US and UK lead the way as most attractive countries for post-Covid PE and VC investment

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The United States remains unparalleled as a magnet for investors, according to the 10th anniversary edition of the Venture Capital (VC) and Private Equity (PE) Country Attractiveness Index. 

The index ranks 125 countries according to the quality of their investment environment for adventurous VC and PE investors. The countries are analysed and ranked according to thousands of weighted data points covering six key drivers: economic activity, depth of capital markets, taxation, investor protections and corporate governance, human and social environment, and finally entrepreneurial culture and deal opportunities.

Based on its strong performance in all six areas, the United States continues to be the index benchmark with a score of 100. It is followed by the United Kingdom, Japan, Germany, and Canada to round out the top five.

Within the top 10, the most remarkable gains were seen for China, South Korea and France, who entered the top 10 for the first time. All top-ranked countries are expected to make swift recoveries from the COVID-related recession, especially China (now 7th), where GDP growth is already recorded.

Spain, meanwhile, entered the top 20, having climbed seven places in the ranking since 2015. Its success is due to increasing capital market activity and a professionalism of its financial community, as well as a more entrepreneur-friendly culture.

In terms of regions, North America, Australasia and Western Europe are the most attractive for capital allocations, as the heat map below shows.

In the previous edition, published in 2018, all eyes were on the United Kingdom to see how much its position might change due to Brexit. However, the analysis finds that, “potential Brexit effects are not (yet) visible in the data and have been somewhat superimposed by the Covid-related damages.”

Nevertheless, the gap between the United States in first place and United Kingdom in second has widened, while the gaps between the others in the top five have narrowed. These changes are partly driven by the pandemic's impact on financial markets everywhere, reducing the differences between many countries in terms of their "depth of capital markets" indicators.

In order to demonstrate shifts in the VC and PE country attractiveness, the authors also performed a historic comparison, tracking ranking changes from 2016-2021. This analysis reveals strong increases of VC and PE attractiveness for certain countries, as well as highlighting the impact of financial and economic crises on others.

In the VC and PE arena, many investors are looking to emerging economies for faster growth. While many are promising, the index creators warn that underdeveloped markets or other risk factors should be taken into account. That said, tracking five-year trends can reveal which economies are moving in the right direction in terms of their VC/PE attractiveness. Tracking changes in the index can be useful for investors watching developments in countries' institutions and socio-economic situations over the years.