Geography of venture capital financing: a global perspective.

BYLINE: Subhash, K.B.

This article examines three important research questions: RQ:1) Does the clustering of worldwide economic activities and the clusteringof global venture capital activity follow the same pattern? RQ:2) Isthere any similar clustering with respect to the academic research work on global venture capital financing? RQ:3) Would the growth trajectory of the global venture capital industry reveal similar clustering formations slanted toward certain regions?


We answer the first question by comparing patterns of geographicalconcentration of economic activities around the world (3500 BCE until 2006) and global venture capital activities (1997-2005). The secondquestion begs careful evaluation of research articles on venture capital financing published in reputed international journals (publishedthrough the end of June 2006) and classifying results by region. Thethird question requires calculating the Venture Capital Development Index (VCDI), which throws light on investment patterns in specific regions in comparison to the total, especially as sources of finance for early-stage, technology-based firms.


Since most of the research work (almost 90%) revolves around the supply side aspects (viz., overview of venture capital industry, existing difficulties and problems, evaluation of venture capital model, management of VCUs by VCFs, investment patterns of VCFs, regulatory framework, business angels and informal VCs, and also the exit routes followed) of venture capital financing (Subhash [2006c]), the present study may provide insights on the otherwise unexplored area of clustering formation of venture capital financing. Before proceeding further, we briefly review some of the established facts about venture capital financing.


It is well established that the development of a business idea into a successful business enterprise depends on the ability of the venture capitalists (special category of entrepreneurs) to identify the potentiality of the idea of the promoter (entrepreneurs as well as intrapreneurs), timely financing, and value addition. It is also accepted that the success of venture capital financing in a region depends on the prevalence of technological advancement of that region. The last 60 years have evidenced that the greater the technological advancement in a region, the more active the venture capital financing there.Though many traditional sources of financing exist, for the start-upbusiness venture with mostly intangible assets (in particular, the idea itself), the only source of financing may be venture capital, which glimmers with the prospect of generating wealth in ways not envisioned by other sources of financing.


Venture capital has the inherent capability of generating wealth in many avenues: 1) to the promoters (those who nurture the business idea), 2) to the venture capitalists [VCs] (those who offer lifeblood to the idea in the form of financial as well as non-financial support), and 3) to the economy at large (the playground where the first twoplayers engage in their game). The detailed picture of how this happens is shown in Exhibit 1. With the first two players (promoters and VCs) falling under the category of entrepreneurs (VCs are categorisedas a special breed of entrepreneurs whose primary aim is to embrace high-risk business ventures conceived by the potential promoters), union of these two will assert a multiplier effect on the economy.


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When promoters and VCs join forces, the result, ideally, will be the successful completion of the entrepreneurship process: the birth of a successful enterprise. Following this, both players' wealth is maximized and the economy also receives an indirect boost. This is the reason venture capital financing is considered one of the most important financing media for new business ventures. Very few studies have undertaken analysis of the wealth management practices of successful promoters as well as VCs. Thus there exists a broad landscape for conducting a detailed study in this area.


Venture capital associations around the world have conducted surveys about VC financing's contributions to the economy, and the resultsare freely available. This aspect is technically known as the "Economic Impact of Venture Capital." Though the proportion of venture capital financing is comparatively low in terms of total financing in anycountry, when it comes to wealth generation, business ventures financed through VC outperform the other big players (many emerge under the top 100, 250, or 500 companies) in their respective countries. A brief detail of various surveys conducted by different VC Associations (NVCA, CVCA, AVCAL, EVCA, BVCA, and AIFI) around the world is provided in Exhibit 2, which clearly shows that venture-backed business units outperform their non-venture-backed counterparts in all respects. Overall increase in different indicators is much higher with respect to venture-backed business units.


