Written by: William J. Billeaud, President and Managing Partner of Lombard Global, Inc.

Assisted by: Aliana Ferenczi, Global Marketing Representative of Lombard Global, Inc. and Matthew Hinson

Venture capital has a long history in the United States. Along with MIT President Karl Compton, Ralph Flanders, Merrill Griswold, and Donald K. David, French-born Georges Doriot founded the venture capital firm American Research and Development Corporation (ARDC), which was incorporated under Massachusetts law on June 6, 1946. One of the most profound changes in the venture capital business during the past two decades has been its globalization. Today, venture capital flows to where it can multiply, regardless of its geography. If you’re considering taking your business global, check out CloudPay payroll services.

Despite the recent rise of venture capital in other countries, the U.S. remains the most active investor in start-ups. Over the past decade, start-ups in the United States have raised $488 billion from venture capitalists, according to data from Thomson Reuters. That’s about 65 percent of all the money raised in the entire world from VCs. Start-ups in Canada raised the next-highest amount of money, collecting $39 billion, less than a tenth as much, yet still more than both China and India combined. Interestingly enough, 50% of venture capital in the United States is still raised in one state, California. The Bay Area itself raises almost 38% of the U.S. total.

There are several strategies that a firm might consider when it decides to go global, depending on its preferences for risk, the makeup of its partnership or the nature of the country it aims to invest in:

1. Invest directly in a start-up.

2. Open a foreign office.

3. Invest in a partnership that becomes LP and assigns operating partners (other VCs).

4. Affiliate with knowledgeable locals.

5. Acquire a foreign firm.

6. Partner with the local government.

Some firms prefer to keep their relations with foreign start-ups at arm’s length. They fly to another country, pick a start-up in an industry they know with a management team they know and trust, wire funds and come home. Other firms prefer to open their own offices in a foreign country. This strategy may be particularly well suited to firms that are more confident with native language speakers and staff who have significant experience with the local culture, laws, rules and procedures. U.S. venture firms have had some success partnering with each other to form new firms focused on foreign countries. Others have worked to affiliate themselves with local investors. Both strategies work well if the U.S. firm is a competent fundraiser and can help the local firm connect with U.S.-based limited partners. Other venture capitalists would rather get into the foreign market faster and simply buy a successful foreign investment firm.

Governments periodically try to stimulate innovation and create incentives to attract experts, though these programs typically come with various strings attached. Thus, knowing how to invest abroad is one thing; knowing where to invest is another. Many places have tried to replicate Silicon Valley’s unique confluence of innovation resources, but few have succeeded. The United States has developed a very attractive environment for small companies that no other country has yet replicated. People seem to be constantly asking: What makes Silicon Valley so successful at commercializing innovation? Some attribute the area’s proximity to the best research and engineering centres such as Stanford and Cal Berkeley. Others say it has to do with the geographically centralized venture capital industry, or even the concentration of large tech corporations nearby; in other words, infrastructure. But where else might such an innovation ecosystem emerge?

The number of start-ups financed and the total dollars financed in a given country might be the best indicator of its ability to sustain further investment. Exhibit 8.1 shows which countries have had the most active venture capital industries during the past decade. Of course, each country or region has advantages and disadvantages, some of which have opened opportunities while others have made development more difficult. We’ll consider several of the areas of greatest interest. We believe that some countries will eventually catch up to the United States, but start up formation and venture capital financing is one of the few areas in business that the United States will continue to lead for the foreseeable future. In fact, we believe that the U.S. will maintain that lead for at least another generation (20-30 years or more), probably much longer. You may want to consider looking at Salesforce if you’re interested in starting a business, as they provide a great insight into digital transformation for when you promote your company as well as improve the overall experience for customers. However, some people prefer to use HubSpot as it comes in a little cheaper. You can compare the two here – HubSpost vs Salesforce. Both are highly-rated and effective, so it really depends on personal preference and your business needs. You could also take a look at blogfluidui.com as they offer insight on the design of your new start up company, as well as offering you access to free invoice templates for the financial side of the business.

Exhibit 8
Exhibit 8.1


China has the biggest venture capital industry outside the U.S. To compare the two, in 2011 U.S. venture capitalists invested $26.5 billion in all deals. Out of that total, they funded 967 Internet deals with $6.7 billion. By comparison, in 2011 Chinese VC’s invested $13 billion in all deals. Out of that total, they funded 268 Internet deals with $3.2 billion. About 1/3 of all China’s VC investment is made in Beijing and the majority of those investments are in the Technology, Media and Telecommunications (TMT) sector. As vibrant as the China venture business has been, 2012 was a different story. VC’s pulled back and only invested $3.7 billion in 202 deals, funding only 43 IT deals with $563 million.

