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US venture capital firms increased foreign investment in 2008

Venture capitalists continued to seek investment opportunities outside the US in 2008, putting more than USD13.4bn to work in 1,416 deals for emerging companies in Europe, Israel, mainl

Venture capitalists continued to seek investment opportunities outside the US in 2008, putting more than USD13.4bn to work in 1,416 deals for emerging companies in Europe, Israel, mainland China and India, according to Dow Jones VentureSource.

That marks nearly a five per cent increase over the USD12.8bn that venture capitalists invested in 1,711 deals outside the US in 2007 and comes despite a 15 per cent drop in annual venture investment in Europe.

The US remains the world’s leading destination for venture capital, accounting for 2,550 deals and USD28.8bn in investment in 2008.

‘The venture capital industry continues to rapidly globalize as investors are eager to find and tap new areas of innovation, especially in emerging economies like China and India,’ says Jessica Canning, director of global research for Dow Jones VentureSource.

‘What’s most notable is that the growth in international investment is not being fuelled solely by information technology, which is traditionally the sweet spot for venture capitalists, but also by energy-related investments.

‘Investments in energy totaled nearly USD1.4bn in 2008 and now account for more than ten per cent of international venture investment. Much of this can be attributed to the global spike in energy prices we saw in 2008 and the venture community’s championing of renewable and clean energy technologies.’

According to VentureSource, Europe saw a late-year pullback in venture investment which led to an overall annual decline of 15 per cent as investment fell from USD7.6bn in 1,107 deals in 2007 to USD6.5bn in 881 deals in 2008.

This marks Europe’s lowest deal count since VentureSource began tracking the region in 1999. Much like in the US, Europe started off with a strong first quarter, only to see investments and deals slide downward over the course of the year.

The region ended the year on a low note as investment fell 38 per cent from USD2.1bn in the fourth quarter of 2007 to USD1.3bn in 2008, its lowest quarterly total in more than four years.

In China, venture capitalists invested a record USD4.2bn in 245 deals in 2008, up from USD2.8bn in 290 deals in 2007. The region saw investment top USD1bn every quarter in 2008 except for the fourth quarter, which saw investment tumble to USD716m in 54 deals, nine per cent below the USD787m put into 84 deals in the last quarter of 2007.

Meanwhile, investors put a record USD1.9bn into 210 deals for companies in Israel in 2008, up 19 per cent over the USD1.6bn put into 227 deals in the region in 2007. Of that, some USD1.3bn, or 68 per cent of all capital investment, went into 132 IT deals, nearly 30 per cent more than the USD1bn invested in 153 such deals in 2007.

Venture capital investment in India also set a record in 2008, though its growth was minimal compared to prior years, according to VentureSource data. Investment in India-based companies reached USD864m in 2008 with 80 deals completed, up some three per cent from USD842m invested in 85 deals in 2007.

Unlike China and Israel, which have more firmly established business infrastructures, India saw the majority of venture investment go to its business and financial services companies, which garnered a record USD368m in 26 deals in 2008.

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