This is an excellent piece of information, but unfortunately many of the associations discontinued the survey. From 2000 onwards, CVCA stopped the survey in Canada, where the last available report coveredthe period 1995-1999. From 1997 onwards AVCAL discontinued a similarsurvey in Australia, a survey for the period 2001-2006 is planned for the end of 2006. EVCA's most recent report surveys the year 2002 for the entire European Union. The countries with current reports are the U.S. (NVCA), U.K. (BVCA), and Italy (AIFI). Since these associations serve as spokespersons for the venture capital industry of their respective regions/countries, initiatives should be launched to conduct similar surveys continuously so that interested parties can understand the extend of economic wealth generated by VC financing. The youngest player now conducting such a survey is the African Venture Capital Association.


CLUSTERING OF ECONOMIC ACTIVITIES [3500 BCE-2006 CE]


Having observed the potentiality of venture capital financing, we now examine why this study has been taken up. As mentioned at the outset in the three research questions, there have been many observations in the history of mankind of the geographical concentration of economic activities, these clearly depending on favourable environmental factors (Subhash [2006b] and [2006c]). The clustering emerged from ancient civilisations onwards and continues unabated. A brief overview of this clustering of economic activities from 3500 BCE until the present century is presented in Exhibit 3.


The first phase of concentration, i.e., the emergence of ancient civilisation and subsequent concentration of economic activities, occurred between 3500-2000 BCE. Mostly this was concentrated around the South American continent, the African continent, parts of Europe, the Middle East, and India. Gradually the exodus of adventurous people for better pastures paved the way for a gradual shift in the development of civilisations around the world. By 1700 most of the continents were explored and settled. The second phase of concentration (agricultural revolution) originated primarily in Europe, America, and Japan, and the concentration of economic activities shifted from the first group to a new set of players.


The third phase, the industrial revolution, commenced in 1900. By then most of the countries of Asia Pacific, the Middle East, and Africa were colonised by European countries (even America and Japan colonised some). Driving this phase were two revolutions and increased demand for raw materials to feed industrial development, as well as the need for a steady market for finished goods. The power struggle between these colonial powers led to two world wars (1914-1945) and resulted in the emergence of international treaties to assist the well-being of oppressed nations. Thus again the clustering equation shifted.


By 1990 most of the colonised countries became independent (although by that time those countries' economies were significantly destroyed by colonial powers having either eliminated the growth and development of indigenous industries or by their exercising a "divide and rule" policy, whereby a country's community was fragmented in such a way that unity in the near future was virtually impossible, thus minimizing chances for mutually harmonious development of the country). This situation persists in most Asian countries, the Middle East, and also in Africa. As a consequence, by 1990 the clustering equation againchanged.


From Exhibit 3 and the above discussion it is clear that concentration of economic activities depends on favourable environmental factors, where free thinking is allowed to flourish. The colonisation of countries in Asia, Africa, and the Middle East led to gradual destruction of indigenous industrial development. Use of might was the rule and freethinking was squelched. In sum, the clustering of economic activities around the world throughout the history of mankind shows thatalthough it started in Asia, the Middle East, Africa, and South America as well during 3500-2000 BCE, the equation changed and concentration moved towards Europe, North America, and some Asian countries (e.g. Japan).


Similar clustering formations can be observed in venture capital financing also. In the most recent study (GPE 2005), almost 56% of theamount raised and 62% of the amount invested is in North American region. Second to North America are the countries in the European region (39% of the amount raised and 31% of the amount invested). Countries in the Asia Pacific region are third in line (5% of the amount raised and 7% of the amount invested). This puts close to 100% of worldwide venture capital activities squarely within these three regions.


Few countries in the Middle East and Africa (Israel and South Africa) and Central and South America enjoy a significant position in theglobal venture capital arena; from 1997 onwards this is the trend. As we identify the reason for such a geographical concentration, we recognize that most of the countries in the top 20 list are the same players responsible for the clustering of economic activities during between 1700 and 1900. The countries where the clustering of economic activities prior to 1700 occurred have yet to command any significant role in venture capital financing. This may be due to the close association between venture capital financing and technological innovation, and nearly all these countries were controlled by the European colonial powers during 1700-1900, preventing them from developing industrially.