For the last 10 years China essentially closed its search, media and social network software market to foreign companies with the result that Google, Facebook, Twitter, YouTube, Dropbox, and 30,000 other websites were not accessible from China. This left an open playing field for Chinese software start-ups as they “copy” or “adapt, adopt and extend” existing U.S. business models. This closed but very large market means that greater than 90% of Chinese software startups focus exclusively on the Chinese market. Chinese VC does not currently have a significant global infrastructure.

Nonetheless, we believe that companies like WeChat will push China into serious innovation mode. To make this a complete transition, however, China’s innovation-driven economy will eventually need intellectual property rights and anti-trust laws that are enforced. In addition, education seems to still be one of China’s bottlenecks – rote lectures, passive learning, follow the process, exam-based performance, etc.

Beijing Venture/Angel Ecosystem

Zhongguancun is the name of Beijing’s Silicon Valley, located in the northwest side of Beijing. Not only does Zhongguancun have Chinese startups, but global technology companies (Nokia, Ericsson, Motorola, Sony Ericsson, Microsoft, IBM, Oracle, BEA, Alcatel Lucent, and Google) all have offices here or elsewhere in Beijing. While Beijing has VC’s and angel investors happy to write a check, there aren’t as many angels/VCs in China versus US per capita. There’s a funding gap for seed stage investments. The angel/seed network in Beijing is fragmented and mostly inexperienced (as are a good number of the China VC’s). It’s still an immature market. Remember, auto sales in China went from 1 million in 2001 to 14 million in 2011.


Unlike the U.S., there are almost no mergers or acquisitions in this market segment. According to wildly successful entrepreneur Steve Blank, “It’s much easier to just steal their ideas and hire their employees”. So, big companies rarely acquire startups. Liquidity for most Internet startups happens via IPO’s. 70% of exits in China are via IPO (in the U.S. on NASDAQ or the NYSE or on ChiNext, China’s equivalent of NASDAQ) compared to the 90% of exits in US via mergers or acquisitions. Alibaba (commerce), Tencent (games/chat) and Baidu (search) all have market caps over $40 billion.

Entrepreneurial Culture

Like most countries we looked at, China still has a pervasive fear of failure. The current cultural pressure is to “work for a big company or the government.” Outward facing Universities are just starting to appear, and while there’s a free flow of information inside China, it suffers from the constraints of the Great Firewall. The second difference in ecosystems – the lack of freedom to dissent – goes deeper to the difference between the two systems. As Steve Blank again so aptly puts it, “In the U.S., entrepreneurs are encouraged to ‘Think Different’. Our touchstone for creativity is the Apple ad that said, ‘Here’s to the crazy ones, the misfits, the rebels, the troublemakers, the ones who see things differently – they’re not fond of rules. You can quote them, disagree with them, glorify or vilify them, but the only thing you can’t do is ignore them because they change things….’ This spirit of rebellion against the status quo got us Steve Jobs. In China the same attitude is likely to get you jail time. Unless you can speak truth to power, you’ll never have an innovation economy”.

Therefore, we think that, just like about everything else, China will eventually probably catch us in the entrepreneurial economy. Their progress thus far is astonishing and China’s numbers (people) and speed are really incomprehensible. At some point, however, they will need to reconcile intellectual property rights. More fundamentally, it seems that state controlled capitalism doesn’t jibe with the wild creativity needed to generate breakthrough innovation. This is probably the point at which individuality will have to clash with the forces of state power. Even if individuality wins, it will probably come at a tremendous price. None of us knows how long that will take or indeed, if the outcome will even be positive.


India’s growing markets, new innovations, abundance of computer savvy specialists and strong communications sector have attracted venture capitalists for years. There are, however, numerous issues to take into consideration such as the complex listing requirements of stock exchanges, complex taxes and its infamous bureaucracy. In addition, the lack of crucial infrastructure remains a real problem. Despite this, Indian start-up companies have raised nearly $16 billion of VC in the past decade. Many U.S. investors were emboldened by the success of Info Edge, the company that runs online job site Nauru. The start-up raised money from Kleiner Perkins and Sherpalo Ventures. Info Edge went public on the Bombay Stock Exchange in October 2006 and closed its first day of trading at nearly double its offering price. The venture capitalists’ stake was valued at $75 million.

During the past three years, over 49 different venture capital firms invested $850 million in 53 e-commerce companies. For example, Snapdeal, the online retailer, raised $50 million from three different firms, beginning in April with an investment by eBay. This has been the biggest institutional funding in the sector this year, and Snapdeal will use part of the funds to further develop technology for their business. Another sector that has obtained a great amount of funding is the wind energy sector. $16 million was raised in the first quarter of this year, versus the $500,000 raised last quarter. E-commerce in India is continuing to grow at a fast pace, and by 2016, the market is estimated to reach $13 billion.

