venture capital associa- tions in the Americas, Asia Paci c, Europe and Israel. The 2009 survey marks the 8th anniversary o8 this project. As in past years, it was designed to o88er insights into the attitudes and intentions o8 venture capitalists around the globe regarding speci c geographic regions and industry sectors over the next ve years.<br><br> This year, we obviously hit a nerve; we received 725 responses 4almost double the number compared to last year. The respondents are general partners o8 venture capital rms with assets under management ranging 8rom less than $100 million to greater than $1 billion. Multiple responses 8rom the same rm were allowed as the survey was a general measurement o8 the state o8 global investing 8rom general partners, not attitudes o8 speci c rms.<br><br> O8 the total respon- dents, 44 percent were based in the United States, 21 percent in Europe (excluding the UK), 16 percent in Asia Paci c, 10 percent in the Americas (excluding the U.S.), 7 percent in the United Kingdom, and 2 percent in Israel. Those o8 us in the technology industry know that i8 you want to see the 8uture, rst look at what venture capitalists are thinking and doing in the present. This year, it was important to learn how the economy was a88ecting strategic decisions and how 8uture investments were being planned 4both by sector and region.<br><br> Do venture capitalists anticipate that the size o8 their next 8unds will grow, shrink or remain the same? Who do they think their limited partners will be? What countries do they see as having the most to gain and lose in this new economy?<br><br> What do they 8eel government should do to help spur investment in innovation? The responses o8 venture capitalists around the world were illuminating. And the good news is that you will nd that while the investment community is coming to grips with the hard realities o8 this global recession, they remain a resilient group and even an optimistic one.<br><br> You 9ll learn which sectors they believe o88er prime opportunities and what countries are the most intriguing to them. It 9s been a tough season 8or investors and entrepreneurs alike, but that may have strengthened the industry. As Mark Heesen, president o8 the National Venture Capital Association (NVCA), said, cThe tourists have le8t. d At a time when we are all making critical decisions that impact the success o8 our businesses, I trust you will nd the survey results both insight8ul and use8ul.<br><br> Igal Brightman Global Managing Partner Deloitte Touche Tohmatsu Technology, Media & Telecommunications 2 The 2009 Global Venture Capital Survey was sponsored by the Global DTT TMT industry group, in conjunction with the 8ollowing venture capital associations throughout the world: Brazilian Association o8 Private Equity & Venture Capital (ABVCAP) British Private Equity & Venture Capital Association (BVCA) Canada 9s Venture Capital & Private Equity Association (CVCA) European Private Equity & Venture Capital Association (EVCA) Emerging Markets Private Equity Association (EMPEA) Indian Venture Capital Association (IVCA) Israel Venture Association (IVA) Latin American Venture Capital Association (LAVCA) Malaysian Venture Capital and Private Equity Association (MVCA) National Venture Capital Association (NVCA) Singapore Venture Capital & Private Equity Association (SVCA) Taiwan Private Equity & Venture Capital Association (TVCA) Zero2IPO The survey was conducted with venture capitalists (VCs) in the Americas, Asia Paci c (AP), Europe and Israel. There were 725 responses 8rom general partners o8 venture capital rms with assets under management ranging 8rom less than $100 million 1 to greater than $1 billion. Multiple responses 8rom the same rm were allowed, as the survey was a general measurement o8 the state o8 global investing 8rom all general partners, not attitudes o8 speci c rms.<br><br> I8 respondents did not answer a question, the count 8or the question was adjusted accordingly. The highest number o8 respondents 435 percent 4claimed assets under management totaling between $100 million and $499 million. Another 34 percent had managed assets that were less than $100 million, 17 percent had managed assets greater than $1 billion, and 14 percent had between $500 million and $1 billion in assets under management.<br><br> Assets under management 0% 5% 10% 15% 20% 25% 30% 35% 40% > $1 billion $500 million - $1 billion $100 - $499 million $50 - $99 million $1 - $49 million 18% 16% 35% 14% 17% 1 All re8erences to currency are in U.S. dollars, unless otherwise noted. About the survey Global trends in venture capital 2009 global report 3 Geographically, the breakdown o8 responses continues to be 8airly representative o8 both the size and location o8 rms in the venture capital industry around the world.<br><br> Forty-8our percent o8 the respondents were 8rom the United States, 21 percent 8rom European countries (excluding the UK), 16 percent 8rom Asia Paci c countries, 10 percent 8rom the Americas (excluding the U.S.), 7 percent 8rom the UK, and 2 percent 8rom Israel. Location of respondents UK U.S. the Americas (excl.<br><br> U.S.) Israel Europe (excl. UK) AP 7% 44% 10% 2% 21% 16% Seventy-two percent o8 the respondents had a primary investment 8ocus on venture capital while 28 percent were primarily 8ocused on private equity and venture capital. And, this year, 52 percent o8 venture capitalists noted that they are investing outside o8 their home country.<br><br> Given the severity o8 the current global recession, this year 9s survey 8ocused on issues surrounding its impact on venture capitalists. The survey questions asked how the global recession is a88ecting strategy; how 8uture investments are being planned, both by sector and region; what the anticipated size o8 the next 8und will be and who VCs think their limited partners will be. We also wanted to know what countries they believe have the most to gain and lose in this new economy, as well as what they 8eel the role o8 government should be in 8ostering innovation.