Global Venture Capital Investment on Track in 2006 to Top $32billion, Leading to Most Capital Invested Since 2001
Dow Jones VentureOne and Ernst & Young Global Year End Analysis Also Finds Significant Growth in “CleanTech” and Other Emerging Industries
San Francisco, London, Shanghai, 11 December 2006 — With $25.39billion invested after the first three quarters of the year, venture capital activity in the US, Europe, China and Israel in 2006 is poised to hit a five-year high and register the highest annual investments since 2001, according to a global year end analysis by Dow Jones VentureOne and Ernst & Young. In 2001, investment reached $51.22billion. This year, investment is expected to top $32billion after the fourth quarter. Global deal flow, however, remains constrained and is expected to fall slightly short of the 3,931 deals completed in 2005.
Along with the strong investment growth, the venture capital market has shown considerable interest in new markets such as China, where deal flow is poised to reach an all time high, and in emerging industries including the burgeoning "cleantech" segment and Web 2.0. For example, a new analysis prepared by VentureOne and Ernst & Young has found that $761.4million has been invested in clean technology on a worldwide basis so far this year, up 50% from $504.1million invested after the first three quarters of 2005.
"The new wave of venture capital investments around the globe, particularly at the early stage, has been driven by a number of factors. First, demand for innovation in sectors such as Web 2.0, cleantech and biotechnology is increasing in both mature and emerging markets. The positive exit environment and the end of the fund raising cycle in most markets is spurring investments. Venture-backed companies also have higher capital requirements today as the median time from initial VC financing to exit lengthens and the need to establish global operations comes earlier in their life cycles in the face of growing global competition. Finally, venture capitalists are responding to the need of large multinationals to get closer to the innovation pipeline, whether through partnerships with promising start-ups or acquisitions of innovative companies," said Gil Forer, global director of Ernst & Young's Venture Capital Advisory Group.
"Once again, this year has shown that venture capital follows a cyclical pattern with the cycle ramping back up in 2006 in conjunction with a new wave of global activity. This is particularly evident at the early stage, where a plethora of emerging venture-backed companies is aiming to improve the health of the planet and evolve the way we communicate with each other. In addition, the burgeoning consumer technology market and the rapid pace at which these advancements spread to consumers around the world, is providing much of the impetus for the solid growth of the global venture capital industry," added Steve Harmston, director of global research at VentureOne.
Key Venture Capital Metrics
Among the key venture capital metrics, the year has seen relatively robust levels of liquidity in the major geographic areas. That includes strong merger and acquisition activity for venture-backed companies in the US and Israel. The US has posted 311 venture-backed M&As at the third quarter, and Israel has posted 32, both up from last year’s levels. Plus, the median amount being paid for those companies — $50million in both the US and Israel — has topped 2005 amounts in both countries. Year 2006 also has posted relatively steady venture-backed initial public offering (IPO) activity around the globe. In Europe, in particular, 56 have been completed through the third quarter, making it likely that Europe will complete the most venture-backed IPOs this year since 2000, thus potentially freeing up venture capital portfolios for further investment. But the size of IPOs, particularly in Europe, are at much smaller levels with only $1.22billion cumulative raised in the European public offerings so far. The US has had some success in the public markets as well, with 37 IPOs so far this year and $2.47billion raised, putting it on path to exceed last year’s level. The amount being directed to worldwide venture capital investing has been on an upward trend since 2003 and this year has continued to build on that momentum with $25.39billion invested after the third quarter. But global venture capital fund raising — at $24.22billion, remains off the pace of last year, when it topped $33.18billion due to particularly strong private equity funds in Europe.
"In India, venture capital investment activity has accelerated in the first three quarters of 2006 by both US and local venture capital funds. We’ve seen as much as $178million invested in 48 deals in India this year," said Mr. Forer. Among those deals were a $10million investment by Sequoia Capital in AppLabs Technologies, a provider of software testing with offices in Hyderabad, and Travelguru of Mumbai, which was also funded by Sequoia Capital along with Battery Ventures this year.