New Delhi and Bangalore are the top cities for startups in India. There is still, however, a significant funding gap, with 74% less funding raised in Bangalore when compared to Silicon Valley. Internet and mobile usage in India is also considerably lower than in the United States, with 39 million subscribers compared to 208 million in the U.S. This has not stopped entrepreneurs and startups from continuing to succeed, though. SlideShare, the document sharing service, was founded by entrepreneurs from Bangalore. Last year, LinkedIn acquired the company for nearly $120 million. Startup Festival India, an upcoming event that will celebrate and showcase Bangalore’s advances, will include various startups, including 50 based in the city. This festival will be aimed at allowing start-ups and entrepreneurs to exchange ideas and learn more about the various initiatives being done to support them. Even though early stage investments in India are less frequent, the country has seen an increase in the amount of angel funding received from entrepreneurs, executives in big companies, and Indian expats. According to 500 Startups venture partner Pankaj Jain, this trend will help jumpstart support for early stage start-ups.


Israel’s entrepreneurs and technologists are world class, and its government has supported the development of a vibrant venture capital community. Technology start-ups in Israel have benefited from the country’s investment into military technology and training. A large number of successful technology start-ups can trace their roots back to Unit 8200 (Israel’s NSA), but the best known may be digital security company Check Point Software. In addition, the government launched a successful stimulus for technology investors during the first half of the 1990s called the Yozma program. It acted as a fund-of-funds investor to support foreign firms interested in opening shop in Israel. The government started by inviting foreign investors to establish venture funds based in Israel that would invest solely in Israeli start-ups. It selected 10 firms it would support with public money, offering to contribute up to 40 percent of each firm’s first Israel focused fund.

In the past decade, Israeli start-up companies have raised $5.5 billion from venture capitalists, yet one thing that the country always seems to be missing is customers. This is because most of their customers are typically in the EU and U.S. As a result, start-up executives will sometimes set up sales and marketing in Silicon Valley or the EU to grow their top lines.

At first glance, Israeli VC investment has been down 30% since 2011, as revealed by PWC. Tech start-ups in Israel raised $867 million in 2012. The MoneyTree Israel report indicates that only 51 Israeli tech companies were able to raise venture-capital funding in the first quarter of 2013. According to Rubi Suliman, partner at PwC Israel, the growing presence of other investment players in the marketplace enables a greater number of companies to raise funds from VC sources such as private funds, incubators, accelerators and angels. In essence, this is good news. Thus, Israel’s technology sector is maturing, continues to flourish and is considered to be the country’s top export.

One such startup that has become internationally recognized is Conduit, a billion dollar internet firm, with a web-app marketplace used by over 120 countries. In 2012, Conduit was valued at $1.3 billion, and during the same year, JP Morgan bought a $100 million stake in the company. PrimeSense, inventor of 3D gesture sensing technology, is used by Microsoft for Kinect. Not surprisingly, PrimeSense was able to raise $20 million in venture funds last year. The U.S.’s VC firm Silver Lake, also invested an undisclosed amount in the firm. Today, PrimeSense is used by over 20 million devices around the world. Finally, Newvem, an app which ensures that companies don’t overpay for Amazon’s Web Services cloud, has raised over $4 million from Greylock Partners, Innovation Endeavors, and Index Ventures.

According to serial-Israeli entrepreneur Amir Eldad, start-ups are excelling at technology, but will not have access to global markets unless they work on customer-facing initiatives outside of the country. For Israeli start-ups looking at prospects in Europe, some are considering the Netherlands due to its ideal location, good infrastructure, and working capital. Ben Engel, senior Project Manager of BOM Foreign Investments, located in the southern Brabant area of the Netherlands, is part of the team working to finalize a program that will invest 125 million euros in foreign high tech companies. This VC firm, sponsored by the Dutch government, works to attract businesses and startups to the area, with powerhouses such as Acer, Apple, Sony, IBM and Dell all having research centers and offices set up there. Engel explains that while there are a few Israeli companies already present in the country, he would like to see more, especially in the tech industry. BOM is ready and willing to fund companies in both the startup and more advanced stages. The Investments Seminar held in the Netherlands a few weeks ago proved to be a success. Organized in part by BOM, over 100 participants from different companies including start-ups attended. As a result, two or three Israeli firms have already shown a solid interest in the program and are currently moving forward with plans to establish themselves in the Brabant area in the upcoming years. According to Engel, BOM will make investments of 2.5 million Euros in each company. This would also allow Israeli firms that are looking into European markets to be in closer proximity to Germany, Belgium and Holland.


