US based VC rarely venture off-shore?

Dow Jones VentureWire reported excerpts of the latest global venture capital survey sponsored by Deloitte & Touche LLP in conjunction with the National Venture Capital Association.

One of the conclusions was: "Although there's no denying that the venture industry is going global, plenty of U.S.-based VCs are content to stay home."

They took a somewhat “glass half empty” view, so I will try a more positive spin:

• 46%    US-based VC investing globally
• 5%      Portion of capital under management offshore for those VC
• 6-20% Expected portion of capital offshore in next 5 years for 64% of those VC
• 15%    US-based VC not investing globally but will in next 5 years.
• 61%    US-based VC investing globally in 5 years (i.e. 46% + 15%)

There were 528 respondents, 45% of whom were based in the US, therefore 145 firms will be investing offshore in 5 years.Typically these will be the biggest firms. Applying a simple pareto, they probably amount to 80% of US investments, which were $7.4 billion in Q2 (according to Venture Wire).

Assume the new guys invest 5% and 64% of existing guys increase to 6-20% and no growth in total investment, then the off-shore investment could be $7.4 billion x 80% x (5% x (15% + 46% x 46%) + 6-20% x 46% x 64%) x 4 quarters = $0.8 billion to $1.8 billion per year.

Big numbers, but still only a few percent of the total investment.

Before, you get your hopes up abut billions in annual off-shore investment, the main targets will be China, India, Israel and Canada. Many of the larger funds have established local offices so they can be the proverbial 30-40 minutes away from their investment.  (Too bad for Europe, Latin America, South East Asia, Australia, and New Zealand - although some are served better than others by their local venture community).

Bottom Line: Appetite for international deal flow is increasing. However, for the vast majority of start-ups, your chances of getting a US investment will be much higher if you become a Silicon Valley company. However, there is a high comfort level with off-shore development and R&D.