Global Economic Downturn Driving Evolution of Venture Capital Industry, According...

Global Economic Downturn Driving Evolution of Venture Capital Industry,
According to Study by Deloitte and National Venture Capital Association

Competitive Landscape Poised to Shift Due to Industry Globalization; Clean
Technology Sector Identified for Future Investment

NEW YORK, June 10 /PRNewswire/ -- The global economic downturn has many
venture capitalists altering strategies, including reducing investment levels
in the short term, according to the 2009 Global Venture Capital Survey by
Deloitte Touche Tohmatsu and the National Venture Capital Association.
Fifty-one percent of the survey respondents are decreasing the number of
companies in which they plan to invest and just 13 percent are increasing this
activity.

The 2009 Global Venture Capital survey, which measured the opinions of more
than 700 venture capitalists worldwide, also shines headlights into the
post-recession landscape. The cleantech sector is poised to become the leading
investment category and the globalization of the venture capital industry will
intensify, the latter posing significant competitive questions for the United
States and opportunities for emerging markets such as China.

"While the recession has slowed the pace of venture investing in the short
term, it may very well have expedited the global evolution of the industry in
the long run," said Mark Jensen, national managing partner of Deloitte LLP's
Venture Capital Services. "In recent years, many entrepreneurs who have been
educated in the United States have returned home to start companies in their
home countries. The playing field continues to level out in terms of new
innovation hot spots, broader access to capital and growing regional
ecosystems that foster risk taking and capital formation."

"The venture capital industry will evolve significantly in the next few years
as the asset class responds to a Darwinian contraction resulting from the
recession, the rise of innovative industry sectors such as clean technology
and the continued interest in venture capital outside the United States," said
Mark Heesen, president of the NVCA. "As the survey results suggest, we will
see more globalization in the next decade, not only in terms of investments
but also in fundraising and exits as well. Those countries that can nurture
entrepreneurs and investors as well as offer attractive exit opportunities
have the most to gain economically in the next decade."

Clean Technology and Later Stage Investments to Increase
While investment levels may decline, the majority of venture capitalists are
not shifting their investment strategies in terms of the industries where they
are putting their money to work. A majority of venture capitalists (79
percent) anticipate stable levels of investment across all industry sectors
with the exception of the clean technology sector where 63 percent of venture
capitalists expect to increase their investments over the next three years.
Advances in new technology, growing consumer demand in alternative energy and
the ambitious plans of governments worldwide to invest in clean technologies
have made this sector a key focus for the venture community.

The medical device sector ranked second in terms of growth potential with 37
percent of the respondents anticipating increases in investment followed by
new media (26 percent), consumer business and biopharma (24 percent) and
software (22 percent). Venture capitalists are less optimistic about more
mature sectors, such as the telecommunications and semiconductor industries,
with just 15 and 6 percent of venture capitalists surveyed planning to
increase their investment in those sectors respectively.

The recession also has a core group of venture capitalists shifting their
stage of development investment focus. Thirty-six percent of the respondents
surveyed intend to move toward later stage investing in order to support
existing portfolio companies until the exit markets improve. Just 6 percent
intend to move toward early stage investing to take advantage of the longer
runway for company growth.

Globalization of Innovation and Limited Partner Community
Fifty-two percent of all venture capitalists surveyed in the 2009 study
indicate that they are currently investing outside their home countries.
Looking forward, venture capitalists believe that investment levels are more
likely to increase in countries outside of the United States in the next three
years. According to the survey, 50 percent of respondents believe that
investment will increase in Asia (excluding India); 43 percent in India; 36
percent in South America; 25 percent in Europe and the UK; and just 17 percent
in North America.

Not only is venture investment continuing to globalize but so is the limited
partner community. Of the survey respondents, 54 percent predict that their
number of limited partners outside their home country will increase. Only 8
percent believe that foreign limited partner involvement will decrease; 38
percent expect the number of foreign limited partners to remain unchanged.

