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Deloitte Touche Tohmatsu
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London, December 4, 2007 – European venture capitalists (VCs) focus more on other European countries over Asia or the Americas, according to the 2007 Global Venture Capital (VC) Survey, sponsored by Deloitte Touche Tohmatsu (DTT) and the European Private Equity and Venture Capital Association in Europe (EVCA). The study compared the views of investors from Europe, Asia and North America, and found that a flow of higher quality deals and lower additional risk keep European investments close to home.

The survey reveals that 51 percent of European venture capitalists' strategies clearly demonstrate a preference to have some kind of physical proximity to their portfolio, in order to work more effectively with management. This also helps the venture capitalists' in determining the attitudes of the local cultures, which can be instrumental towards the success of their investment. Further, of the VCs that are investing abroad, 48 percent have developed strategic alliances with a foreign-based firm.

"European VCs predominantly focus on local investment, including those that can potentially provide global opportunities," explains Igal Brightman, global mnaging partner of DTT's Global Technology, Media & Telecommunications Industry Group. "They want the local contact with management, as familiarity with local culture maximizes the success of their investment.

The 51 percent of European VCs preferring physical proximity have one or two international investments. However 24 percent have three to five foreign investments, 12 percent have six to 10 foreign investments, and 10 percent have 16 or more investment abroad in their portfolio.

The survey further revealed that 86 percent of European respondents said that at least some part of their portfolio has significant operations- manufacturing, research and development, engineering, and back office-located outside the country in which their companies are based. These numbers are higher than surveyed VC investors in the United States, although nearly nine in ten of U.S. respondents this year reported twice as many of their portfolio investments in domestic businesses with significant operations outside of the United States as compared to last year's survey.

The primary reason European VCs look to expand their investments globally is to take advantage of higher quality deal flow. Access to quality entrepreneurs and to foreign markets, such as China and India, (both 21 percent) also make the U.S. an attractive target for expansion.

The study also revealed that VCs see intellectual property protection as one of its biggest challenges. China is, by far, the most frequently cited country in which VCs identify financial risk in this area. Among European VCs, 59 percent identify China as having IP laws that create additional financial risk. India was next with 16 percent.

"When it comes to other investors around the world looking at Europe and the risks involved in different regions on the continent, the number of VCs who identified problems were fairly low across the board," explained Georges Noel, EVCA director and head of the association's venture capital platform. "For example, Central and Eastern Europe's greatest challenges tended to be in the areas of lack of quality deals that fit the investment profile, according to 13 percent of European and U.S. investors, and both have difficulty achieving successful exits and lack of experienced local investors."

The U.K. and Ireland drew even fewer responses in the various risk areas and investors looking at France, Italy, Monaco, Portugal, and Spain were not especially discouraged, regardless of the issue.

Altogether, this year's survey demonstrates that for VCs around the world who are looking at European countries as investment targets, it is more a question of the right fit than of any specific issue that would create additional risk.

Helmust Schühsler, EVCA chairman, added that "Target industries are increasingly international, and in order to follow the opportunities we need to broaden our approach to deal making. European VCs are well equipped to handle the challenges of globalization due to the cross-border experience they gained from deal making within Europe. With various business cultures and languages found in Europe, European VCs have a lead in building such teams, well fit for the complex world around us, flat or not."

Access the complete results of the 2007 Global Venture Capital (VC) Survey at www.deloitte.com/globalvcsurvey.

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