<br><br> This year 9s report looks broadly at the results in a global context, but an appendix is included that breaks out survey responses by geographic regions 4the U.S., the Americas (excluding the U.S.) Europe (excluding the UK), UK, AP and Israel. I8 you are interested in responses o8 investors in a speci c region, we encourage you to check the appendix 8or those charts. Firm type Private Equity and Venture Capital Venture Capital 28% 72% 4 cThe per8ect storm d has become the cliché o8 choice to sum up the global economic recession o8 2008-2009.<br><br> Certainly, today 9s economic environment is dramatically di88erent than the one venture capitalists were operating in ve years ago when the rst Global Venture Capital Survey was launched. Five years ago, the venture capital community was recovering 8rom the tech bubble bursting and was just beginning to see signi cant move towards the globalization o8 the venture capital industry. Today, the economy is in a 8ar di88erent place.<br><br> But, there are still signs o8 optimism. VCs are more attuned to the global economy and we 9re seeing the maturation o8 some sectors 4speci cally semiconductors and telecom 4while other sectors 4clean technologies and li8e sciences 4are emerging as areas with great growth potential. With this shake up in the economy, we are seeing venture capitalists make adjustments to their investment strategy in order to weather this storm and establish the 8oundation to thrive in the 8uture.<br><br> cIt 9s been a di8 cult recession, but the industry is coping and making adjustments, d said Mark Jensen, U.S. national managing partner o8 Deloitte and Touche LLP 9s Venture Capital Services. cThey 9re moving 8orward and not sitting on their hands waiting 8or something to happen. d In general, VCs are decreasing their overall investing dollars, 8ocusing on their best companies and increasing their alloca- tion to later-stage investments.<br><br> cWe have not altered our 8undamental strategic 8ocus on early-stage health care investing in response to the recession, d explained Kevin Lalande, managing director o8 Sante Ventures. cThat said, new market realities and lingering uncertainty have 8actored prominently in our decisions about which speci c opportunities to pursue o8 those consistent with our strategy. In the current environment, we are opting 8or 8ewer, more capital e8 cient deals in which the existing venture syndicate has enough reserve capacity to 8und a company, i8 necessary, all the way to cash fow independence. d Adjusting to a New Reality In short, the tourists have le8t, explained Mark Heesen, president o8 the NVCA.<br><br> cYoung entrepreneurs who thought they could get rich quickly with just a good idea are now gone and those now le8t standing recognize the challenges and tenacity needed to establish and build a sustainable business, d he said. cThose out on the hustings trying to get 8unded are much more astute about the globalization o8 the economy and worldwide competition. They understand that the value o8 their company today is not what it will be six months 8rom now and that i8 they want to be 8unded, it will likely be at a lower valuation than in the past. d Lower valuations could present opportunities 8or VCs looking 8or a good deal.<br><br> But are they spending? In 8act, we see the larger rms eying a bigger slowdown than the smaller rms. Just more than hal8 o8 respondents 8rom rms managing $500 million or more are decreasing their level o8 investment, compared to about one in three o8 those managing $99 million or less.<br><br> Weathering the storm: new strategies for new global economic conditions Global trends in venture capital 2009 global report 5 Impact of the global recession on investment strategies 3 level of investment in terms of capital (by assets under management) 0% 20% 40% 60% 80% 100% Increasing level of investment Same level of investment Decreasing level of investment > $1 billion $500 million - $1 billion $100 - $499 million $50 - $99 million $1 - $49 million 49% 47% 42% 37% 36% 17% 21% 18% 12% 13% 34% 32% 40% 51% 51% However, the vast majority o8 rms are maintaining the same strategy when it comes to industry sector. At least seven out o8 10 VCs 4and the percentage increases with the size o8 the rm 4plan to maintain the same strategy in terms o8 industry sector. 0% 20% 40% 60% 80% 100% Changing strategy in terms of industry sector Maintaining same strategy in terms of industry sector > $1 billion $500 million - $1 billion $100 - $499 million $50 - $99 million $1 - $49 million Impact of the global recession on investment strategies 3 industry sector (by assets under management) 27% 26% 18% 18% 17% 73% 74% 82% 82% 83% cOur rm is interested primarily in potentially great companies that already have some revenue traction, d said Patrick Sheehan, a partner with Environmental Technologies Fund.<br><br> cWe 9re trying to nd situations where we understand customer need, and it 9s easier to do when there are existing customers. Our investing style hasn 9t changed with the recession; it 9s become more appropriate. d 6 What VCs are re-evaluating is the stage in which they 9re investing. Very 8ew are shi8ting to early-stage investing.<br><br> Instead, about hal8 are maintaining their current strategy and a signi cant percentage are shi8ting their 8ocus to later-stage and existing port8olio companies. No doubt this is due to both the strain on the capital markets and the 8act that it 9s now taking longer 8or companies to be acquired and rare 8or them to go public. Investing in later-stage companies shortens the VC 9s gestation period and allows them to exit sooner.