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NEW YORK, Jan. 31 -- Venture capitalists will largely direct their investments to the greentech and biotech industries in the coming year, while China and India remain hot destinations for venture funds, according to a recent survey by the U.S. audit, tax and advisory firm KPMG LLP.
In polling more than 350 venture capitalists, entrepreneurs, corporate buyers, investment bankers and research analysts, KPMG found that 51 percent of respondents indicated they expect venture capital activity to continue rising in 2008. Some 34 percent say investment activity will at least remain the same in the coming year and fewer than 12 percent anticipate a decrease in investment volume. KPMG conducted the survey in partnership with AlwaysOn, the venture capital new media organization.
"Globalization and the focus on the health of the planet has VC investors concentrating heavily on capturing emerging-market opportunities, particularly in Asia, while looking for the next-best-thing in eco friendly and medical technologies," said Packy Kelly, KPMG partner based in Silicon Valley and co-leader of its venture capital practice.
When asked to identify the industry sectors that would receive the most capital over the next two years, 24 percent indicated greentech/cleantech, which was followed by biotech/pharmaceuticals at 15 percent, Internet services at 13 percent, and mobile technology was cited by 11 percent.
Outside of the U.S., China and India were the overwhelming investment favorites by 29 percent and 23 percent of the respondents, respectively. Further, 64 percent of respondents indicated that China and India are the most attractive locations for entrepreneurs to find funding, while 61 percent of those surveyed expect both to have increased IPO activity over the next two years.
"There is a clear indication that growth investors have become more global, spreading their capital worldwide," added Kelly. "Not surprisingly, they continue to be bullish on emerging markets and industry sectors that project the most growth in the near future."
Inside the U.S., it appears the West will continue to receive the bulk of capital, with 49 percent of respondents to KPMG's survey indicating this region will see more investment. The West was followed by the Northeast and the Southwest at 19 percent and 12 percent respectively.
The investors surveyed also expect rising merger and acquisition activity in the next year. Forty-nine percent expect an increase, with 33 percent believing it will be about the same levels, and only 11 percent foreseeing a decrease in deals during the period. Nearly half expect the domestic IPO market to maintain its 2007 rate in the next year, with just 26 percent saying they expect it will increase, and about 15 percent anticipating a decline indicating a concern over the market volatility experienced in the second half of the year.
A Changing Investment Community
Perceptions of the investment community are also changing. Venture capital firms are seeing increased competition from private equity and hedge funds as these firms look for novel strategies to deploy their hordes of capital earlier in the lifecycle of innovative companies. In fact, 66 percent indicated that they expect private equity firms will also continue to increase their presence in the venture capital market.
"We are seeing continued convergence between private equity and venture capital," said Brian Hughes, KPMG partner based in Philadelphia and co-leader of the venture capital practice. "Venture capital funds are adding private equity investments, and private equity funds are adding venture capital investments blurring the lines between the asset classes."
KPMG LLP, the audit, tax and advisory firm (www.us.kpmg.com), is the U.S. member firm of KPMG International. KPMG International's member firms have 123,000 professionals, including more than 7,100 partners, in 145 countries.
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