beyondbrics

You can add venture capital to the growing list of areas where emerging markets are expected to outperform the developed world. That’s according to a new survey released today from Deloitte, the consultancy, and the National Venture Capital Association, an industry group.

Most venture capitalists in China, Brazil and India see the number of firms in their countries growing over the next five years, the study found. In China, 99 per cent of venture capitalists see an expanding industry. That compares with 97 per cent in Brazil and 85 per cent in India. In contrast, 92 per cent of venture capitalists in the US expect their industry to contract over that same period.

“The stage has now been set for emerging markets like China, India and Brazil to rise as drivers of innovation as they are increasingly becoming more competitive with the traditional markets”, said Mark Jensen, Deloitte’s national managing partner for venture capital services.

Emerging market VC firms also expect more money to be available for investment between now and 2015. Brazilian, Chinese and Indian venture capitalists see limited partners being more willing to invest in VC, whereas more than half of US respondents expect limited partners to be less inclined to invest.

Driving US pessimism are concerns over a weak IPO market and unfavorable tax and regulatory policies. According to the survey, this is a “stark contrast” to results from five years ago, when “these factors were barely on the radar for US investors as contributing to an unfavorable investment environment in their country.”

Emerging market venture capitalists see their own set of challenges, of course. Many Brazilian firms are also concerned about tax policies, while Chinese respondents cite an unstable regulatory environment as their top concern. Indian venture capitalists worry about exit opportunities in India’s IPO market.

Interestingly, while venture capitalists in developing economies are the most optimistic about prospects in their own countries, they are the least likely to express interest in investing overseas. Just 19 per cent of Brazilians, 15 per cent of Indians and 11 per cent of Chinese surveyed said they anticipated increasing cross-border investment. Overall, 34 per cent of all respondents said they planned to invest more abroad.

“This year’s survey results underscore the importance of market and political environments to the future of global venture capital ecosystems”, said Mark Heesen, president of the National Venture Capital Association.

“It comes as no surprise that optimism abounds in geographies where venture investment is well supported by sound public policies, stable capital markets and entrepreneurial energy. Yet, it is ironic that the more optimistic environments are now outside the United States.”