<br><br> cIn this environment, it pays to be either a very early-stage investor or a very late-stage investor, d said Steve Fredrick, gen eral partner o8 Grotech Ventures. cThe classic Series B round, where a business is still nding its legs and remaining capital requirements are at best an estimate, carries more risk given higher burn rates and the climate 9s uncertainty around 8uture nancings. So, we 9re seeing reduced investment levels as rms either invest smaller sums in very early-stage companies, or invest traditional sums in 8ewer and much later-stage companies.<br><br> The middle ground has been largely vacated. d 0% 20% 40% 60% 80% 100% Shifting focus to early-stage companies Maintaining current strategy in terms of sta e Shifting focus to later-stage companies and existin ortfolio com anies > $1 billion $500 million - $1 billion $100 - $499 million $50 - $99 million $1 - $49 million Impact of the global recession on investment strategies 3 stage (by assets under management) 58% 65% 58% 57% 54% 8% 5% 7% 4% 2% 34% 30% 35% 39% 44% Five years ago, when the rst Global Venture Capital Survey was conducted, the results indicated some interest in clean technologies and the li8e sciences. This year, regardless o8 8und size, we see tremendous interest 8rom VCs in both o8 these sectors, especially clean technologies, where more than six out o8 10 respondents anticipate their investment levels to increase and another three out o8 10 will hold their investments at the same level. Global trends in venture capital 2009 global report 7 0% 20% 40% 60% 80% 100% Decrease Remain the same Increase Consumer business Clean technologies Medical device and equipment Biopharmaceuticals New media/social networking Software Semiconductors, including electronics Telecommunications In terms of total capital invested, anticipated level of investment change in select sectors, over the next three years 15% 56% 29% 6% 44% 50% 22% 60% 18% 26% 49% 25% 24% 48% 28% 37% 51% 12% 63% 32% 6% 24% 51% 25% Among U.S., UK and Israeli investors, about hal8 expect to increase their investments in cleantech, while about seven out o8 10 AP respondents and European respondents expect their cleantech investments to increase.<br><br> Two-thirds o8 respon- dents 8rom the Americas plan to increase their cleantech investments. This interest could be because we 9re seeing an increase in government/political support 8or cleantech and VCs are looking more to government participation in both investments and incentives. 0% 20% 40% 60% 80% 100% Decrease Remain the same Increase UK U.S.<br><br> the Americas (excl. U.S.) Israel Europe (excl. UK) AP In terms of total capital invested, anticipated level of investment change in clean technologies, over the next three years (by location) 73% 24% 3% 71% 24% 5% 50% 50% 66% 28% 7% 55% 38% 7% 50% 43% 7% 8 cGovernments around the world are very supportive o8 creating a cleantech industry with tax credits and incentives, d said Heesen.<br><br> cIn the U.S., it 9s now seen as an energy independence issue, a security issue and a jobs issue. And the public is more supportive o8 cleantech activities as more people are cognizant o8 the threat o8 global warming. d But while this nding is signi cant, it 9s also important to note that with a couple o8 exceptions where the sectors have signi cantly matured 4semiconductors and telecommunications 4VCs expect their level o8 investment in other industries to remain the same or increase. Eastern Exposure Another trend that hasn 9t changed in the last ve years is venture capitalists 9 interest in China and India.<br><br> Regardless o8 the size o8 the rm, investors are intrigued by the investment possibilities o8 these two countries. cWe are lucky to be sitting at the hub o8 what we believe will be the most exciting venture market in the coming years 4 China, d said Gavin Ni, 8ounder, president and CEO o8 Zero2IPO. cI8 you take a look at the short-term, you see China will be the rst to emerge out o8 the worldwide downturn.<br><br> China is projecting 7 percent-plus GDP growth in 2009 4the highest in the world. Then, looking beyond, you see a swelling middle class 4but still a minority o8 the population 4with money in their pockets to spend. That does not even scratch the sur8ace o8 the eventual buying power o8 the largest population in the world 41.3 billion potential consumers. d Hal8 o8 all respondents expect their investment levels to increase in Asia (excluding India), while 43 percent expect to increase their investments in India over the next three years.<br><br> In 2007, 41 percent o8 respondents indicated an interest in expanding their investment 8ocus in Asia Paci c. About one-third expect to increase their investment levels in South America. Only 17 percent expect to increase their investments in North America, the same as 2007.<br><br> Compared to North America, the numbers were only slightly better 8or Europe and the UK (25 percent) and Israel (19 percent). More than hal8 o8 the respondents do intend to maintain their investment levels in Europe, while 21 percent expect those levels to decrease. This investment strategy is a change 8rom 2007, when one-third o8 respondents indicated that they were interested in expanding their investment 8ocus in Europe.<br><br> c We are lucky to be sitting at the hub of what we believe will be the most exciting venture market in the coming years 4China. d Global trends in venture capital 2009 global report 9 0% 20% 40% 60% 80% 100% Decrease Remain the same Increase South America North America Israel India Europe and the UK Asia (excl. India) In terms of total capital invested, anticipated level of investment change in select regions, over the next three years 50% 38% 12% 25% 54% 21% 43% 47% 11% 19% 62% 19% 17% 60% 22% 36% 45% 19% When it comes to interest in Asia and India, UK respondents are the most enthusiastic, planning either to increase invest- ment levels (67 percent and 58 percent, respectively) or keep them at the same levels (33 percent and 42 percent, respec- tively). But, about nine out o8 10 U.S.