Toward A Global Model Of Venture Capital?

While the U.S. still accounts for about two‐thirds of the world's total private equity fund‐raising and investment, other countries have been adopting American practices and are experiencing significant growth in their private equity markets. In fact, a case can be made that a global market for venture capital and private equity is emerging, at least in Western Europe and North America, where venture markets are seeing significant convergence in funding levels, investment patterns, and realized returns. To date, however, the European Union has had little success in establishing community‐wide commercial laws, taxation regimes, or corporate governance policies, so each country's private equity funds are organized in segmented national markets, and investment also tends to be largely localized. The Asian markets are even more fragmented: venture capital shows no sign of taking root in Japan, and China lacks the basic legal infrastructure needed to support a vibrant venture capital market. Venture capitalists create value through their role as active investors, and government and business leaders around the world have come to realize that venture capital and private equity investing can be a significant force in promoting economic development and technological progress. In general, countries with English common law codes offer greater protection to inves‐tors; the ratio of venture capital spending to GDP for common law countries is nearly double that in civil law countries. Government efforts to promote venture capital would probably be better focused on eliminating regulatory road‐blocks, lowering taxes, and provid‐ing a favorable investor climate. In the meantime, it appears that pri‐vate equity fund‐raising and invest‐ment have hit their cyclical lows and are poised to surpass $250 billion globally within three or four years and to reach one‐half trillion dollars by the end of the decade. The author also predicts that India, whose history as a former British colony has given it a common law framework as well as system of elite universities and technical institutes known for the quality of its gradu‐ates, should become one of the five leading venture capital markets by the end of this decade.