Along with robust global investment, there was a striking amount of early-stage activity in 2006, particularly in the more established venture capital markets. For example, 42% of the completed rounds in Europe so far this year have been seed and first rounds, the most proportionally since 2001. In the US 36% of the rounds have been seed and first rounds, the same percentage as last year, but the most since 2001.
“Overall, this infusion of early-stage activity is a positive sign for these established markets, indicating investors are finally able to venture past their existing portfolio companies and are seeing the significant potential in emerging areas and technologies,” said Mr. Harmston.
Other evidence of the current status of the market is the median size of venture capital deals, which grew considerably in 2006, reaching $7 million in the US, $5.5 million in Israel, $5 million in China and $3 million in Europe after the third quarter.
"We have seen median deal sizes at their highest levels in at least six years, demonstrating that investors are placing bigger bets on selectively fewer companies to sustain the most promising emerging market leaders as they compete worldwide to become the next global market leaders," said Mr. Forer.
Emerging Interest in CleanTech
Among the most positive signs in the venture capital market in 2006 is the considerable attention being focused on clean technology. For the purposes of the VentureOne and Ernst & Young analysis, clean technology was defined as a company that directly enables the efficient use of natural resources and reduces the ecological impact of production. Areas of focus include energy, water, agriculture, transportation, and manufacturing where the technology creates less waste or toxicity. The impact of "cleantech" can be either to provide superior performance at lower costs or to limit the amount of resources needed while maintaining comparable productivity levels.
In the US alone, $585.6million has been invested to 60 companies focused on the area so far this year, already 30% more than was invested in all of 2005. Investors also are seeing strong potential, ramping up the size of deals to support these companies. The median investment so far this year in the US is $7.5million, compared to $4.5million last year for "cleantech" companies. European investment in "cleantech" is already 26% higher than was invested in all of 2005, at $102.4million. Even China venture capital investment is following this trend, with nine deals and $74million invested to date this year. China is also posting significantly larger deals in "cleantech" with a median size of $6.3million, up from $1.3million last year.
Looking Forward
Looking forward to 2007, the improving liquidity landscape is likely to continue in the next year on a global basis, thus improving the overall level of investing along with it. The year will also likely see even more strengthening of new venture capital markets in Asia, along with additional investment focused on emerging areas of the Internet and the environment.
Ends
The investment figures included in this release are based on aggregate findings of VentureOne’s proprietary European research and are contained in VentureSource. This data was collected by surveying professional venture capital firms, through in-depth interviews with company CEOs and CFOs, and from secondary sources. These venture capital statistics are for equity investments into early-stage, innovative companies and do not include companies receiving funding solely from corporate, individual, and/or government investors. No statement herein is to be construed as a recommendation to buy or sell securities or to provide investment advice.
Copyright © 2006, VentureOne.
20.1.07
19.1.07
Private Equity Developments
THE art of private equity, it might be said, is finding and polishing diamonds in the rough. No wonder, then, that more firms are venturing off the beaten path in search of uncut gems. With record sums pouring into the asset class in recent years—the biggest funds have topped $15 billion—more investors and fund managers are turning to the developing world. Just this week Citigroup unveiled plans for a new $200m fund dedicated to Africa.
Although America and Europe still attract the lion’s share of private-equity investing, emerging markets—from Asia and Africa to Latin America—are rapidly growing. More than $22 billion was raised for these markets in 2006, according to the Emerging Markets Private Equity Association, up from $3.4 billion in 2003. The fastest growth last year was in Africa and the Middle East. A survey of big investors by the association found that 65% plan to increase their commitments to emerging markets in the next five years.