<br><br> VCs are also increasing or maintaining their investments in Asia and India, and about the same number o8 respondents 8rom Asia Paci c have similar plans. 0% 20% 40% 60% 80% 100% Decrease Remain the same Increase UK U.S. the Americas (excl.<br><br> U.S.) Israel Europe (excl. UK) AP In terms of total capital invested, anticipated level of investment change in Asia Paci cc (excl. India), over the next three years (by location) 61% 29% 11% 52% 28% 20% 67% 33% 46% 38% 15% 40% 50% 11% 67% 33% 10 0% 20% 40% 60% 80% 100% Decrease Remain the same Increase UK U.S.<br><br> the Americas (excl. U.S.) Israel Europe (excl. UK) AP In terms of total capital invested, anticipated level of investment change in India, over the next three years (by location) 57% 36% 7% 38% 48% 14% 83% 1 7% 46% 31% 23% 34% 55% 1 2% 58% 42% In other words, noted Jensen, cFirms are now looking at the whole world in terms o8 their investing priorities.<br><br> The world has gone global in venture capital and the rms are adapting their strategies accordingly. d David Chao, co-8ounder and general partner o8 DCM, agrees. cThe lines between whether a company is American, Asian or European are blurring because by necessity many start-ups today have multiple o8 ces. Entrepreneurs can start companies anywhere they want in the world and pick locations where conditions are 8avorable and talent pools are available at reasonable prices. d That perspective is rein8orced when you see that investment interest in North America seems to be decreasing.<br><br> Only 29 percent o8 VCs in the Americas (excluding the U.S.) plan to increase their investments in North American countries while 37 percent expect them to remain the same. Twenty-two percent o8 Israeli investors plan to increase their North American investments while 33 percent expect investment levels to remain the same. European investors (excluding the UK) are looking at a 16 percent increase and hal8 expect their investments to remain the same.<br><br> Only 15 percent o8 Asia Paci c VCs expect to increase their investment in North American countries while 40 percent expect it to remain the same. In the UK, a mere 14 percent plan on increasing their investments but 48 percent plan on keeping their levels the same. Even among U.S.<br><br> VCs, only 16 percent plan to increase their North American investing levels while 71 percent expect their investment levels to stay as they are. cThe lines between whether a company is American, Asian or European are blurring... d Global trends in venture capital 2009 global report 11 0% 20% 40% 60% 80% 100% Decrease Remain the same Increase UK U.S. the Americas (excl.<br><br> U.S.) Israel Europe (excl. UK) AP In terms of total capital invested, anticipated level of investment change in North America, over the next three years (by location) 15% 40% 45% 16% 50% 34 % 22% 33% 44% 29% 37% 33% 16% 71% 13% 14% 48% 38% Why is there so much interest in China and India? China and India are emerging markets compared to North America, and the U.S.<br><br> speci cally, with great growth potential. Also, the strained exit markets in the U.S. and the impact o8 recent government policies appear to be discouraging investors 8rom increasing their risk exposure in North America.<br><br> 0% 20% 40% 60% 80% 100% Decrease Remain the same Increase UK U.S. the Americas (excl. U.S.) Israel Europe (excl.<br><br> UK) AP Venture capitalists anticipated level of investment in Europe and the UK, over the next three years (by location) 9% 29% 63% 26% 64% 10% 57% 43 % 43% 14% 43% 28% 52% 20% 22% 57% 20% At least a quarter o8 global VCs intend to increase their investments levels in Europe and the UK. This is mainly driven by VCs in the Americas (excluding the U.S.), among which 43 percent plan to invest more into Europe and the UK. However, another 43 percent o8 the VCs in that same area intend to reduce their investments in Europe and the UK.<br><br> The most 12 positive 8orecast comes 8rom U.S. players, among which 28% expect to increase investments, while only 20% 8oresee a decrease. Israeli and Asia-Paci c VCs show the least interest in Europe and the UK.<br><br> Fund Raising Despite the 8act that the world is struggling with a recession, VCs are remarkably optimistic about their 8uture 8unds. Most VCs believe that their next 8und will be either larger than their existing 8und or will be approximately the same size. And, that 9s across the board, regardless o8 the size o8 the venture rm or where they 9re located.<br><br> Among those managing more than $1 billion, 24 percent project that their next 8und size will increase while almost hal8 expect it to remain the same. Less than a third anticipate a decrease. Those numbers are very close when it comes to those rms managing $500 million to $1 billion.<br><br> As the size o8 the rm grows smaller, the rms grow more optimistic about the size o8 their next 8und levels, with 60 percent o8 the smallest 4those managing $1 million to $49 million 4 anticipating their 8und levels will grow and another 28 percent stating that they 9ll remain the same. 0% 20% 40% 60% 80% 100% Decrease Remain the same Increase > $1 billion $500 million - $1 billion $100 - $499 million $50 - $99 million $1 - $49 million Projected fund size compared to current fund (by assets under management) 60% 58% 49% 27% 24% 28% 29% 33% 51% 48% 12% 13% 19% 22% 28% The numbers are 8ar more consistent when you look at this question regionally. Very little decrease in 8und size is projected across the board.