Russia is well respected for its technological prowess and potential to become a lucrative market for new companies. The country’s recent economic boom led the government to create a program to stimulate start-up creation. It formed a fund-of-funds similar to Israel’s Yozma program, but it required foreign investors to partner with a Russian investment firm to qualify for the stimulus.

Although the energy sector in Russia accounts for nearly 30% of the GDP, only 1% is spent on research and development. The OECD (Organization for Economic Development), has stressed that Russia needs a thriving startup culture, especially in science and technology, in order to prosper. Even though Russia possesses strong capabilities in the fields of technology, science and research, it has been difficult for the country to obtain commercial success globally. That, however, is starting to change, since the 2011 opening of the Skolkovo Innovation Center, based just outside of Moscow. This planned high tech business area, co-chaired by former Intel CEO Craig Barrett, encourages science and technology companies. Importantly, it has its own set of laws. With funding from the non-profit Skolkovo Foundation, the nearly 1,000 acre city has border controls and various incentives, including a 5-7 year tax holiday for start-ups. Additionally, special laws have been created for entrepreneurs from other countries, allowing them to work at the center. The Center focuses on IT, Biomedicine, Space and Nuclear Technologies, and Energy, among others. According to Forbes, VC investments are greatest in the IT sector. In 2011, Russian IT start-up companies raised $237 million, with a total of 139 deals.

In order to further help boost start-ups in the country, Yandex, an Internet search and services firm, has recently developed a new startup accelerator initiative, called the Tolstoy Summer Camp. They will help early stage startups and entrepreneurs throughout the whole process; from idea to launch. According to Yandex, the amount of venture capital on the Russian internet market outweighs new ideas; however, this new seed accelerator is the optimal format for large internet companies to successfully interact with many diverse individuals, as well as startups. Yandex will launch their new program on July 1, 2013, and applicants around the world with Russian language skills can apply. In fact, Yandex will cover foreign entrepreneurs’ travel and accommodations expenses if they have to relocate to Moscow.

Silicon Roundabout


Europe is made up of many smaller markets, none of which has the critical mass to create a consolidated pool of talent and investment money. Still, each country in Europe is free to pursue its own development strategies, and governments are able to establish policies that promote specific high-growth industries. The region still imports many of its entrepreneurial concepts from the United States but is slowly developing its own batch of home-grown expertise. Europe remains the overwhelming first choice of entry for US VC backed startups which are expanding globally.


Over the past ten years, German start-up companies have raised nearly $13.5 billion from venture capitalists, and Berlin has recently been deemed as the next startup capital of Europe. In fact, during last five years, entrepreneurs from various parts of Germany, Europe and the U.K. have been flocking to the capital city, enticed by its modern culture, relatively inexpensive rent, and well organized environment for start-ups. Since 2008, about 1,500 companies in the technology sector alone have started up in Berlin. Organizations such as the Make a Startup Angel Fund have done tremendous work in the city and in different parts of Europe to create and strengthen ties between start-ups and capital funding. Despite the fact that there is still a lack on the level of institutional venture capital available in the city, major venture capital financers such as Earlybird, have recently relocated from Hamburg to Berlin. Various start-ups such as Soundcloud have blossomed tremendously over the last few years. The company, founded in 2008 by two Swedes, has over 20 million users and raised a $10 million funding round from Index Ventures in 2011. Today, the company is valued at $200 million. Wooga (the biggest social-games developer in Europe), and Jovoto have also blossomed over the last few years.

American investors have, and continue to, recognize the many opportunities of investing in Berlin. Both Benchmark Capital and Accel, venture capital firms in California, have recently invested in Research Gate, a network for scientists and researchers. Since 2008, over 3 million researchers around the globe utilize the network. A wide array of established sectors including IT and communications, renewable energy, optics and printed electronics have made the city one of the most competitive in Europe. Unsurprisingly, in the 2010 AmCham Business Barometer, 80% of surveyors selected Germany as their top European country for investments. In late 2011, Google established a new Institute for Internet and Society branch in Berlin, with a budget of $4.5 million euros for the first three years. Google, along with Microsoft, outlined their specific initiatives and details of the programs they are making readily available for start-ups in Berlin at a recent Founders Table event.


Data released by VentureSource shows that in 2012, the United Kingdom received the greatest amount of venture capital investment in all of Europe, totaling $2.2 billion, with 295 new deals. Although this was a 5% decrease from 2011, certain sectors such as the IT industry experienced significant growth, receiving nearly $250 million in investments. During 2012, almost $960 million were invested into technology start-ups in the U.K., reaching a 10-year high. This number is expected to increase in 2013. The majority of investments are being made in internet, mobile and digital media firms, as well as in new clean tech businesses.