Several things explain their new appeal. Keener competition for deals in America and Europe is prompting funds to look further afield. Economic growth and greater stability have made some countries more attractive than they once were, as has the new maturity of their capital markets. A growing band of companies in the developing world have global ambitions of their own and want to tap into the expertise and networks that foreign investors can offer.
Finally, the rewards in these locales are often much richer than elsewhere. A private-equity index compiled by Cambridge Associates showed an annual return in emerging markets of about 23% over the three years to June 30th. That is more than double the return offered by the Standard & Poor’s 500 stock index. Last year, the gap was even bigger: 25% versus 8.6%.
Such pickings are hard to resist and some of the world’s biggest private-equity outfits are entering the fray. South Africa’s financial circles are abuzz over reports that Blackstone Group, Bain Capital and Kohlberg Kravis Roberts are potential bidders for a retail chain called Edgars Consolidated Stores. Edcon, as it is known, has over 900 stores across southern Africa and a market value of about 19 billion rand ($2.6 billion), which would make it one of Africa’s largest private-equity targets. Giants like Texas Pacific Group (TPG) have continued their march across Asia. TPG now has six offices in the region, stretching from China to India. Benchmark Capital, Apax Partners and 3i are among the global firms invested in Israel.
Of course one investor’s frontier may be another’s backyard. Countries like Israel and South Africa may seem fresh and far-flung to some, but in a private-equity sense they have already emerged. The stock of private-equity investment as a fraction of GDP amounted to 3.2% in Israel and 1.9% in South Africa at the end of 2005, putting them ahead of every region of the world except North America (see chart). These days the true pioneers in the field—investors and fund managers such as CDC, Actis and Acap Partners—are putting money into countries from Afghanistan to Tanzania. In contrast to the mega-deals that have made private equity famous, they target modest investments in outfits ranging from dairies to banana growers.
Even veteran investors warn of the hassles of working in such markets. These can include decrepit infrastructure, poor corporate governance and a limited pool of skilled managers. Governments can turn hostile and currencies can turn against you. The cost of borrowing may also be dearer in emerging markets, making it too expensive for acquiring firms to load up on as much debt as they do elsewhere. It takes longer to turn a company around in emerging markets, veterans say, and at the same time exiting from a deal may be trickier. In particular, initial public offerings are less attractive in countries cursed with illiquid stockmarkets.
Private-equity investors are as demanding in their new stomping grounds as on their home turf. A survey last year by the Tuck School of Business at Dartmouth found that they want to see returns of at least 25% on their investments in emerging economies. The will to venture into frontier markets is strong, it seems, but only if the gems gleam brightly enough.
The Economist
http://www.economist.com/daily/news/displayStory.cfm?story_id=8559905&fsrc=RSS
Although America and Europe still attract the lion’s share of private-equity investing, emerging markets—from Asia and Africa to Latin America—are rapidly growing. More than $22 billion was raised for these markets in 2006, according to the Emerging Markets Private Equity Association, up from $3.4 billion in 2003. The fastest growth last year was in Africa and the Middle East. A survey of big investors by the association found that 65% plan to increase their commitments to emerging markets in the next five years.
Several things explain their new appeal. Keener competition for deals in America and Europe is prompting funds to look further afield. Economic growth and greater stability have made some countries more attractive than they once were, as has the new maturity of their capital markets. A growing band of companies in the developing world have global ambitions of their own and want to tap into the expertise and networks that foreign investors can offer.
Finally, the rewards in these locales are often much richer than elsewhere. A private-equity index compiled by Cambridge Associates showed an annual return in emerging markets of about 23% over the three years to June 30th. That is more than double the return offered by the Standard & Poor’s 500 stock index. Last year, the gap was even bigger: 25% versus 8.6%.