<br><br> And, those projecting increases or stasis range 8rom the Americas (excluding the U.S.) at 73 percent to the UK at 87 percent. The region anticipating the greatest increase in their next 8und is Europe (excluding the UK) at 55 percent. Europe (excluding the UK) (15 percent) and the UK (13 percent) are the regions with the lowest expectations o8 decreased 8und size in the 8uture.<br><br> Global trends in venture capital 2009 global report 13 0% 20% 40% 60% 80% 100% Decrease Remain the same Increase UK U.S. the Americas (excl. U.S.) Israel Europe (excl.<br><br> UK) AP Projected fund size compared to current fund (by location) 49% 55% 36% 50% 38% 43% 30% 30% 43% 23% 43% 44% 21% 15% 21% 27% 18% 13% Where around the world is this money coming 8rom? Over the next ve years, the vast number o8 respondents expect that the number o8 their limited partner investors located outside their home country or region will remain the same or increase, again regardless o8 the size o8 the rm or their home country. UK investors, at 97 percent, appear to be the most eager to engage investors outside o8 their home country, but even 92 percent o8 those VCs responding 8rom Europe (excluding the UK) project that the number o8 their limited partners located outside o8 their region will remain the same or increase.<br><br> 0% 20% 40% 60% 80% 100% Decrease Remain the same Increase UK U.S. the Americas (excl. U.S.) Israel Europe (excl.<br><br> UK) AP Anticipated number of investors (Limited Partners) located outside the venture capitalists home country/region, over the next dve years (by location) 54% 60% 21% 61% 52% 54% 31% 32% 64% 30% 43% 43% 38 15% 8% 14% 9% 5% 4% 8 14 There is, however, a disconnect between the optimism these respondents expressed and where the investment 8unds will actually come 8rom. We asked venture capitalists how the current economic crisis will a88ect the various types o8 limited partners 9 willingness to invest over the next three years, and while they plan to increase the size o8 their 8unds and level o8 investing, they nevertheless see their traditional investor base 4commercial banks, investment banks, corporate operating 8unds, insurance companies and public pension 8unds 4to be drying up. cLimited partners were cutting their venture allocations and number o8 managers be8ore this economic period began.<br><br> Like all good investors, they are tracking results and culling their herd. While they may have taken more risks in years past to increase their dollars or number o8 investments, no doubt the jury is starting to come in, d explained Ray Rothrock, managing general partner at Venrock. cHowever, venture is still popular 8or LPs, i8 they can nd the right groups.<br><br> I would think they, like VCs seeking great entrepreneurs everywhere, are seeking great VCs everywhere. It makes per8ect sense. d Among all respondents, 88 percent see commercial bank investors 9 willingness to invest in venture capital over the next three years decreasing. Another 87 percent were just as pessimistic over investment banks.<br><br> About six out o8 10 were not sanguine about corporate operating 8unds, insurance companies, corporate venture capital, and endowments decreasing as limited partners. Intriguingly, venture capitalists are looking to governments as their nancial partners. More than hal8 o8 VCs see an increase in governments as willing investment partners with another 8ourth looking at an increase by 8amily o8 ces.<br><br> 0% 20% 40% 60% 80% 100% Decrease Remain the same Increase Public pension funds Private pension funds Insurance companies Individuals and families Governments Fund of funds Foundations Family of*ces Endowments Corporate venture capital Corporate operating funds Investment banks Commercial banks The current economic crisis will affect the following types of limited partners' willingness to invest in the venture capital asset class, over the next three years 4% 8% 88% 4% 8% 87% 15% 22% 63% 23% 29% 48% 9% 32% 59% 23% 31% 47% 14% 30% 56% 22% 38% 4 0% 54% 21% 24% 19% 24% 57% 9% 26% 65% 16% 33% 51% 15% 29% 55% Looking at this issue by region, among U.S. respondents, 41 percent expect a greater involvement by governments and 22 percent by corporate venture capital, 8ollowed by 8und o8 8unds (21 percent). This is signi cant, given a tradition o8 reliance on private capital in the United States.<br><br> Six out o8 ten Asia Paci c respondents also believe there will be an increase in activity on the part o8 government. Among Israeli respondents, that number is almost hal8 o8 respondents, while two-thirds o8 those in the Americas (excluding the U.S.), Europe (excluding the UK) and the UK see government investment increasing. Global trends in venture capital 2009 global report 15 O8 course, these questions were being answered at a very negative point in time (February-March 2009), and with the nancial challenges traditional investors are 8acing, it 9s clear that the VC community is increasingly looking to the govern- ment 8or assistance.<br><br> But even so, it 9s unclear how they can assert that their 8unds will increase or remain the same when there are 8ewer limited partners and there 9s less capital available. And the Winner is& Apparently, among venture capitalists, there 9s China and there 9s everyone else. That was clearly demonstrated in response to earlier questions about where VCs plan to increase their investments.<br><br> It was 8urther validated when VCs were asked directly which country has the most to gain in overall stature over the next three years. Most respondents 8rom around the globe chose China either rst or second on their lists. cA question I 8requently get is whether China 9s recent growth in venture investing is sustainable.