BACKGROUND


The present geographical concentration of economic activities is heavily tilted towards two regions: North America and Europe (with theaddition of some Asian countries). This results from a two-pronged advantage: technological and financial superiority. Together these generate political superiority as well. Even in the case of venture capital financing, these three types of clustering formations are specifically identified by researchers.


The inaugural study of the geography of venture capital financing in the U.S. revealed that there are technology-related (Silicon Valley and Boston) as well as finance-related (New York) clustering (Leinback and Amrhein [1987]; Kenney and Dossani [2001]; Florida and Kenney[1988a] & [1988b]). A similar study in the U.K. also reveals both technological and financial clustering (Mason and Harisson [2002]).


In India, study reveals the existence of all three types of clustering. Concentrations of venture capital firms exist in Bombay (finance-related cluster), New Delhi (political-related cluster), and Bangalore (technology-related cluster). This is true with respect to venture capital investment patterns also. South India (Bangalore) accounts for almost 41% of the total investment, West India (Bombay) almost 40%, North India (Delhi) almost 12%, and East India, almost 4% (Kenney and Dossani [2001] and Subhash [1999]). This evolved due to the LPG process that occurred after 1991 (Subhash [2006a]).


The clustering pattern is applicable to the Canadian venture capital industry also, but not exactly like in other countries. Ontario isan example of mixture of political-related, finance-related, and technology-related clustering. Quebec is an example of finance-related and technology-related clustering. Finally British Columbia is an example of technology-related clustering (Subhash [2006b]).


So far in most studies of the geographical concentration of venture capital financing, the pattern follows the concentration of economic activities: technological, financial, and political clustering. This answers half of the first research question (RQ: 1--whether the clustering of economic activities around the world and the clustering ofglobal venture capital activity follows the same pattern). Let us now examine whether the concentration of venture capital financing focuses toward the same regions.


PRESENT STATUS OF VENTURE CAPITAL FINANCING: GLOBAL SCENARIO


From 1946 until 2006, the world witnessed successful transplantation of the modern concept of venture capital financing from the U.S. to the entire world in either its original form or some variation. Though similar forms of financing existed in many countries, the modern concept became accepted in U.S. from 1946 onwards. During the last 60years, the number of countries practicing venture capital financing increased to more than 80 globally. Since we have no reliable data sources for a comparative study of venture capital financing between regions/countries during the earlier period, emphasis leans heavily on data published by Price Waterhouse Coopers for the period 1997 through the first half of 2005. The detailed picture is found in Exhibit 4.


As for the amount of venture capital raised as well as invested, North America led with 69.3% and 70.3% during 1997, but gradually thatlead dropped to 56.2% and 62.1% in the first half of 2005. Though North America as a whole (U.S. and Canada) is the leader, Canada's share is less than 2%, which makes the U.S. the world's biggest single player. Second biggest is the European Union, with 39.0% and 30.9% for the first half of 2005. Some 29 countries in the European Union control the second biggest venture capital market, of which the U.K. alonehas almost a nearly 25% share. This means that 31 countries in two regions control close to 95% of the global venture capital market.


Eighteen countries populate the third largest region: Asia Pacific. Their share is only 4.7% of funds raised and 7.1% of funds invested. Though there are almost 25 players in the Middle East and African region, this constitutes only 1% of the world's venture capital market. The only countries in this region making a significant contributionto the world venture capital map are South Africa and Israel. Thoughthis region is generally rich with natural resources and is not particularly wanting for funds, technological and financial advancement are suppressed by the existence of political uncertainty and consequent insecurity about the social situation (Subhash [2006d]).


The final player is the Central and South American region. There, seven active members control less than a 0.5% world venture capital share. The only player making a significant contribution in this arenais Argentina.