One area in particular that is thriving with technology startups is the Silicon Roundabout (U.K.’s Silicon Valley), or Tech City known by some. Located in east London, it is a base for over 600 companies concentrated on a beltway. Earlier this year, the British government invested $80 million to continue the area’s development. The consumer services sector in Europe also saw a 13% increase on investments, with a staggering $2.1 billion of funding. More than half of this went to social media, online shopping companies, and entertainment.


Approximately 189 Irish companies in the technology sector raised close to $400 million in venture capital funding last year. The amount of VC capital funding is expected to increase, with the continued success of startups like Trustev, a security-tech company. Earlier this month at the Tech All Star Awards held in London, Trustev won the prize for best startup in Europe. This company has developed social fingerprinting technology, offering real time online verification. As a result, the possibility of identity or credit card fraud is reduced..

There has been, and continues to be, an increased focus on IT and biotechnology companies. Medical device firms also obtained an increase in funding, with over $76 million, and software companies received around $100 million. Ireland continues to be a favorite spot for global technology firm market entry. The government provides a vast array of programs which incentivize large operational and job placement there.


Norway is one of the richest countries per capita, with an estimated $55,300 GDP per capita. The country boasts a large amount of VC funds, with thriving sectors in IT, oil, gas, and renewable energy. In 2012, Norwegian companies received nearly $1.3 billion from VC funding, with ten different firms in the energy sector receiving a record $950 million in investments. There also continues to be an increased focus on bio-technology; a firm received $1 million of VC last year. Fjord IT is a recent Norwegian startup that offers Green Data Power to various cloud, service and data centers in Europe. The company has opened up its first data space center in Oslo, and is planning on developing another one late this summer. Fjord IT has created a cooling technology that is fueled by hydropower, resulting in a lower carbon footprint. As a result, this startup’s IT services are very appealing to environmentally-conscious businesses around the world. Fjord IT has raised $2.5 million in VC from investors in Europe and Hong Kong. The total amount of VC funding Norway received in 2012 was a 20% increase from the previous year.


Latin America

As reported in 2013 Latin American Private Equity and Venture Capital Association (LAVCA) Industry Data (in collaboration with The Economist Intelligence Unit), last year a record $7.9 billion was deployed in new investments across Latin America. Overall Latin America continues its steady path of growth and positive reform, a positive signal for PE/VC firms eager to invest in the region. Last year, nearly $8 billion was committed to more than 200 deals in Latin America-with over half of these deals in the information technology (IT) sector. Startups in IT included e-commerce, data storage, mobile platforms, outsourcing, and infrastructure. The number of IT deals climbed from only 18 in 2008 to 104 in 2012.


According to The Chilean Economic Development Agency (CORFO), the 2013 LAVCA Scorecard report showed that Chile ranked first in Latin America for the 8th straight year, followed by Brazil, Mexico and Colombia. This annual Scorecard measures conditions relating to countries’ venture capital industries and policies, such as tax treatment, relevant laws and regulations, minority shareholders’ rights, capital markets development and corporate governance requirements.

Chile received high marks for its “strong entrepreneurial environment,” citing CORFO’s financial support of start-ups as a critical factor. CORFO’s Start-Up Chile and Venture Capital programs were also mentioned as examples of the “active government support of SMEs and start-ups” in Chile. CORFO Executive Vice President Hernán Cheyre has referred to Start-Up Chile as an emblematic program that has “contributed positioning Chile as a regional hub of entrepreneurship and innovation”. Chile continues to lead on indicators that are generally weak across the rest of Latin America, specifically intellectual property protection, judicial transparency and the perception of corruption, and posted an increased score on accounting standards that put the country’s overall score on par with benchmark nations Taiwan and Spain.

Out of a potential 100 points measuring 13 criteria, Chile for the first time received the same number of points as Spain at 76. Brazil, Mexico and Colombia received the next highest scores, with 72, 67 and 61 points, respectively.

Chile has one of the lowest costs of starting a business the region due to improvements implemented in recent years. This marks a significant change from previous years, which is also evident in the 2012 World Bank Doing Business Guide, where Chile’s ranking on this factor jumped from 62nd to 27th.

According to Ernst & Young, foreign capital is forecast to boost investment Chile’s growth in the short term, while low inflation should sustain the real purchasing power of consumers. This, combined with ongoing employment growth, should mean that private consumption stays robust.