<br><br> I would say, 8o8 course, 9 d said Zero2IPO president and CEO, Gavin Ni, cI interact with China 9s entrepreneurs everyday. There is a real drive to win, and there 9s no stopping until the game is won. Others see the victory and want to win, too.<br><br> And, the rules o8 the game 8rom China 9s government continue to drive strong business growth. d China was a clear 8avorite among U.S. investors with 42 percent o8 respondents believing that the country has the most to gain. Only 24 percent held that conviction 8or the U.S., 8ollowed by 12 percent 8or India, 5 percent 8or Brazil and 2 percent 8or Russia.<br><br> Among VC respondents 8rom the Americas (excluding the U.S.), 35 percent look to Brazil while 18 percent see China being a clear winner, 8ollowed by Canada at 16 percent, India at 14 percent and the U.S. trailing at 12 percent. Israeli respondents selected the U.S.<br><br> with 36 percent, 8ollowed by China (29 percent), Brazil and Israel (14 percent) and India (7 percent). More than hal8 o8 Asia Paci c respondents were enthusiastic about China, while 20 percent looked at India as having the most gain, 8ollowed by Japan (6 percent), the U.S. (5 percent) and A8ghanistan (4 percent).<br><br> Almost three out o8 10 respondents 8rom Europe (excluding the UK) see China as having the most to gain. Sixteen percent saw that potential 8rom India and the U.S., 8ollowed by Brazil (7 percent) and France (6 percent). Finally, 35 percent o8 UK respondents eyed China as the clear winner, with India 8ollowing at 24 percent, the U.S.<br><br> at 9 percent and the United Arab Emirates at 6 percent. 16 Top dve locations viewed as having the most to gain in terms of overall economic stature, over the next three years (U.S. respondents) 0% 10% 20% 30% 40% 50% 60% Russia Brazil India U.S.<br><br> China 42% 24% 12% 5% 2% Top eve locations viewed as having the most to gain in terms of overall economic stature, over the next three years (the Americas (excl. U.S.) respondents) 0% 10% 20% 30% 40% 50% 60% U.S. India Canada China Brazil 35% 18% 16% 14% 12% Global trends in venture capital 2009 global report 17 Top bve locations viewed as having the most to gain in terms of overall economic stature, over the next three years (Israel respondents) 0% 10% 20% 30% 40% 50% 60% India Israel Brazil China U.S.<br><br> 36% 29% 14% 14% 7% Top cve locations viewed as having the most to gain in terms of overall economic stature, over the next three years (Asia Paci cc respondents) 0% 10% 20% 30% 40% 50% 60% Afghanistan U.S. Japan India China 55% 20% 6% 5% 4% 18 Top eve locations viewed as having the most to gain in terms of overall economic stature, over the next three years (Europe (excl. UK) respondents) 0% 10% 20% 30% 40% 50% 60% France Brazil U.S.<br><br> India China 27% 16% 16% 7% 6% Top four locations viewed as having the most to gain in terms of overall economic stature, over the next three years (UK respondents) 0% 10% 20% 30% 40% 50% 60% United Arab Emirates U.S. India China 35% 24% 9% 6% On the opposite end o8 the spectrum, across the board the U.S. consistently was perceived as having the most to lose in economic stature 4even by more than hal8 o8 U.S.<br><br> respondents. This shouldn 9t be surprising, given that having created venture capital, the U.S. has long had preeminent status.<br><br> With the rest o8 the world looking at the 8uture o8 the industry and where people will be investing, there 9s no question among any respondents that the U.S. 9s elevated status cannot continue to be taken 8or granted, particularly given this new economic environment and the entrepreneurial ecosystems that are emerging around the world. Global trends in venture capital 2009 global report 19 Top dve locations viewed as having the most to lose in terms of overall economic stature, over the next three years (U.S. respondents) 0% 10% 20% 30% 40% 50% 60% India Russia UK China U.S.<br><br> 57% 12% 12% 7% 2% Top four locations viewed as having the most to lose in terms of overall economic stature, over the next three years (the Americas (excl. U.S.) respondents) 0% 10% 20% 30% 40% 50% 60% Venezuela UK Russia U.S. 59% 7% 7% 5% 20 Top bve locations viewed as having the most to lose in terms of overall economic stature, over the next three years (Israel respondents) 0% 10% 20% 30% 40% 50% 60% China Brazil UK Russia U.S.<br><br> 43% 21% 21% 7% 7% Top cve locations viewed as having the most to lose in terms of overall economic stature, over the next three years (Asia Paci cc respondents) 0% 10% 20% 30% 40% 50% 60% Afghanistan Japan China UK U.S. 41% 12% 12% 10% 5% Global trends in venture capital 2009 global report 21 Top eve locations viewed as having the most to lose in terms of overall economic stature, over the next three years (Europe (excl. UK) respondents) 0% 10% 20% 30% 40% 50% 60% Spain Russia China UK U.S.<br><br> 46% 17% 7% 6% 4% Top cve locations viewed as having the most to lose in terms of overall economic stature, over the next three years (UK respondents) 0% 10% 20% 30% 40% 50% 60% Germany France China UK U.S. 43 % 24% 9% 6% 6% Looking to Government Around the world, government has been playing an important role in 8ostering innovation and entrepreneurship. Governments have a long history in 8unding research and development through universities and national laboratories, which has resulted in much o8 the technology that has been commercialized during past decades.<br><br> As venture capitalists increase their investment in areas like cleantech and li8e sciences, where there is more government regulation, VCs are more cognizant o8 the impact government policy can have on their 8uture success. For instance, i8 there aren 9t su8 cient tax credits or stimulus to help struggling solar and wind alternative energy companies get traction to compete with large traditional energy companies, they won 9t prosper. Government can infuence policy in key areas such as patent protection, immigration and, o8 course, trade.