Clearly the disparity between regions in terms of clustering of venture capital financing is similar to the disparity in the clusteringof economic activities. The prominent players in both financing and general economic activities are the U.S., the U.K., Japan, plus a handful of European countries. The ranking of the top 20 players in the global venture capital arena is addressed in Exhibit 5. With respect to the amount of venture capital investment, U.S., U.K., and Japan occupy the first three positions; when it comes to CAGR, there is a slight difference in ranking.


Exhibit 4 provides a regional view of global venture capital industry, where it is clear that North America and Europe are the two leading players. Supplementally, Exhibit 5 offers a clear picture of the top 20 players' ranking based on venture capital investment as well as the CAGR. Here we clearly see that countries from North America andEurope are the leaders.


Next we examine the utilisation rate (regionally as well as by individual country) over a period of time. Exhibit 6 shows the utilisation rate on a regional basis and Exhibit 7, on an individual country basis.


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Players in North America and Europe (as well as Japan from the Asia Pacific region) certainly lead with a majority share of funds raised as well as invested, but as to utilisation rates, these regions arenot able to fully utilize all this capital. Utilisation rates in other regions are much higher by comparison, and high growth potential exists in these regions. This is abundantly clear in Exhibit 6. The trend began in 2001 and may be rooted in the aftermath of 9/11 (Subhash[2006g]). During 1997-2000, the utilisation rate was stable with a slight increase, but during 2001-2003, the rate trended significantly upward. From 2004 onwards it began a moderate descent.


With respect to individual players during 2000-2004, Exhibit 7 gives a clear picture. The countries with the highest venture capital utilisation rate are in the Asia Pacific region. The highest 2003 utilisation rates were in Australia, followed by South Korea, Singapore, Japan, China, and India. In 2004 trend shifted, and China, South Korea, and India maintained the highest rates, followed closely by South Africa. North America and Europe lagged behind, which suggests that slowly and steadily, investment preferences are changing with increasing venture capital investments funneling into Asia Pacific, the MiddleEast and Africa, as well as the Central and South American regions. Most interesting is the fact that a majority of venture capitalists who try their luck in these regions are from North America and Europe.One must analyse the reason for such a shift to understand the wealth management strategy practiced by this special category of entrepreneurs.


From the information derived from Exhibit 3 to 7, one may concludethat although a concentration of economic activities began in the Asia Pacific, Middle East and African regions, as well as in Central and South America during 3500-2000 BCE, gradually this shifted toward North America and Europe due to favourable environmental factors. The primary reasons for such a shift are technological development and financial capability. This also holds true for venture capital financing, which is intimately tied to technology. Thus the almost inevitableconcentration of venture capital activities cropping up in North America and Europe, and the slow but steady shift from the first two regions towards the last three regions.


Our answers to the first research question (RQ:1) are complete: the clustering of economic activities around the world and the clustering of global venture capital activity follow the same pattern. With respect the patterns hold for both the types of clustering (technological, financial, and political clustering) and the regional clustering(most prominently, the U.S., U.K., Japan and some other European countries).


PRESENT STATUS OF VENTURE CAPITAL RESEARCH: GLOBAL SCENARIO


As mentioned at the outset, to answer the second research questionwe require a detailed study of existing research on venture capital financing. This process entailed scrutiny of nearly all research works published in various journals, viz., Blackwell, Elsevier, Emerald, Institutional Investor, Springer, Taylor & Francis, and Wiley. The number of studies referred through the third quarter of 2006 totals 180. From this volume of study, we analyse only the regional concentration of venture capital research. Many other issues can be analysed based on these 180 studies, viz. a) supply and demand aspects of venturecapital financing, b) academic and industry interactions, c) impact of various field of studies on venture capital research, d) application of various theories in venture capital financing, e) modeling usedfor venture capital financing, etc. (Subhash [2006e]). Classification of these 180 research works on the basis of each country/region'S venture capital activities reveals the following, detailed in Exhibit 8.