In the medium term, EY expects growth to be underpinned by strong emerging market demand for Chile’s exports, particularly copper, as well as the stable macroeconomic environment – which should help boost investment, productive capacity and living standards. But energy infrastructure bottlenecks could constrain economic growth in the long run, while the reliance on copper leaves the economy exposed to commodity price volatility in the near term.

Brazil, Colombia, Peru and others

As it has in past years, Brazil led the region in receiving investments with 72 percent of the total amount invested and 62 percent of the total number of deals. There are also many positive developments in Mexico, but Brazil will still likely be the main destination for investments.

According to Patrice Etlin, Advent International’s managing partner based in São Paulo and LAVCA’s chairman, “It will be a very strong year for Brazil, particularly if valuations start to get more reasonable with a deteriorating macroeconomic condition”.

In Brazil, where a new reporting code aimed at fund transparency went into effect, scores remained stable. Both Mexico and Colombia improved their scores as a result of gains on the indicators for entrepreneurship. Peru also saw an important gain in the 2013 Scorecard, with a reform approved last year that lifts restrictions on local pension funds investing in private equity in Peru and internationally. The new regulation reflects a return to a more proactive stance among Peruvian regulators on this issue, and increases the country’s overall score by two points.

In Central America and the Caribbean scores were generally unchanged, though investor interest in the smaller opportunities presented by these markets continues to grow, prompting local governments to consider improvements in their regulatory environment. The Dominican Republic, where a new administration is tackling corruption, increased its score by three points.

Argentina presents the sole obstacle to progress, as the economy continues to deteriorate, and public policy presents a hostile environment for foreign investors. The country hosts a vibrant start up community, but even Argentine entrepreneurs are beginning to look elsewhere for funding and partnerships.


According to the Latin America Venture Capital Association (LAVCA), Mexican startups raised $469 million dollars in 25 projects in 2011 through venture capital funds, compared to $211 million dollars raised through 19 deals in 2010. For 2012, LAVCA estimates that VC firms will invest around $1 billion in more than 30 deals. With the support of institutions and private funds, some estimate Mexico’s VC industry to reach $100 USD billion dollars invested by 2018.

Mexico has a vibrant entrepreneurial economy, but its entrepreneurs, for the most part, establish micro and small businesses through self-financing and debt. As a result, those businesses have little growth potential. In order for Mexico to tap into the potential of its entrepreneurial economy to create high growth companies, it will be necessary to increase the availability of equity capital. The Mexican government and multilateral agencies have begun to support venture investment in Mexico. Private investors have been attracted to Mexico as well, and have established a few private funds for investment in the country. There are still, however, a number of barriers that inhibit further development of the venture capital industry. Still, there is vast room for growth in the Mexican venture capital industry. VC firms in Mexico only deployed funds representing 0.02 percent of the country’s GDP, compared to Brazil, the leader in Latin America, where funds represent 0.22 percent of the country’s GDP.

As we’ve shown, the emergence of a large entrepreneurial community is essential for the development and growth of any country. For there to be a sizable number of new enterprises and for these to grow and thrive; they need funding, and this funding usually comes from venture capital In the U.S., large, venture-backed companies – Amazon, Apple, Cisco, Google, Medtronic – are major parts of the economic landscape. A recent study by the National Venture Capital Association and HIS Global Insight estimates that 11% of U.S. jobs were created by VC-backed companies.

In Latin America, on the other hand, the VC industry is still nascent. At a recent meeting at the at the Multilateral Investment Fund (the investment and granting arm of the Inter-American Development Bank), Josh Lerner of Harvard Business School said the Latin America VC industry still has to go through the growing pains that Silicon Valley did 40 or 50 years ago during its embryonic days.

The growing pains of the VC industry in Mexico are in two dimensions: on the fundraising side and on the investment side.

Fundraising side

VC fund managers in Mexico are still learning how to achieve trust with investors, the limited partners (LPs). It takes transparency to achieve this objective, but too much transparency can sometimes get in the way of effective fund management activities – as VCs spend too much time keeping their LPs informed and not enough focusing on their investments. Many LPs are also still learning how best to be effective investors by providing support and demanding accountability, without micromanaging.

Mexico is also still struggling to build a large enough base of local investors to sustain its VC industry. Despite several tremendously successful Mexican venture capital investments – such as microlender Compartamos, where early investors made a 250x gain – most local investors are still reluctant to invest in early-stage ventures. And many of the family offices and institutional investors that are willing to make risky investments are hesitant to do so through VC funds – they continue to prefer to invest directly. This is partly because direct investing has become an attractive activity for family heirs. The challenge is that few of them have the relevant experience to do it well.