<br><br> 22 To some extent the success o8 Silicon Valley or, as a more recent example, Israeli venture capital, is the result o8 de8ense and other government sponsored research and development spending. The European Commission launched its In8ormation and Communications Technology (ICT) strategy in March 2009, to pursue the doubling o8 investments into ICT research and development, by calling on member states and the industry (including private equity houses) to pool resources and cooperate more strongly. Given the important role government traditionally has played in creating a regulatory environment which encourages venture creation, we asked respondents to identi8y the top two government actions, over the next 12 months, they 8elt would most 8oster innovation.<br><br> Among all respondents, three out o8 ve saw government implementation o8 8avorable tax policies as the most signi cant, while hal8 are in 8avor o8 increased government support 8or entrepreneurial activity 4such as research grants, small business investment corporations and increased training programs 8or entrepreneurs. In 8act, among all respondents except Israel, where it was number two, implementation o8 8avorable tax policies was the key action respondents 8elt government should take in the next year. Actions governments can take to foster innovation, over the next twelve months 0% 10% 20% 30% 40% 50% 60% 70% 80% Encourage active public markets (stock exchanges) Improve quality of local infrastructure (airports, roads, electricity, broadband, etc.) Accelerate technology transfer activities from research labs to business Improve access to private capital sources Increase government support for entrepreneurial activity Implement favorable tax policies for entrepreneurial and venture development 59% 50% 39% 22% 17% 13% * Multiple responses required, total percent exceeds 100.<br><br> Strikingly, with the only exception being Israel, the most widely pre8erred action among the respondents was that govern- ment should 8oster innovation by implementing 8avorable tax policies 8or entrepreneurial and venture development. At 86 percent, Israel pre8erred increased government support 8or entrepreneurial activity as government 9s most important action. Global trends in venture capital 2009 global report 23 In-depth view o the most selected action government can take to oster innovation: Implement favorable tax policies for entrepreneurial and venture development 0% 10% 20% 30% 40% 50% 60% 70% 80% UK U.S.<br><br> the Americas (excl. U.S.) Israel Europe (excl. UK) AP 55% 58% 50% 70% 76% 59% * Multiple responses required, total percent exceeds 100.<br><br> Among those regions advocating better tax policies is Europe, including the U.K. Close to two-thirds o8 respondents are proponents o8 government 8ocusing on improved tax policies that support entrepreneurs and encourage venture develop- ment to boost innovation. cOver the past 8ew years, the VC industry in Europe has been growing and maturing 4producing worthwhile companies, generating wealth and high-quality jobs.<br><br> Increasingly, European venture is an attractive investment segment, but in spite o8 that there 9s now a danger o8 it being starved o8 8unds, d said Patrick Sheehan, a partner with Environmental Technologies Fund. cSo, we believe it needs nurturing, not 8or the bene t o8 the VCs, but to ensure that can continue to help entrepreneurs grow vibrant innovative companies. As chairman o8 the EVCA Venture Capital Committee, I can tell you that the EVCA is working hard with government to help create that right 8ramework o8 support. d Given the current recession, the survey also asked venture capitalists what they 8elt government could do to improve conditions speci cally 8or their industry.<br><br> The top response by all respondents, at 58 percent, is to develop policies, presum- ably through tax policy, to motivate institutional investors to invest. 24 Actions governments can take to improve conditions for venture capitalists, over the next 12 months 0% 10% 20% 30% 40% 50% 60% 70% 80% Increase investment in public projects Increase technology transfer activities Deregulation of public capital markets Increase investment in R&D Liberalization of tax policies Develop policies to motivate endowments, family of/ces, etc. to invest in venture capital Develop policies to motivate institutional investors to invest in venture capital 58% 39% 36% 31% 15% 12% 9% * Multiple responses required, total percent exceeds 100.<br><br> When broken down by region, with the exception o8 Israel, investors around the world agreed that motivating institu- tional investors to invest in the venture capital asset class was the most important action government could take. Israelis were more interested by 8ar (86 percent) in increased investment by government in research and development. Among U.S.<br><br> respondents, almost hal8 were interested in encouraging institutional investors, while 41 percent were in 8avor o8 liberalizing tax policies. It is important to note that culturally, when comparing U.S. attitudes to those held around the world that by and large, the rest o8 the world looks to government 8or a more engaged, proactive role.<br><br> Even as VC markets outside the U.S. mature, that stance may not change and as VCs become more transient in both directions, they have to be aware o8 that distinction. Ending on a cTerrifc d Note We concluded the survey with a general attitudinal question as a way o8 getting the pulse o8 all 725 respondents.