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It is illuminating that even the research work on venture capital financing follows a similar clustering pattern. A majority of the studies are carried out by the European and North American venture capital industry. Almost 88 studies emerge from Europe alone, accounting for 49% of the total, followed by North America with 63 studies--a 35%share. This exactly matches the clustering formation of economic as well as venture capital activity around the world. As usual, in thirdplace is Asia Pacific, with 23 studies and a 13% share. About the Middle East and Africa, as well as the Central and South American region, the research work is significantly less, with just four and two studies, respectively, undertaken.


Thus we answer the second research question (RQ:2) and conclude that worldwide VC research follows the same clustering pattern as actual VC financing and investing activities. The reason is rooted in the information asymmetry that exists between the countries (Subhash [2006f]). The growth and development of research activities on venture capital financing in North American and European countries benefits from broad access to information, whereas equivalent information is almost absent in other regions (excepting certain Asia Pacific countries). Nearly all of the journals referenced were started by either an academic institution or a well-known North American or European publisher. These journals enjoy wide circulation in the academic and industrial houses in these two regions. In contrast, the very existence of suchjonrnals is virtually unknown to many academic institutions in other regions, and amongst those in the know, prohibitive pricing policies (the result of currency conversion aspect) of the journals makes staying abreast often out of reach. Thus, both academicians and industries to have little if any access to such information--data that is vital for conducting successful research work. The ultimate result is aconcentration of research focused on those regions where financial and technological superiority prevails. This should not imply that no research is underway in these regions (some exists and is published in local as well as national academic journals), but many of the worksare unable to attain the level of international standards adhered toby mainstream industry journals.


VENTURE CAPITAL DEVELOPMENT INDEX


The preceding discussion makes clear that the greatest concentration with respect to economic activities, venture capital financing, and research on venture capital financing takes place in North America and Europe. Now we answer the third research question (RQ:3) by computing the Venture Capital Development Index (VCDI).


VCDI is a summary measure which captures the extent to which a region's venture capital institutions are developed to service technology-based industries (Mani and Bartzokas [2002]; Subhash and Nair [2004], [2005], and Subhash [2006b]). For computing VCDI, two important factors are considered: stages of venture capital financing, and the types of industries where financing is taking place.


VCDI provides a yardstick with which to study the development of venture capital institutions in a particular region. The two factors considered for computing VCDI are the levels of investment in the early stage and high-tech categories. Thus, VCDI consists of two separateindices combined into one. The first is the Finance Index (Fl), and the second is the Technology Index (TI). The first (FI) identifies the extent to which venture capital institutions in a particular regionfinance early stage ventures. The index compares the relative share of early stage financing to the total venture capital investment in aspecific region during a particular year. The second index (TI) identifies the ratio of high-tech investments to the total venture capital investment in a specific region during a particular year.


Once the two indices are calculated for different regions, the share of venture capital investment of each region to the total venture capital investment is assigned a weight ([W.sub.i]) to FI and TI, andthe average of the two becomes the value of VCDI. Thus VCDI is the weighted average of the Finance Index (FI) and the Technology Index (TI) that indicates the extent of venture capital development in a country/region with respect to the stages of financing and type of industry. The higher the investment in early stage and high-tech industries, the higher the economic development taking place in that region.


Here, VCDI is computed for the last six-year period, 1999-2004, and for only the three leading regions (North America, Europe, and AsiaPacific) because reliable data were not available from the Middle East and Africa, nor from Central and South America. The VCDI is computed in three steps. The first step is calculation of FI, TI, and [W.sub.i] for three regions during 1999-2004. FI is based on early stage financing as a percentage of total investments during a particular year, and TI represents the percentage of investments in the technology sector relative to total investments during a particular year. In thesecond step, appropriate weights ([W.sub.i]) are assigned to each ofthe two indices so calculated (FI and TI). The relative share of a region during a particular year is taken as the weight. The third stepinvolves the calculation of VCDI--the simple arithmetic mean of the two weighted indices calculated in step two.


The results of the VCDI calculations for years 19992004 is displayed in Exhibit 9. The calculation part of VCDI is reproduced in Annexure 1.


