Investment Clues From VC Firms

Posted by Bull Bear Trader | 6/03/2008 07:14:00 AM | , | 0 comments »

A recent Reuters article highlights how 57% of U.S. venture capitalist are now investing outside the U.S., compared to 46% last year. While a contrarian might argue that this is an indication of a top in the international markets, it does give clues as to which markets are still receiving capital, and what sectors in each market are receiving attention. While the top countries for receiving new U.S. capital continue to be China and India (approximately 20%, or $9 billion of total capital flowed outside the U.S., with about $2.5 billion going to China and India, with software mentioned as one of India's strengths), money is also beginning to flow into other markets.

In addition to the usual BRIC countries (Brazil and Russia in addition to India and China), VC money is flowing into Taiwan (for semiconductors), Japan, Israel (software), Germany (alternative energy, medical devices, software), and the United Kingdom (software). U.S. companies, even when not making direct investments, are also stepping up interest in partnering with developing international companies. In particular, IBM was mention as a company looking for partners in technological innovation. It is continuing to invest in the BRIC countries, along with interest in Canada, Peru, Vietnam, Russia, and Ireland, although no specific companies were given. Warren Buffett and Berkshire Hathaway have recently been looking for opportunities in Germany and Asia.

Of course, the real story may be that since many of these countries are continuing to do well, it may be U.S. companies that increase their interest in receiving capital infusions from overseas. Investment from Middle East allies, especially in financial companies, tech, and large industrials have been commonplace for years, but investment from China and India, as well as other countries with double digit growth economies, and/or growing petrodollars, will no doubt increase. Just last month a WSJ article discussed how Brazil, originally thought the be the lightweight newcomer in the BRIC grouping, has set up a sovereign-wealth fund to invest its extra currency generated from its growing position in agriculture and natural resources, in particular its increasing crude oil exports. As the U.S. continues to figure out its energy policy, and whether we even have one, it may find itself not calling the shots anymore as it looks for ways to repatriate its exported dollars (from imported energy) back into the capital needed to continue domestic economic expansion.