Valleys of the East - The VC industry

19th Apr 2012
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Sand-hill-road
  • It is hard to find an industry that is as highly centralized as the Venture Capital industry: centralized in the US, and specifically in one street in Silicon Valley: Sand Hill Road in Menlo Park. However, this is gradually changing as the VC industry is developing fast in many sometimes unexpected places. You might call them ‘Valleys of the East’: Silicon Valley type areas that are emerging across Asia Pacific and present a huge opportunity for technology innovation and investments:Fortitude Valley and the Silicon Beach initiative in Australia
  • Bandung’s developers that feed the startups in Jakarta, Indonesia
  • Silicon Gulf around Davao City, and the outskirts of Makati & Manila in the Philippines
  • Bangalore Valley in India
  • Zhongguancun in Haidan district, Beijing, often referred to as China's Silicon Valley.

The largest of these are obviously in India and China. Bangalore Valley is a vibrant hub of innovation and startups, which has grown out of the many companies that specialize in R&D, electronics, software, and BPO. During the dotcom boom, Bangalore’s IT industry saw the emergence of many local and global IT companies, which helped to lay the foundation for the tech eco-system of universities, R&D centers, developers, and component suppliers.


Valleys of the East - The VC industry

Like Bangalore, Zhongguancun started out a hub for electronics and IT and was referred to as ‘electronics avenue’ in the 1980’s. The area was labeled "Beijing High-Technology Industry Development Experimental Zone" in 1988 by the Chinese government. Different than the more organic process that led to the emergence of Bangalore Valley, the support of the government has helped to build the eco-system that led to the boom in developers, innovation, and tech startups in this area.The more mature Valleys of the East have also developed a booming VC industry, and it is interesting to see how these differ from each other and from the more established VC sector in the US:


US-China-India-VC-market-comparison

In terms of the size of VC market, the National Venture Capital Association (NVCA) in the US stated that $22B was invested in the US in 2010, while $12.3B was raised by VC funds. For the same hear, Zero2IPO Research Center shows very different numbers for China: $5.4B was invested and $11.2B was raised. Hence, the amounts of money raised are quite similar but the value of actual investments in China is only about 25% of those in the US.

Another interesting difference is the risk profile of the various markets. This is closely related to the size of Early Stage investments, i.e. Seed Series A. The NVCA has calculated that the dollar value of early stage investments in the US is about 32%. In China, this is a mere 6% according to Zero2IPO.

You can see how these markets differ significantly across various key variables, but tend to align well to their local markets, which in turn vary by orientation, culture, and industry focus. Like the VC’s, the startups differ significantly across the various regions. More on that later.

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