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FI, TI, and VCDI are calculated during 1999-2004. Only the three major regions are included because their total contribution accounts for almost 97% of global venture capital investment.


In all the three regions, TI exceeds FI for all years. Significantly more investment targets high-tech early stage ventures. For all six years North America leads with the highest TI index. During 1999-2002 and for 2004, Europe is ranked third player with respect to the TIindex, although in 2003, Europe occupied the second position.


During 1999-2000, FI in the Asia Pacific region was higher than inthe other two major regions, clearly indicating the shift in investment preference. Most preferred was the early stage investment, but subsequently favor shifted towards later stage financing where the riskelement was relatively lower. Gradually the share of early stage venture investment is diminishing in all three regions.


With respect to the VCDI, only North America displays a high index, followed by Western Europe and then the Asia Pacific region. The VCDI values can be seen in Annexure 1.


With respect to TI, during 1999-2002 the Asia Pacific region favored high-tech investments, though later, investment preference shiftedtowards non-high-tech investments. The present global trend in venture capital investments indicates that early stage investments are notgetting much attention; only matured business ventures are attracting venture capital investments. This reflects the shift in industry-wide investment patterns, i.e., the present emphasis oil non-high-tech industries. When new and novel ideas are financed, investment in the high-tech sector increases. Since the global trend is swinging towardlater stage financing, technological developments are slowing somewhat, echoing the 1990-2000 period. But this should not suggest that technological developments came to a halt after 2000, only that the rate of development is more limited and occurs only in selected categories of industry.


The preceding discussion emphasizes that the growth trajectory of the global venture capital industry reveals similar clustering towards three regions. More funds chase through North America and Europe, and finally into the Asia Pacific region, clearly answering the third research question (RQ:3).


Analysis of the three research concerns reveals repeating patternsand concentrations of economic activities, venture capital financingactivities, venture capital research activities, and growth trajectories of venture capital financing, based on VCDI in regions where technological and financial superiority exist. As other regions attain similar levels of economic and financing activity, a gradual shift toward greater development and prosperity can be anticipated. This will take time and patience and perseverance. It requires the availabilityof information--a free flow that obviates all bias and leads to technological as well as financial development: the path that less--developed countries must pursue to prosper and derive the multifold benefits of venture capital financing.


FUTURE TREND


From 2001 onwards, a gradual slowdown of venture capital activities is seen in the North American region; but concurrently in other regions a gradual increase occurred (mainly in Europe and the Asia Pacific region). Global venture capital investment trends upward from 2003on ($115 billion in 2003, $110 billion in 2004, and a projected $280billion in 2005) and is likely to continue in the coming years (GPE [2005]). Similar trends are being projected for Europe and countries in the Asia Pacific region. But an altogether different picture is emerging from countries in Middle East. There and in Africa, Central and South America, and Asia Pacific will overtake today's leaders in the global venture capital arena within the next five to seven years. In the next decade, the biggest player will the Middle Eastern region,thus the concentration of global venture capital will shift once again.


The driving force of this change is the duel impact of 9/11. (1) Most worldwide venture investment activities slowed following the attack, and the mindset of Western and European communities refocused away from Middle Eastern oil dependency and toward alternative energy sources for industrial purposes. This dependency reduction strategy ledto (2) oil-rich Middle Eastern countries organizing to develop theirown form of venture capital financing to promote and develop Arab entrepreneurs (promoters as well as VCs)--a type of Islamic venture capital (Choudhury [2001]).


The impact of the second force above is more significant than the impact of the first. This was apparent during the first gathering of the Gulf Venture Capital Association (GVCA) in Bahrain in February 2006, where no fewer than 41 private equity funds were represented and sharing information about the funds raised, in progress, or planned for the near future. The theme of the conference was Arab LPs investing in Arab-founded, Arab-run and Arab-operated funds (Borrell [2006]).In a single day at least 21 new funds were announced, with sizes ranging from $28 million to over $10 billion, reflecting a projection ofalmost $17 billion by the end of 2006. If the rate of new fund formation continues across the next three quarters, the total could pass that of all new PE funds currently being raised in Asia (including China and India).