Such pickings are hard to resist and some of the world’s biggest private-equity outfits are entering the fray. South Africa’s financial circles are abuzz over reports that Blackstone Group, Bain Capital and Kohlberg Kravis Roberts are potential bidders for a retail chain called Edgars Consolidated Stores. Edcon, as it is known, has over 900 stores across southern Africa and a market value of about 19 billion rand ($2.6 billion), which would make it one of Africa’s largest private-equity targets. Giants like Texas Pacific Group (TPG) have continued their march across Asia. TPG now has six offices in the region, stretching from China to India. Benchmark Capital, Apax Partners and 3i are among the global firms invested in Israel.
Of course one investor’s frontier may be another’s backyard. Countries like Israel and South Africa may seem fresh and far-flung to some, but in a private-equity sense they have already emerged. The stock of private-equity investment as a fraction of GDP amounted to 3.2% in Israel and 1.9% in South Africa at the end of 2005, putting them ahead of every region of the world except North America (see chart). These days the true pioneers in the field—investors and fund managers such as CDC, Actis and Acap Partners—are putting money into countries from Afghanistan to Tanzania. In contrast to the mega-deals that have made private equity famous, they target modest investments in outfits ranging from dairies to banana growers.
Even veteran investors warn of the hassles of working in such markets. These can include decrepit infrastructure, poor corporate governance and a limited pool of skilled managers. Governments can turn hostile and currencies can turn against you. The cost of borrowing may also be dearer in emerging markets, making it too expensive for acquiring firms to load up on as much debt as they do elsewhere. It takes longer to turn a company around in emerging markets, veterans say, and at the same time exiting from a deal may be trickier. In particular, initial public offerings are less attractive in countries cursed with illiquid stockmarkets.
Private-equity investors are as demanding in their new stomping grounds as on their home turf. A survey last year by the Tuck School of Business at Dartmouth found that they want to see returns of at least 25% on their investments in emerging economies. The will to venture into frontier markets is strong, it seems, but only if the gems gleam brightly enough.
The Economist
http://www.economist.com/daily/news/displayStory.cfm?story_id=8559905&fsrc=RSS
Private Equity India
MUMBAI: Private Equity- and Venture Capital-backed companies are growing significantly faster compared to their non Private Equity-backed peers as well as market indices like the Nifty and CNX Midcap, according to a study released by Venture Intelligence, a provider of information and networking services to the Private Equity and Venture Capital ecosystem in India.
The Private Equity Impact report, showcasing the findings of a first-of-its-kind study measuring the Economic Impact of Private Equity and Venture Capital on the Indian economy, also shows that wages at PE/VC-backed companies are growing at a significantly higher rate compared to their peers who are not PE-backed.
Sales at publicly-listed PE-backed companies grew 22.9 per cent during 2000 and 2005, compared to 10 per cent at non PE-backed listed firms and 15.8 per cent at Nifty Index companies.
Wages at publicly-listed PE-backed companies grew 32 per cent between 2000 and 2005, compared to six per cent at non PE-backed listed firms and 16 per cent at Nifty Index companies.
The Venture Intelligence study conducted with advice and guidance from Prof. Amit Bubna of the Indian School of Business, Hyderabad - measures the economic impact of Private Equity and Venture Capital on the Indian economy using qualitative and quantitative methods.
The study provides quantitative comparison of PE- and VC-backed companies against their non PE-backed peers and relevant market indices, in terms of key economic parameters like Sales, Profitability, Exports, Wages, and Research & Development. It also includes a first-ever qualitative survey of founders of PE/VC-backed private companies, and case studies featuring PE/VC-backed companies from different sectors.
The survey revealed that about 96 per cent of top executives at PE/VC-backed firms believe that without PE/VC financing, their companies would not have existed or would have developed slower. Also, more than 60 per cent of top executives at PE/VC-backed companies surveyed said that the number of employees at their companies had increased after the PE/VC investment.
PE Impact also provides a snapshot of how PE/VC backed companies dominate the list of top companies in the rapidly growing Business Process Outsourcing (BPO) sector. The report features case studies of successful three PE/VC-backed companies – Spectramind (BPO), Arch Pharmalabs (Pharmaceuticals) and Bharti-Airtel (Telecom Services) – showing how these organizations benefited from PE/VC investments and the lessons learnt in the process.