Better incentives need to be established to attract local family offices or institutional investors to VC investment. How? In Brazil, the government made investment through VC funds tax-free – and the country now has approximately 130 funds. In Israel, the government put money into VC funds alongside local investors without demanding a return, thus allowing the private investors to leverage their returns, thus helping to launch a thriving VC and entrepreneurial scene. In Mexico, the government has created funds of funds to invest in VC, which has helped. The government, however, has also been investing directly in companies – making the government a competitor of VC funds and disrupting the sector’s market dynamics.

Investment side

Entrepreneurship in Mexico continues to be exceptionally difficult. To manage sector ecosystem risk, you need to be local. Today the two biggest hurdles in its way are lack of access to capital and difficulty in dealing with the industry ecosystem risk. To solve the bottleneck, Mexico needs more money to flow to funds, and more fund managers with business track records who can guarantee execution. One without the other won’t be enough. The challenge is that senior experienced operational talent in Mexico is not interested in bearing the risk and hardship of working in the still-struggling VC industry. Government will have to create incentives for experienced professionals to enter the field. Another issue in Mexico is that few VC funds want to make early-stage investments. Andres Moreno of Open English shared the story of his company’s fundraising efforts, starting with a round of convertible notes that took over a year to raise $400,000. The second round of VC funding took 60 days to raise $43 million, and the next 45 days to raise $65 million. He stressed that firms such as Kazsek that have invested in Open English are now looking at other deals with Latin American companies for the first time. So, strong support to the early stage infrastructure and current angel investing networks is again a big factor.

The U.S.-Latin America Relationship

Investors bringing capital to Latin America often tie funding to a U.S. connection. Serious entrepreneurial firms will establish an office in California because investors prefer to be close to the companies they are funding. If there is interest in scaling the service or technology to the United States, or other experience with the U.S. market, this process becomes easier.

Medina Capital, for example, does not invest in Latin America unless there is a U.S. connection. They invest exclusively in technology infrastructure such as networks, big data, and cyber security, and seek companies to mentor and develop in order to bring into the U.S. market. He added that U.S. companies also have a strong advantage in valuations. A U.S.-domiciled company will have a significantly higher valuation than the same company with the same product based in Chile or Argentina.

Still, the reception of Latin American entrepreneurs has changed in Silicon Valley. The region is gaining attention for its emerging economies, where greater access to credit brings consumer demand for technology-related services. Ambrose added that Brazil has dominated regional venture capital investments because firms such as Accel Partners, Tiger Global, and Flybridge recognize these opportunities. Much like in China, investors saw a market with 200 million consumers eager to buy over the internet.

Outside of Brazil, companies need to look at either pan-regional enterprises or development for the U.S. market in order to show the scale needed to attract later-stage investment. Successful deals often involve the intersection of international and local entrepreneurs.

New Ideas, Strong Talent

The people of Latin America are hugely innovative. They’ve had to be in order to survive consistent economic and political challenges. As a result, there are fresh ideas in Latin America that can be brought to the U.S. market. Mobile banking is one example, where the technology and platforms have been developed abroad by companies such as YellowPepper, and now function in the United States as demand increases for similar services. Another example is a company in Colombia that operates in the cyber security space, protecting banks from fraud. Latin America has a lot of experience in anti-fraud and the product set developed by this company was much more powerful than anything seen in the United States.

Juan Pablo Cappello of Idea.me noted that this trends runs against the grain of mainstream thinking, which portrays Latin America as a market filled with copycats as opposed to new ideas. Ambrose added that contrary to popular wisdom in Silicon Valley, there is an incredible pool of talent for creative professionals and developers, particularly in Argentina and Colombia.

Open English has established service hubs in the region around the best talent. The company found skilled developers at the best cost in Argentina and set up an office there. They established three call centers in Colombia, where there were sales and service professionals best-suited for the company. But the enterprise is headquartered is in Miami, where Moreno said it has access to well-trained professionals with experience at larger firms working across Latin America. Miami also has the advantage of being in the United States, which is useful for raising capital.

The Importance of Regulation

As it should be, YellowPepper’s analysis of new markets is driven by regulations. For example, YellowPepper entered the Mexican market because of a positive regulatory environment, but has not yet entered Brazil. Investors feel confident in Chile because they are aware of the rules. The legal framework is less friendly to investment in other markets and should be reformed. Otherwise, why would a U.S. investor to go Latin America?


Based on statistics from the Korean Venture Capital Association, VC firms raised $191 million in the first quarter of 2013, about $2 million more than the amount raised in the first quarter of 2012. The amount of Korean startups has also increased, doubling to nearly 29,000 in 2012, from just 15,400 in 2008. KakaoTalk is one example of a Korean startup that has grown into a huge mobile platform. Just six months after its launch by Kakao Corp., the mobile app had one million users. Today, over 90 million people around the world use KakaoTalk, and the app has recently gained tremendous popularity in Vietnam and Indonesia. The company has raised over $100 million of VC funding, the latest from Tencent and WeMade.