Yet, venture capitalists are also predicting that the economic crisis will
result in less willingness on the part of limited partners to invest in the
venture capital asset class over the next three years. Most at risk to
decrease their venture allocations according to venture capitalists are
commercial banks (88 percent), investment banks (87 percent), insurance
companies (65 percent) and corporate operating funds (63 percent). Fifty- four
percent of the respondents believe that governments may see an increased
appetite for venture funding followed by corporations and family offices (23
percent) and fund of funds (22 percent).

Governments Crucial to Fostering Competitiveness and Innovation
Survey respondents are already demonstrating a shift in the perception of
global competitiveness: when asked which country has the most to gain from the
current economic crisis, 38 percent of venture capitalists cited China while
only 18 percent chose the United States. Conversely, when asked which country
has the most to lose, 51 percent of the respondents named the United States,
followed by the United Kingdom at 14 percent, China at 10 percent and Russia
at 6 percent.

Venture capitalists believe that governments of all countries have roles to
play in fostering innovation. When asked which government actions would be
most important over the next 12 months to help move technology forward, 66
percent of venture capitalists cite the implementation of favorable tax
policies; 40 percent believe that government support for entrepreneurial
activity is important; 31 percent would like governments to encourage more
active public markets; and 29 percent believe improved access to private
capital sources will help better support innovation.

When specifically queried about which policies would directly help venture
capitalists, 58 percent would like to see the government motivate
institutional investors to invest in venture capital; 39 percent believe
governments need to motivate endowments and family offices to invest in
venture; 36 percent favor a liberalization of tax policies; and 31 percent
believe an increase in research and development funding would be favorable to
the venture industry.

Optimism Endures
Over the long term, the majority of venture capitalists surveyed remain
optimistic with just over half (51 percent) believing that it is currently a
terrific time to invest in promising entrepreneurial companies. Only 6 percent
believe that it is not a good time to make investments. Further, fund sizes
will increase according to 45 percent of the respondents who predict their
next fund will be larger than the one they are currently investing. Only 19
percent predict they will raise smaller funds.

In summarizing the results from this year's study, Terry McGuire, chairman of
the NVCA and co-founder of Polaris Venture Partners believes that the
increased competition from globalization will result in all players operating
at a higher level.

"Innovation is abundant on a global basis today and opportunities are alive
and growing everywhere," said McGuire. "Any country that is prepared to
nurture its venture capital and entrepreneurial ecosystem is poised to benefit
economically and not necessarily at the expense of another region. This game
is one for everyone to win."

About the Survey
The 2009 Global Venture Capital Survey was conducted in the first quarter of
2009 and measured the opinions of more than 700 venture capitalists worldwide.
For the complete survey results report, please visit
www.deloitte.com/us/2009VCreport. To view additional quotes from venture
capitalists about the survey results, please visit
www.nvca.org/2009_global_VC_survey_quotes.pdf.

About NVCA
The National Venture Capital Association (NVCA) represents approximately 460
venture capital firms in the United States. NVCA's mission is to foster
greater understanding of the importance of venture capital to the U.S. economy
and support entrepreneurial activity and innovation. According to a 2009
Global Insight study, venture-backed companies accounted for 12.1 million jobs
and $2.9 trillion in revenue in the United States in 2008. The NVCA represents
the public policy interests of the venture capital community, strives to
maintain high professional standards, provides reliable industry data,
sponsors professional development and facilitates interaction among its
members. For more information about the NVCA, please visit www.nvca.org.

About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein,
and its network of member firms, each of which is a legally separate and
independent entity. Please see www.deloitte.com/about for a detailed
description of the legal structure of Deloitte Touche Tohmatsu.

Contact:

Jonathan Gandal Emily Mendell
Deloitte NVCA
Public Relations 610 565 3904
203 708 4115 emendell@nvca.org
jgandal@deloitte.com

SOURCE Deloitte

Jonathan Gandal, Deloitte, Public Relations, +1-203-708-4115,
jgandal@deloitte.com; or Emily Mendell, NVCA, +1-610-565-3904,
emendell@nvca.org