This unprecedented increase in funds raised reflects the capability of Middle Eastern countries to raise funds, accumulated over time using their oil power, for Islamic venture capital financing. AbdullahM. A1 Subyani, president of GVCA, said that the "venture capital industry does not exist in the region, although it has helped the economies of the U.S., European nations as well as economies of India and China. The region has the money but it never really thought of benefiting from venture capital." (Khaleej Times [2006]). The purpose of this conference was to introduce, promote, and highlight ways of building a vibrant venture capital (VC) and private equity (PE) industry forthe benefit of the regional entrepreneurs and the economies of the regional states.


According to Arif Masood Naqvi, executive vice chairman and chief executive officer of Abraaj Capital, "What we are seeing now is a knock-on effect from high oil prices. And instead of being sent out, it's retained. That is the post 9/11 effect ... (Stock) markets have taken off, there's lots of investment opportunities and people are making money" (Arab News [2006]).


Thus, within a short time, countries in the Middle Eastern region will be the top players in terms of funds raised. To reap the full potential of venture capital, two tasks must be handled successfully: (1) the region must create an institutional infrastructure appropriatefor the development of entrepreneurship, especially financial legislation; and (2) this first task must be complemented with parallel educational programmes to cultivate entrepreneurial skills at appropriate levels of the economic structure, including the non-governmental sector. As witnessed, raising funds is not the greatest challenge in this region; rather, the crucial work of building channels to link finance with promising entrepreneurs, complemented with the requisite regulatory infrastructure to promote and protect their business ideas (Eid [2005]). Since a sense of insecurity and unrest prevails in most Middle Eastern countries, it will take time for this region's entrepreneurs to regain confidence. It can rightfully be said that either themodern concept of venture capital or a new Islamic version of venture capital comprise the only viable source of financing to address unemployment plaguing the fastest--growing populations in the world, regions where the unrest among unemployed youths can be diverted toward productive avenues which will benefit the entire country, in due time.


SUGGESTION FOR FURTHER RESEARCH


Since very few studies examine the geographical concentration of venture capital financing, much potential remains for further exploratory studies. Some areas not completely covered in the present study include:


1. Geography off Venture Capital Financing--A Regional Focus: Separate regional studies might examine the clustering formation of venture capital financing activities. Within each geographic region, different countries might be studied separately to gain insight as to how concentration takes place within the local regions of each country. This will provide clues as to where one might focus while formulating policies for promoting venture capital financing.


2. Economic Impact of Venture Capital Financing: As venture capital has the ability to generate wealth within the economy, it is the responsibility of each country's venture capital association to survey,on a regular basis, the full impact of venture capital. This insightwill aid in influencing policymakers to develop a favourable investment climate for venture capitalists, and provide fertile ground for business venture development by promoters, in an efficient and effective manner. The reason it is relatively easy for VC associations to conduct such surveys (the greatest challenge being sufficient funds to hire good consulting firms) is the close interaction between players in the venture capital industry, solo surveys being almost unimaginable (if not impossible) for an individual researcher.


3. Geography of Venture Capital Research: This may shed light on the growth and development of academic research on venture capital financing around the world. To date no such study has been conducted, and this lack prevents researchers and policy makers from assembling a complete picture of what is happening in the venture capital financing arena. Once completed, such research will reveal a clear picture ofpast, present and future trends in academic literature on venture capital financing. This will be useful in developing and studying unexplored areas in venture capital financing.


4. Wealth Management Practices of Succesful Entrepreneurs: The study can be focused on both promoters and venture capitalists. With regional studies, one can then conduct meaningful comparative analyses between different regions. In some regions there are as many as 25 players, whereas in others there are but two. Comparative results will present a complete picture about how effectively entrepreneurs are managing their wealth and can be used to assist the players in less developed countries/regions.


