investors started organizing and forming new funds, the crowdfunding movement took off, and corporate execs got into the innovation game by working closely with entrepreneurs.

“These changes have challenged VC players to change and raise their game,” writes Bryan Pearce, a global venture capital researcher for Ernst&Young in the report. “They have become more global in their geographic outlook, more sophisticated in their analysis of opportunities and more innovative in terms of how, where and when to invest.”

According to Pearce, we’ll see more venture capital firms establishing offices in emerging and high-growth markets, like Russia and Mexico. Indeed, as Lumia Capital’s Zach Finkelstein put it in a recent guest post for VentureBeat, a global perspective is a must for the current generation of venture capitalists.

In 2013, 325 venture firms raised funds (by contrast, 344 firms raised funds in 2012), with the U.S. accounting for 64 percent of these funds. The slight drop in venture firms closing funds led to an increase in “dry powder,” meaning excess capital that has not been committed to existing portfolio investments or new ones.

MORE: Ernst&Young finds big businesses hungry for small startups

These startups were not solely based in Silicon Valley. According to the report, Europe, India, and Israel saw burgeoning venture capital investment. But there was only a slight increase in global investment, as the activity in these markets failed to offset the precipitous drop in Chinese IPOs (that was primarily due to the domestic stock exchanges closing.)

But nobody was able to knock Silicon Valley and its New York counterpart “Silicon Alley” off their pedestals in 2013.

Last year, the U.S. remained the most active market for VC backed IPOs — the number of deals rose nearly 50 percent from the prior year. 74 companies went public on the U.S. markets in 2013, including hotly-anticipated debuts from Foundation Medicine, FireEye, Twitter, and Tableau Software. For all the excitement about the booming tech sector, biopharma was still the leading sector for new listings on the market in terms of both value and volume.

Here are the top regions for venture investment (according to Dow Jones VentureSource):

  1. United States
  2. Europe
  3. Canada
  4. China
  5. India
  6. Israel

Here are the top regions for angel and incubator investment (according to Dow Jones VentureSource):

  1. United States
  2. Europe
  3. China
  4. Canada
  5. Israel
  6. India

Read the full trends and insights report here.

More about the companies and people from this article:

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding lea... read more »

Powered by VBProfiles

0 comments