<br><br> They were asked to complete the 8ollowing statement: cIt is currently a ____ time to invest in promising entrepreneurial companies. d Their choices were cterri c, d c8air, d and caw8ul. d Despite a global recession, retrenchment o8 the capital markets and shi8ting opportunities in various regions, by 8ar the most popular response was cterri c. d Global trends in venture capital 2009 global report 25 It's a ______________time to invest in promising entrepreneurial companies (by location) 0% 10% 20% 30% 40% 50% 60% 70% UK U.S. the Americas (excl. U.S.) Israel Europe (excl.<br><br> UK) AP Awful Fair Terri'c 52% 45% 57% 45% 53% 61% 34% 49% 43% 51% 42% 39% 14% 6% 0% 4% 4% 0% The Globalization o the Venture Capital Industry Marches On Five years ago, when the Global VC Survey was rst conducted, the goal was to see i8 the cbuzz d about investing in emerging international markets was widespread or just concentrated among a 8ew leading venture capital rms. The results showed a small committed group o8 global investors with lots o8 interest on the sidelines. Today, globalization o8 the venture capital industry continues in a meaning8ul way, with slightly more than hal8 o8 respondents stating that they are investing outside their home country.<br><br> This year, our goal was to see i8 the global recession was impeding this march towards globalization. Although venture capitalists are making adjustments to their strategy in response to the current recession, the survey results clearly show that this industry continues to move toward increased globalization. The current recession is not stopping venture capital- ists 8rom looking 8or the best investment opportunities in order to produce the best possible returns 8or their investors 4 regardless o8 borders.<br><br> cWe continue to believe in the strength o8 global technology innovation and entrepreneurship, d said Arvind Sodhani, president o8 Intel Capital and Intel executive vice president. cChallenging economic times present an opportunity 8or companies to outper8orm their competition with cool and exciting new products and services. d 26 Acknowledgements Thank you to all o8 the venture capitalists who extended themselves and responded to this year 9s survey. We also want to thank each o8 the venture capital associations around the world who so generously o88ered their assistance.<br><br> The 2009 Global Trends in Venture Capital survey report could not have been produced without their help. Contributors The 8ollowing individuals made signi cant contributions to the development o8 this publication: Mark Heesen President, NVCA Mark E. Jensen Partner, Deloitte United States (Deloitte & Touche LLP) Global trends in venture capital 2009 global report 27 Appendix - A closer look 0% 20% 40% 60% 80% 100% Decreasing level of investment Same level of investment Increasing level of investment UK U.S.<br><br> the Americas (excl. U.S.) Israel Europe (excl. UK) AP Impact of the global recession on investment strategies 3 level of investment in terms of capital (by region) 21% 23% 21% 26% 10% 19% 44% 41% 29% 41% 45% 31% 35% 36% 50% 34% 45% 50% 0% 20% 40% 60% 80% 100% Decreasing the number of companies Same number of companies Increasing the number of companies UK U.S.<br><br> the Americas (excl. U.S.) Israel Europe (excl. UK) AP Impact of the global recession investment strategies 3 level of investment in terms of number of companies (by region) 23% 13% 21% 18% 9% 15% 29% 40% 14% 38% 37% 26% 48% 47% 64% 45% 54% 59% 28 0% 20% 40% 60% 80% 100% Maintaining same strategy in terms of industry sector Changing strategy in terms of industry sector UK U.S.<br><br> the Americas (excl. U.S.) Israel Europe (excl. UK) AP Impact of the global recession on investment strategies 3 industry sector (by region) 58% 85% 93% 74% 85% 78% 42% 15% 7% 26% 15% 22% 0% 20% 40% 60% 80% 100% Shifting focus to later-stage companies and existing portfolio companies UK U.S.<br><br> the Americas (excl. U.S.) Israel Europe (excl. UK) AP Impact of the global recession on investment strategies 3 stage (by region) 10% 3% 7% 4% 6% 2% 52% 59% 36% 57% 63% 52% 38% 38% 57% 39% 31% 46% Maintaining current strategy in terms of stage Shifting focus to early-stage companies Global trends in venture capital 2009 global report 29 0% 20% 40% 60% 80% 100% Decrease Remain the same Increase UK U.S.<br><br> the Americas (excl. U.S.) Israel Europe (excl. UK) AP In terms of total capital invested, anticipated level of investment change in telecommunications, over the next three years 34% 48% 18% 15% 57% 27% 45% 45% 9% 15% 59% 26% 6% 58% 36% 11% 61% 29% 0% 20% 40% 60% 80% 100% Decrease Remain the same Increase UK U.S.<br><br> the Americas (excl. U.S.) Israel Europe (excl. UK) AP In terms of total capital invested, anticipated level of investment change in semiconductors, including electronics, over the next three years 14% 43% 43 % 4% 44% 52% 17% 33% 50% 7% 46% 46 % 2% 43% 56% 9% 52% 39% 30 0% 20% 40% 60% 80% 100% Decrease Remain the same Increase UK U.S.<br><br> the Americas (excl. U.S.) Israel Europe (excl. UK) AP In terms of total capital invested, anticipated level of investment change in new media/social networking, over the next three years 22% 51% 27% 33% 45% 22% 20% 40% 40% 22% 50% 28% 27% 48% 25% 15% 61% 24% 0% 20% 40% 60% 80% 100% Decrease Remain the same Increase UK U.S.<br><br> the Americas (excl. U.S.) Israel Europe (excl. UK) AP In terms of total capital invested, anticipated level of investment change in software, over the next three years 20% 57% 23% 22% 59% 19% 17% 67% 17% 29% 53% 17% 24% 60% 16% 8% 77% 15% Global trends in venture capital 2009 global report 31 0% 20% 40% 60% 80% 100% Decrease Remain the same Increase UK U.S.<br><br> the Americas (excl. U.S.) Israel Europe (excl. UK) AP In terms of total capital invested, anticipated level of investment change in biopharmaceuticals, over the next three years 40% 37% 23% 23% 44%<br><br>

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