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Wednesday, 17th April 2024
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$100bn US venture capital tidal wave builds Back  
US no longer has ‘exclusive claim’ on VC culture, says Morgan Stanley guru.
Analysing recently-released European Venture Capital Association data for 1999, Morgan Stanley Dean Witter economics guru Stephen Roach highlighted an increase to $13 billion in new venture capital investment in Europe in 1999.

‘While that’s still less than one third the flows in the US, it represents a 65 per cent increase from the Euro-VC investment rate in 1998 and more than a three fold increase from the average pace recorded in the first half of the 1990s.’ Roach noted that gains, at 63 p.c. had been particularly impressive in the UK, ‘long known for the lack of any VC culture’. France, Germany, Italy and Spain had also seen notable increases.

‘The globalisation of venture capital investing is ‘part and parcel of the very internet culture that VC funding initially spawned,’ Roach wrote in an end-June note. ‘The internet enables a borderless entrepreneurial culture to transfer its skill-set from one market to another.’

‘There is now good reason to challenge the notion that America has an exclusive claim on the VC-directed growth model that is presumed to lie at the heart of the New Economy’.

At a Morgan Stanley Dean Witter conference in May, leading US venture capitalists were agreed that US-based funds were about to become increasingly aggressive in pursuit of offshore opportunities. One panelist, Roach related, suggested that ‘the big VC funds could conceivably move towards a 50/50 split between US and non-US investments over the next 3-5 years; of the 50 per cent likely to head outside the US, it was thought to be equally split between Europe and Asia.’

The US had about $400 billion in private equity under management at the end of 1999. At that level, the suggestion would mean an extra $100 billion of VC funding for European ventures - nearly eight times the level of domestic European VC funding in 1999.

Earlier, Morgan Stanley Dean Witter had argued that ‘an e-commerce driven catch-up on the demand side of the technology equation would be the dominant force’ behind the convergence of the rest of the world on the American growth norm.

But on the technology supply side, MSDW had concluded that 75 per cent of the world’s most competitive technology companies over the next 3-5 years were likely to be American. That conclusion, Roach now writes, could be ‘drawn into serious question by the globalisation of venture capital investing’.

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