Software, Communications and Networking Most Popular Investment Sectors 2006

Authored by Jay Baage on July 12, 2006 - 10:10am.

Venture Capitalists (VCs) are still most interested in investing in American tech companies - especially software, communications & networking companies. That is the result of a study sponsored by Deloitte & Touche LLP in cooperation with the National Venture Capital Association in the U.S. and numerous other venture capital associations around the world released Wednesday.

Conducted in the second quarter of 2006, the survey measured attitudes and intentions of 505 venture capitalists around the globe. According to the survey, approximately 60 percent of VCs worldwide (61% of U.S.; 60% of foreign) identified the software industry as their primary target sector, whereas over half (53% of U.S. and 54% of foreign VCs) identified communications and networking as their primary target sector.

Semiconductor and medical device sectors are primary target segments for approximately 40%. For the second year in a row, U.S. respondents selected energy/environment as the sector most likely to see the highest increase in investment focus over the next five years.

53% of US VCs intend to expand their global investment focus, with China (30%) and India (25%) identified as the two top foreign countries of interest over the next five years. Accoring to th study, both countries are seen as places where it is less expensive to build businesses, where there is an emerging entrepreneurial culture and where there is a high quality deal flow. U.S. venture capital respondents cited India as the number one country outside the U.S. where there is access to quality entrepreneurs. Conversely, they cited China as the number one country to get access to foreign markets. This growing interest in investing abroad is a true sea change for an industry that has historically invested all of its money domestically.
However, the study shows that VCs are also concerned about investing in China and India for several reasons.

In China, the three biggest impediments to investing are: intellectual property laws (33%), travel time and effort (29%), and lack of knowledge/expertise in the business environment (26%). In India, top impediments are: travel time and effort (23%), lack of knowledge/expertise in the business environment (22%) and lack of experienced local investors (13%).

“The United States remains the primary investment target for VCs around the globe,” said Mark Jensen, national managing partner of Deloitte’s Venture Capital Services. “From a venture capital viewpoint, the perceptions of a brain drain from the United States to China and India are simply not true. The majority of VCs surveyed worldwide, including those based in the United States, still believe the United States is the best bet for entrepreneurial success.”

Related Link:

http://www.deloitte.com/dtt/press_release/0,1014,sid%253D2283%2526cid%253D123691,00.html