“The common thread that emerges from the study is that Private Equity / Venture Capital investment, when chosen and leveraged well, can help Indian companies innovate, create new businesses and accelerate growth in several ways that add significant value to the Indian Economy,” said Arun Natarajan, founder and chief executive officer of Venture Intelligence.
From © CyberMedia News
The Private Equity Impact report, showcasing the findings of a first-of-its-kind study measuring the Economic Impact of Private Equity and Venture Capital on the Indian economy, also shows that wages at PE/VC-backed companies are growing at a significantly higher rate compared to their peers who are not PE-backed.
Sales at publicly-listed PE-backed companies grew 22.9 per cent during 2000 and 2005, compared to 10 per cent at non PE-backed listed firms and 15.8 per cent at Nifty Index companies.
Wages at publicly-listed PE-backed companies grew 32 per cent between 2000 and 2005, compared to six per cent at non PE-backed listed firms and 16 per cent at Nifty Index companies.
The Venture Intelligence study conducted with advice and guidance from Prof. Amit Bubna of the Indian School of Business, Hyderabad - measures the economic impact of Private Equity and Venture Capital on the Indian economy using qualitative and quantitative methods.
The study provides quantitative comparison of PE- and VC-backed companies against their non PE-backed peers and relevant market indices, in terms of key economic parameters like Sales, Profitability, Exports, Wages, and Research & Development. It also includes a first-ever qualitative survey of founders of PE/VC-backed private companies, and case studies featuring PE/VC-backed companies from different sectors.
The survey revealed that about 96 per cent of top executives at PE/VC-backed firms believe that without PE/VC financing, their companies would not have existed or would have developed slower. Also, more than 60 per cent of top executives at PE/VC-backed companies surveyed said that the number of employees at their companies had increased after the PE/VC investment.
PE Impact also provides a snapshot of how PE/VC backed companies dominate the list of top companies in the rapidly growing Business Process Outsourcing (BPO) sector. The report features case studies of successful three PE/VC-backed companies – Spectramind (BPO), Arch Pharmalabs (Pharmaceuticals) and Bharti-Airtel (Telecom Services) – showing how these organizations benefited from PE/VC investments and the lessons learnt in the process.
“The common thread that emerges from the study is that Private Equity / Venture Capital investment, when chosen and leveraged well, can help Indian companies innovate, create new businesses and accelerate growth in several ways that add significant value to the Indian Economy,” said Arun Natarajan, founder and chief executive officer of Venture Intelligence.
From © CyberMedia News
Private Equity UAE
From the (MENAFN - Khaleej Times) DUBAI — Private equity industry in the Gulf Cooperation Council (GCC) countries raised $10 billion last year compared to $5.7 billion in 2005 and there is big growth potential for the industry, according to the 2006 annual report of Gulf Venture Capital Association (GVCA).
"The size of private equity funds under management is doubling every year. We expect funds managed by regional companies to exceed $25 billion by the end of 2007," said Ihsan Jawad, Board Member of GVCA and CEO of Zawaya.com.
The GVCA annual report is the first accurate quantification of the size of private equity industry in the region. In 2004, only a couple of billion dollars were managed by regional private equity firms compared to $18 billion managed by them today.
The huge surge in regional liquidity due to high oil prices, the stock market correction and the low interest rate environment have helped the region's private equity industry.
Although the private equity, especially the buyout funds are a recent phenomenon to hit the financial markets in the region, it presents a strong case for portfolio diversification and asset allocation. The MENA region is likely to see the same trend.
According to the report, private equity represents an increasingly popular investment for those seeking returns that can outperform the public markets. Despite the unprecedented recent growth, private equity remains a developing industry in the Middle East region and represents only a fraction of the overall economic activity.
