NEW YORK, Jan. 31 Venture capitalists will largely directtheir investments to the greentech and biotech industries in the coming year,while China and India remain hot destinations for venture funds, according toa recent survey by the U.S. audit, tax and advisory firm KPMG LLP.
In polling more than 350 venture capitalists, entrepreneurs, corporatebuyers, investment bankers and research analysts, KPMG found that 51 percentof respondents indicated they expect venture capital activity to continuerising in 2008. Some 34 percent say investment activity will at least remainthe same in the coming year and fewer than 12 percent anticipate a decrease ininvestment volume. KPMG conducted the survey in partnership with AlwaysOn, theventure capital new media organization.
"Globalization and the focus on the health of the planet has VC investorsconcentrating heavily on capturing emerging-market opportunities, particularlyin Asia, while looking for the next-best-thing in eco friendly and medicaltechnologies," said Packy Kelly, KPMG partner based in Silicon Valley andco-leader of its venture capital practice.
When asked to identify the industry sectors that would receive the mostcapital over the next two years, 24 percent indicated greentech/cleantech,which was followed by biotech/pharmaceuticals at 15 percent, Internet servicesat 13 percent, and mobile technology was cited by 11 percent.
Outside of the U.S., China and India were the overwhelming investmentfavorites by 29 percent and 23 percent of the respondents, respectively.Further, 64 percent of respondents indicated that China and India are the mostattractive locations for entrepreneurs to find funding, while 61 percent ofthose surveyed expect both to have increased IPO activity over the next twoyears.
"There is a clear indication that growth investors have become moreglobal, spreading their capital worldwide," added Kelly. "Not surprisingly,they continue to be bullish on emerging markets and industry sectors thatproject the most growth in the near future."
Inside the U.S., it appears the West will continue to receive the bulk ofcapital, with 49 percent of respondents to KPMG's survey indicating thisregion will see more investment. The West was followed by the Northeast andthe Southwest at 19 percent and 12 percent respectively.
The investors surveyed also expect rising merger and acquisition activityin the next year. Forty-nine percent expect an increase, with 33 percentbelieving it will be about the same levels, and only 11 percent foreseeing adecrease in deals during the period. Nearly half expect the domestic IPOmarket to maintain its 2007 rate in the next year, with just 26 percent sayingthey expect it will increase, and about 15 percent anticipating a declineindicating a concern over the market volatility experienced in the second halfof the year.
A Changing Investment Community
Perceptions of the investment community are also changing. Venture capitalfirms are seeing increased competition from private equity and hedge funds asthese firms look for novel strategies to deploy their hordes of capitalearlier in the lifecycle of innovative companies. In fact, 66 percentindicated that they expect private equity firms will also continue to increasetheir presence in the venture capital market.
"We are seeing continued convergence between private equity and venturecapital," said Brian Hughes, KPMG partner based in Philadelphia and co-leaderof the venture capital practice. "Venture capital funds are adding privateequity investments, and private equity funds are adding venture capitalinvestments 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 have123,000 professionals, including more than 7,100 par