Korea’s continuous growth can be attributed to a variety of factors. With exceptionally high standards for education, the country has a diversified economy and a mature, yet still rapidly growing middle-class consumer base. It has world-class manufacturing sectors in telecom, shipbuilding, electronics and automobiles. The Korean government is also promoting major expansions in new sectors, such as clean tech and green energy. In addition, the government has recently pledged nearly $3 billion in funding for venture companies, specifically for those in the technology sector. Therefore, the country’s growth outlook is hugely positive.


Japan is the third largest economy in the world, with market-leading technology in a variety of sectors. Over the past decade, Japanese startups have raised a little over $7 billion. In 2012, the country’s stock market increased by 23%, experiencing the biggest gain in seven years. One sector in particular that is gaining momentum is e-commerce. Locondo, a successful shoes and fashion e-commerce service startup, has over 300,000 registered members. The company recently raised $6.3 million of VC funding from Excite Japan (one of the country’s leading web portals), Lead Capital Management, and Itochu Technology Ventures. Locondo’s partnership with Excite Japan, which boasts 50 million monthly visitors to its portal site, will enable the e-commerce company to increase its user base.

Two Tokyo-based startups have recently raised a significant amount of VC. Freak Out, which provides a real time advertising platform for smartphones, received close to $5.5 million of funding form YJ Capital. Founded in 2012, YJ Capital is the VC arm of Yahoo Japan Corporation. Accounting SaaS Japan is another thriving startup, providing solutions to Japanese accounting firms. The company has recently raised $6.6 million of VC from SalesForce.com, GREE Ventures, and Mobile Internet Capital. A growing number of Japanese companies are seeking to expand their businesses globally, and will thus require more funds and support from VC investors. Based on its enormous technology and capital base, we think Japan’s role in Venture Capital has tremendous opportunity in Japan right now.


Venture Capital financing is one of the few areas in business that the United States will continue to lead for the foreseeable future. In fact, we believe that the U.S. will maintain that lead for at least another generation (20-30 years or more). The United States is among the top countries in terms of technology talent. In addition, the country has been at the startup game longer and more intensely than anyone else. It has built up an enormous base of technical knowledge, startup business formation knowledge and a thriving base of wealthy entrepreneurial “alumni” as well as knowledgeable and relatively enthusiastic institutional investors or Limited Partners and investors at every stage of start-up funding. But although the U.S. commands a huge lead in the VC space, it does not own the concept of innovation. Many of the IT, internet, media and telecom innovations from the U.S., are ironically, speeding that globalization process up.

Within the next 20 years or so, I believe we could see China surpass the United States in terms of deals done and total investment volume, just as it will surpass the United States in total GDP. Until China, however, embraces the concept of intellectual property protection, it won’t lead in terms of innovation. More fundamentally, it seems that state controlled capitalism doesn’t jibe with the wild creativity needed to generate breakthrough innovation. This is probably the point at which individuality will have to clash with the forces of state power. Although we don’t know how long that “pause” will last, individuality should eventually win out. When that happens, China’s numbers will win out as well. China’s ability to produce at a world-class level in a very short period of time is simply astonishing.

I also think Latin America has enormous potential. They currently badly lack startup formation knowledge, experience and capital, particularly at the seed levels. But, I would argue that the people there are naturally very creative and that this may be enough to push the region to achieve great things in the future. It’s funny; a week ago I would have thought that the region’s government corruption and poor infrastructure would minimize its potential, like it has done with everything else. The recent demonstrations in Brazil and the fact that the Mexican government is actually challenging monopolies give me real hope that the majority of the people realize that their bureaucracy is the problem and is the biggest factor holding them back. The middle class is finally getting large enough to “scale”. It will take time to get results, but if Latin America can affect meaningful change to existing archaic business laws, institutionalized corruption and poor physical infrastructure, the sky’s the limit. The same could be said for India.

Finally, there remains enormous potential growth in places like DAS (Germany, Austria, and Switzerland), the UK and Ireland, Korea and Japan. All of these countries have well-established technology and capital infrastructures. In general, they don’t have the entrepreneurial mindset or tradition of the United States, but are realizing that they must acquire it if they want to begin breaking the cycle of low-growth in their respective regions. The good news is that the wind is at their backs. The rise of alternative forms of startup funding will only enhance the ever-accelerating effects that technological innovation has on globalization.