Globally, private equity buyout firms announced more than $700 billion in purchases last year, almost three times as much as in 2005. The top quartile buyout funds have generated net annual returns in excess of 40 per cent in the past 20 years. Historically, private equity players in the region tended to restrict their activity to collecting funds for investment in pre-identified opportunities. More recently, they are collecting funds prior to seeking opportunities to invest the funds in ventures both in the MENA region and worldwide.
GVCA report reveals that real estate sector emerged as the most attractive sector among PE firms, accounting for $2.8 billion investment followed by the financial services $750 million and the travel and tourism $650 million.
GVCA's survey on the impact of private equity and venture capital on companies receiving investments from private equity reveals that nearly 40 per cent of the respondents cited a need for additional growth capital as the main reason for receiving private equity and venture capital, while 27 per cent felt that private equity was an important means of buying out existing shareholders. Overall none of the companies experienced a decline in financial performance after they received private equity funding.
On the contrary, companies reported average increase in annual revenue and net profitability of 37 per cent and 24 per cent, respectively. The survey also indicated that more than 50 per cent of the interviewed companies have benefited from non-financial contribution in terms of developing strategy, financial advice and industry knowledge.
While $6.5 billion has been invested in the region by private equity players since 1998, only 5 per cent has been realised on exit. According to the report, private equity firms based out of the UAE have undertaken the majority of investments made by firms based in MENA region.
Investments by UAE private equity firms totalled $5.1 billion or 78 per cent of the total investments by MENA-based private equity firms.
"The size of private equity funds under management is doubling every year. We expect funds managed by regional companies to exceed $25 billion by the end of 2007," said Ihsan Jawad, Board Member of GVCA and CEO of Zawaya.com.
The GVCA annual report is the first accurate quantification of the size of private equity industry in the region. In 2004, only a couple of billion dollars were managed by regional private equity firms compared to $18 billion managed by them today.
The huge surge in regional liquidity due to high oil prices, the stock market correction and the low interest rate environment have helped the region's private equity industry.
Although the private equity, especially the buyout funds are a recent phenomenon to hit the financial markets in the region, it presents a strong case for portfolio diversification and asset allocation. The MENA region is likely to see the same trend.
According to the report, private equity represents an increasingly popular investment for those seeking returns that can outperform the public markets. Despite the unprecedented recent growth, private equity remains a developing industry in the Middle East region and represents only a fraction of the overall economic activity.
Globally, private equity buyout firms announced more than $700 billion in purchases last year, almost three times as much as in 2005. The top quartile buyout funds have generated net annual returns in excess of 40 per cent in the past 20 years. Historically, private equity players in the region tended to restrict their activity to collecting funds for investment in pre-identified opportunities. More recently, they are collecting funds prior to seeking opportunities to invest the funds in ventures both in the MENA region and worldwide.
GVCA report reveals that real estate sector emerged as the most attractive sector among PE firms, accounting for $2.8 billion investment followed by the financial services $750 million and the travel and tourism $650 million.
GVCA's survey on the impact of private equity and venture capital on companies receiving investments from private equity reveals that nearly 40 per cent of the respondents cited a need for additional growth capital as the main reason for receiving private equity and venture capital, while 27 per cent felt that private equity was an important means of buying out existing shareholders. Overall none of the companies experienced a decline in financial performance after they received private equity funding.
On the contrary, companies reported average increase in annual revenue and net profitability of 37 per cent and 24 per cent, respectively. The survey also indicated that more than 50 per cent of the interviewed companies have benefited from non-financial contribution in terms of developing strategy, financial advice and industry knowledge.
While $6.5 billion has been invested in the region by private equity players since 1998, only 5 per cent has been realised on exit. According to the report, private equity firms based out of the UAE have undertaken the majority of investments made by firms based in MENA region.
Investments by UAE private equity firms totalled $5.1 billion or 78 per cent of the total investments by MENA-based private equity firms.
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