Red Herring reports on a new study issued by Deloitte and Touche on foreign investments by VCs.
“The vast majority of U.S. venture capitalists plan to keep their investments inside the United States….Only 20 percent of VCs planned to increase investments outside the U.S. over the next five years.”
Actually, I was quite surprised to see that there are 20% of VCs who would consider overseas investments. The VCs that I know well tend to favor limiting as much extraneous risk as possible, as there is enough business risk in each deal. Therefore they tend to favor specific industries that they know well to minimize their industry risk. Many also limit the geographical reach of their investments, which allows them to keep closer watch over their stable of companies.
International investments add multiple layers of risk that most VCs just do not want to add to the mix. The fact that one in five would invest outside the US tells me that there really is a large overhang in many firms. That is, they have more cash than they can invest in their traditional profile. So we see more VCs chasing start-ups and now a significant number investing overseas.
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