Latin Percussion
Where Markets Are Hot : Opportunities For Venture Capitalists ACross The Globe
From China and India to Southeast Europe and South America, the upward thrust of big young populations of middle class clients is creating rich possibilities for personal equity and venture capital investors. Top targets for investment in these undeveloped markets include companies in the web, financial services and clean technology sectors.
These were among the main items of venture capital panelists, lots of whom are at present working in developing countries, at the 2011 Wharton Non-public Equity and Venture Capital Meeting. Participators on a panel titled "Challenges and Chances for Worldwide Venture Capital" addressed the developing areas of China, India, Southeast Europe, Turkey and South America in the session, which was moderated by Jeanne Metzger, director of selling for the nation's Venture Capital Association in Washington, D.C.
The internet sector is especially engaging in China's vast and rapidly growing market, said Andras Forgacs, managing director of Richmond Worldwide a New York City-based venture capital firm that concentrates on technology. Forgacs noted that Richmond World looks for companies with business models that are similar to those that the firm has backed in the US. For instance, Richmond World has a position in AdChina, a Web advertising company that's like aQuantive in Seattle, Washington. Richmond Worldwide provided seed money to aQuantive, which Microsoft purchased in 2007.
According to Forgacs, the most embarrassing mistake U.S. Firms make when making an investment in China isn't having their own executives on-site in the country. Firms too often oversee their investments from outside China, he claimed, and are so slow to respond to changes in the market. This may give local entrepreneurs a competitive advantage.
China's booming economy puts talented employees in heavy demand and makes maintaining talent difficult, Forgacs added. Experienced programmers and engineers can easily hop from one employer to another in Shanghai and Beijing, for instance, while other employees may start their own companies. Competition for workers also comes from well-educated Chinese entrepreneurs who return to their country from abroad and start new corporations.
Richmond Worldwide is presently looking at opportunities in smaller and less wild Chinese business hubs like Chengdu. "There are some interesting investing opportunities where there is less in the way of competition and more patient development of companies and talent," Forgacs recounted. He added that China's strong public markets give speculators confidence that they will be able to liquidate their positions. But exits thru coalitions and acquisitions are less common, Forgacs noted , because Chinese businessmen are intensely value-conscious and drive a tough bargain.
Clean technologies are a prime source of opportunity in India, declared Mohanjit Jolly, managing director of Draper Fisher Jurvetson in Menlo Park, California. Such technologies include renewable resources, recycling and pollution-control hardware. Like China, India has a fast-growing economy with a big emerging base of consumers. Talks around Indian water coolers aren't about whether investments will earn returns, declared Jolly, but rather about how large the returns will be. "It's a phenomenal time to be in India and part of the ecosystem," he said.
Maintaining talented employees is complicated in India, asserted Jolly, since workers are generally willing to jump to companies that offer even slightly higher pay. Jolly hopes to set up a vesting plan for workers of Draper Fisher's portfolio companies that rewards them with growing amounts of equity the longer they stay. Nevertheless India remains a cash-based economy when it comes to compensation, Jolly noted. "That's the actuality. How it morphs is still to be seen."
Like China, India has strong public markets that attract capital to young companies and supply moneymaking exits for investors. Local groups of angel stockholders also are forming to invest in early-stage firms and fill a long-standing opening in seed capital. Jolly declared venture capital funds are using these groups as a "fertile deal flow mechanism" by getting familiar with them and using them as leads to good companies.
Finance services provide the most inspiring possibilities for investment in Southeast Europe and Turkey, said Denis Kalenja, founder and handling partner of Montague Capital Partners, that has offices in new york City and Research Triangle Park in North Carolina. Commercial banking has performed well in the area, which Kalenja claimed still needs more fiscal services like asset management firms. He added that troubled real estate, including beachfront property on the Adriatic coast of Croatia, could supply an excellent chance for stockholders who are acquainted with the area. Here is the best place to have Croatia real estate.
Southeast Europe remains a fragmented market made up of many small countries with populations that talk different languages, Kalenja noted. The region's industries so have a critical need to consolidate to build economies of scaling and generate price for financiers. But in the boom years before the global financial crash, local managers thought they could build companies on their own without partnering across borders, he explained. Now managers are way more willing to consider fusions. "The folks in this region realized they can't do it themselves. Ultimately, the region is ripe for investing and consolidation."
VCs who come to Southeast Europe can easily find three or four families or entrepreneurs that rule particular industries, he said. This can supply a kick off point for hitting the market with investments that help businesses consolidate.
Stockholders based in Western Europe are looking toward the southeast for bigger returns, Kalenja noted. But such investors regularly lack experience in local marketplaces. Meanwhile, plenty of the most proficient and highly educated businesspeople in Southeast Europe and Turkey are moving in the other direction by relocating to bigger markets in Western Europe and North America. This leaves less native-born entrepreneurs who are ready to stay in the region or return from abroad to launch new companies.
Tasty venture possibilities in South America include investments in companies that provide clean energy, water, natural gas and renewable agriculture, expounded Benjamin Sessions, MD of the Worldwide Environment Fund in Chevy Chase, Maryland. South America is only now embarking on the method of controlling pollution that the US went thru in the 1960s and 1970s, Sessions noted. This is critical for the region, since its economic expansion has not been "matched by the environmental infrastructure and services wanted to sustain that growth."
Proficient South American workers typically like money to equity compensation, he added, which can strain the resources of early-stage corporations. Employees "value cash in their pocket," announced Sessions. "Giving options or ownership does not always have the specified impact." But this appears to be steadily changing, he pointed out, as successful public offerings show that equity stakes can grow in value .
Other possibilities in South America come from the service and manufacturing sectors, said Roberto Woldenberg, handling partner of Indigo Capital in N. Y City. "We are terribly pumped up about the area," recounted Woldenberg, who is focused on Mexico, Central America and Bolivia. "There are some challenges in social, commercial and political issues, but in the main we see plenty of bright spots."
South American economies would possibly not be growing at the same spectacular rate as China and India, Woldenberg noted , but the economies however "have their act together in fundamental ways." Countries in the area are indicated by young work forces and decreased levels of debt, he announced. "Compared to the West, they have the potential for growth.... The venture capital industry in this part of the world is in a incipient stage", as reported tagza.com.
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