Global Themes

On Globalization & Venture Capital

Globalization – What’s it got to do with me?

A few days ago, Iggy Bassi (a friend from Monitor Co.) very kindly sent me some excerpts from a book that he has edited with Jeremy Grant titled, Structuring European Private Equity.
 
In an insightful chapter on “European Venture Capital”, Iggy and co-author Vesa Jormakka (Argo Global Capital) make several interesting points.
 
In their introductory paragraphs, they talk about Globalization as being one of the key strategic challenges facing European VCs

The key strategic challenge for European VC funds is to recognise the current wave of global market and geopolitical trends and position themselves in a timely and innovative manner to justify sustained limited partner interest and continue supporting entrepreneurship.

 They then talk about how Globalization is fundamentally altering the landscape – not just for start-ups – but for VC firms as well.

Seasoned entrepreneurs, recognising that their firms essentially behave like mini-multinationals, are demanding a greater hands-on approach from their VC investors, especially in the areas of international growth, access to leading enterprises and the development of partnerships and joint ventures. Venture commentator Martin Haemmig notes: ‘The value added by international VCs helps build faster and more globally exposed start-up companies that lead to bigger and more competitive firms and thus potentially higher returns for VC funds if executed properly.’13


In essence, like their portfolio companies, the venture capital business model needs to be global in order to compete, which in turn requires an enhanced general partner (GP) skill set.

 I doubt the extent to which this resonates with European VCs. Most people I meet & talk to never fail to point out how thin European VCs are on the ground – in China, India and other important geographies (including Japan – the new “blind spot” in Venture Capital…which deserves a separate post in itself).
 
In contrast, US VCs, after a seemingly mad rush to get into China over the last eighteen months, are now getting hugely excited about India.
 
The only possible exception to this is 3i – but then 3i is not your typical VC firm in the first place.  I believe that the only other European VC that comes even close to thinking about “Globalization” and how it would impact start-ups, portfolios and investments in the coming years is Amadeus – which is of course where I work – and this is a lot of what I have been doing over the past one year or so (more on this in a separate post).
 
I would be very happy to stand corrected on this – if there are other VC firms in Europe that are seriously thinking about these issues – we all need to know about them…I doubt I will be proven wrong though.
 
Not surprisingly, Iggy and Vesa mention “globalization” as the most critical factor that would determine the future of European VCs: 

In a nutshell, European venture funds need to transition towards becoming global service providers rather than local suppliers of capital.

 Well said…I can only hope that more of us amongst the investor community heed these words.  

 

August 7th, 2006 Posted by | Globalization, Venture Capital in Europe, What VCs really do | 3 comments

3 Comments »

  1. As if on cue, Channel 4 news carried an item today that ICICI One Source (an Indian company) is setting up a call centre to serve clients in the UK, in Derry (or London Derry depending on your particular school of Christianity). Pheroze Vandrewala of TCS called it ‘the empire strikes back’.

    While the call centre business returning to the UK is a sign of globalisation, comments such as Vandrewala (sic) are post-colonialist trauma and doesnt serve globalisation.

    India being the 3rd largest investor in the UK is also a reality of globalisation as are call centres moving abroad or being opened here..

    Comment by S Y | August 7, 2006

  2. Thanks for pointing it out – I missed it.

    Comment by Shantanu | August 8, 2006

  3. Shantanu,
    the “deafening silence” from European VCs, was claerly demonstated during my recent resaerch trip, where i met over 50 Indian IT and Technology companies in the Bangalore-Hyderabad- Chennai (BHC)triangle. Vast majority of these companies had already been visited, contacted by US VCs, covering a whole range of the VC eco-chain issues, from seeding, co-investments to biz dev , M & A and collbartion by thier portflio companies. None of them ever mentioned being appraoched by any european VCs, the companies ranged from IP, Contarct R & D , design, fabless, telecoms, wireless, consumer, MNOs, to insitution like IITs, IIM and trade bodies like NASSCOM, ISA. My article was in response to (
    http://www.thechilli.com/articles/misc/094_DomesticInvestors.asp )
    some of thier concerns but also acknowledging that ther are some global angels, angle networks, global ethnic diaspora, as well as some forward looking global VCs. incidentaly future articles will profile some of the laeding start ups, and investment oppurtunities, coming out indian labs, corporate carve outs and spin outs, that are thinking globally from day one. watch this space. some of them will be natrual partners for european venture backed companies , but some will also become major threats for the dosile european VCs and thier portfilio compoanies in the near future.
    pS: I look forward to the day , when we see a few europaen VC doing an early stage investment in this new high growth triangle.

    Comment by Bipin Parmar | January 17, 2007

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