CONCLUSION


Geographical concentrations of economic activity exist throughout the world, and venture capital financing follows similar patterns depending on various favourable environmental factors. Human history reveals clustering of such activity due to technological as well as financial superiority (which in combination manifest political superiority), and this is true even with global venture capital financing (where technology clustering, financial clustering, and political clustering intertwine). Evidence clearly reveals that in the world today there exist concentrations of economic as well and venture capital financing activities in North America, Europe, Asia Pacific, the Middle East and Africa, and Central and South America (in that order). Even with respect to the academic research examining venture capital financing, similar concentration is seen in these regions. The growth trajectory of venture capital financing follows the same pattern, and information from VCDI supports this argument. But trend displays a gradual shift from the first two regions towards the last three regions, withMiddle Eastern countries developing an edge over others in terms of ample sources of funds. Yet at the same time the Middle East lacks the most crucial element required for the success of venture capital financing: safety and security for both investments and entrepreneurs (promoters and venture capitalists) in the host country. Absent these two ingredients, no entrepreneur with sound mind and body will consider launching a business venture in an arena where uncertainty and risk prevail. For this reason, the new GVCA focuses on Arab owned/funded/operated/run venture capital funds to assist and support Arab-founded business ventures. The logic is simple: if both players (promotets as well as VCs) are of Arab origin, then both understand the problemsand think along the same trajectory, reducing conflicts to a minimumand enhancing the likelihood of venture success.


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--. "Venture Capital: Global Scenario." The ICFAI Journal of Applied Finance, Vol. 11, No. 5 (2005), pp. 37-55.


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--. "Geography of Venture Capital Financing in Canada," Working Paper Series: GU/FC/KBS/VC/01-2006, Goa University, 2006b.


--. "Geography of Venture Capital Financing: An Asia Pacific Regional Study." Working Paper Series: GU/FC/KBS/VC/022006, Goa University, 2006c.


--. "Geography of Venture Capital Financing in Middle East & Africa: Special Focus on South Africa." Working Paper Series: GU/FC/KBS/VC/03-2006, Goa University, 2006d.


--. "Trends in Venture Capital Research: Past, Present, and Future." Working Paper Series: GU/FC/ KBS/VC/04-2006, Goa University, 2006e.


--. "Information Asymmetry: Tale of Two Players--How it Influencesthe Research Activities and Role of Libraries in Rectifying this Difference: Special Focus on Venture Capital Financing." Working Paper Series: GU/FC/KBS/VC/052006, Goa University, 2006f.


--, "Blame it on 9/11: Impact on Global Venture Capital Industry."Working Paper Series: GU/FC/KBS/VC/06-2006, Goa University, 2006g.


To order reprints of this article, please contact Dewey Palmieri at dpalmieri@iijournals.com or 212-224-3675.


K. B. SUBHASH is a senior lecturer in the Faculty of Commerce at Goa University in Goa, India. subhashkbhaskaran@yahoo.co.in


EXHIBIT 2


Economic Impact of Venture Capital in Different Countries


Economic

Economic Development US Canada Australia Indicators (2004) (2000) (1996) Employment Venture Backed 6.5% 39% 20% Non-venture Backed -2.3% 1.9% 2% Turnover/Revenue Venture Backed 11.6% 31% 42% Non-venture Backed 6.5% na 6% Export Venture Backed 36% 38% 27% Non-venture Backed na na na R&D Venture Backed 40% 52% na Non-venture Backed 18% na na Economic Development Europe UK Italy Indicators (2002) (2005) (2005) Employment Venture Backed 15% 14% 8.4% Non-venture Backed na 3% 1.1% Turnover/Revenue Venture Backed 35% 20% 24.3% Non-venture Backed na 8% 3.3% Export Venture Backed 30% na na Non-venture Backed na na na R&D Venture Backed 25% na na Non-venture Backed na na na Source: Compiled form the information's available in the Reports published by NVCA (2004), BVCA (2005), CVCA (2000), AVCAL (1997), EVCA (2002), and AIM (2006) on 'Economic Impact