While U.S. venture capital investment in overseas companies has been rising for the past several years, the predicted rush to forsake American entrepreneurs for those abroad has yet to happen, according to a survey released yesterday.
The results suggest that investors still have faith in domestic innovation and that the so-called "brain drain" of talent leaving the United States for less regulated countries may not be as strong as thought.
"U.S.-based [venture capitalists] are essentially dabbling in global markets," said Mark Jensen, a managing partner with financial firm Deloitte & Touche LLP.
His organization, along with the National Venture Capital Association, of Arlington, Va., surveyed 528 venture capitalists on several continents to gauge their global investment activity, hoping to assess which regions are considered hotbeds of innovation.
The results of that "2007 Global Venture Capital Survey," released yesterday, show that at least among U.S. investors, the hottest spot still seems to be here at home.
Fewer than 5 percent of the billions of American venture capital dollars spent last year went overseas.
Still, many believe it's just a matter of time before American venture dollars begin to flow heavily to other countries, amid a challenging corporate climate here, which includes regulatory pressures, potential tax changes, immigration restrictions and high costs associated with certain legal compliance rules.
If policies become too restrictive, business people and their investors may set up shop elsewhere, said Mark G. Heesen, president of the National Venture Capital Association.
"United States venture capitalists are working off that old mantra that the entrepreneur is king and we follow that entrepreneur wherever that entrepreneur goes," Heesen said during a conference call earlier this week.
As expected, the survey found that foreign countries were more likely to invest outside their soil. They often do so in neighboring countries, akin to investment across state lines in the U.S., Jensen said.
Of the U.S. venture capitalists responding to the survey, nearly half said they do light investing abroad and half of those said they plan to do more of it within the next five years. But most of the venture capitalists who aren't already focusing overseas don't plan to start anytime soon.
"The overseas investment bring on a whole other level of complexity, everything from currency exchange to culture to just the grim reality of how far you are away from the operations of the company," said Frank A. Adams, whose Timonium venture capital firm, Grotech, invests solely in American businesses.
Of the U.S. funds spent globally, most are concentrated in regions that appear to offer the best number of potential investments (Israel, China and India); strong entrepreneurial activity (India and China); or a stable political environment and proximity to the U.S. (Canada), according to the survey.
tricia.bishop@baltsun.com