VCs Get Serious about the Emerging World as Deals in India and China Soar

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Venture capital investments aren’t just picking up in the US, according to new numbers from Dow Jones VentureSource. The amount invested was up 13% globally in the first quarter of 2010. The sole exception was Europe: Where they fell 7%. It was the lowest number of deals since Dow Jones started tracking European deals in 2000 and the second lowest amount invested. Ouch.

This isn’t a huge surprise given the paucity of capital for new deals among London-based firms, and the fact that there’s bigger market growth elsewhere in the world. Like, say, China, which saw a staggering 35% increase in capital. The total invested in the quarter was $579 million, according to the numbers. So much for concerns about the Google debacle chilling relations between China and the Valley.

India—which has been more of a venture capital rollercoaster than China— roared back to life this quarter. Investments in the country more than doubled to $259 million in the quarter, up from $113 million the first quarter of 2009.

The news was mixed for Israel, which saw a drop in deals, but 21% increase in sheer capital over the same period last year. Again, this shouldn’t be a huge surprise as Israel is home to some amazing entrepreneurs who know how to play the startup game well, but a chill in returns over the last decade has dampened enthusiasm to invest in the country broadly.

Interestingly in all markets except the US, the median deal size was way up. In the US it declined from $5 million to $4.5 million. Europe’s rose 23% but was still the smallest in the survey at $3.4 million. Israel’s more than doubled to $8 million, India’s spiked from $3.2 million to more than $10 million per median deal. And China’s median deal price was a whopping $12 million. This can easily be the result of a few big deals that happened to close in the first quarter, but taken across several geographies it seems to be a sign of maturity when it comes to global investing.

Not counting Israel and Western Europe, it’s only been about five years since most Silicon Valley venture firms started investing in other countries, dramatically bucking a multi-decade approach of only investing within an hour’s drive of their Sand Hill Road offices. A lot of dumb money flew around for many years and there was a lot of concern that China and India in particular might be black holes where the same investing logic of the Valley just didn’t hold true. But now investors seem to be focusing, with better local teams, for the most part, or at least more mature local firms to co-invest with. Entrepreneurs too have evolved in these countries. The increased deal size is a sign that they’re not racing around throwing money all over the country, but finding some good deals in which they’re comfortable making big bets.

The numbers disprove a common misconception that the advantage for emerging markets is doing things on the cheap. These increasing deal sizes show instead that the trend is about big bets on big opportunities.

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