Académique Documents
Professionnel Documents
Culture Documents
Sponsored by
The Global Venture Capital and Private Equity
Country Attractiveness Index
2009/2010 annual
Sponsored by
Contents
Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Sponsors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
About the editors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Research team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
V. Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
Computation of the index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
Statistical validation of the index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
Limitations of our index and FAQs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207
Table with sources and explanations of the data series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216
Foreword
from the research team
In this annual, we want to present the results of a
comprehensive research project on how to measure the
attractiveness of a country for investors in Venture Capital
(VC) and Private Equity (PE) limited partnerships. The project
was initiated at IESE Business School in Barcelona in 2006
with a European pilot study. From the European study we
gained experience and the confidence to extend the study
globally. Since 2006 two professors, one doctoral student, and
many research assistants have worked on the project.
We selected and collected more than 300 different data series
from all kind of providers – some ranging back to 2000. We
attempted to include as many countries as possible in
the study, and handled approximately 200,000 individual
data records.
Website
Please visit our website http://vcpeindex.iese.us/
where you will find more information, links to literature
and several analytical tools for benchmarking purposes.
Professor Josh Lerner
Jacob H. Schiff Professor of Investment Banking
Virtually every high growth business needs Another important trend has been the
capital. Investors allocate assets to earn professionalization of the venture capital
substantial returns. One would imagine that industry itself. Venture capital and private equity
the two facts above would bring venture organizations have matured. Their investment
capitalists and entrepreneurs together. policies, procedures, and systems have been
refined over decades of experience, and are
But, in fact, a significant gap separates the two becoming formalized and structured. As a
groups. Entrepreneurs live in great uncertainty result of these two trends, it is no surprise that
and assume significant risk in pursuing their many nations are making greater efforts to
business, whether a young start up or a encouraging venture capital activity with an eye
restructuring division. Venture capitalists and to boosting innovation and entrepreneurship,
private equity investors are a special breed, who and to counteracting the recessionary impact
seek to help entrepreneurs triumph, but have of the global economic crisis on growth.
fiduciary responsibilities to their own investors
(whether pensions, sovereign wealth funds, With the emergence of venture capital and private
endowments, or families), which limit their equity investment as a professional practice,
ability to absorb all the risk in new ventures. understanding the way in which this industry
While venture capital and private equity has works is critically important for policymakers,
become a well developed industry in the practitioners, and would be practitioners,
United States and Western Europe, in many whether they are (or aspire to be) working
other parts of the world, a gap in experience for entrepreneurial ventures, venture capital
and expectations has slowed the adoption of and private equity firms, or large institutional
venture capital and private equity funds, and capital pools. I applaud Alexander Groh and
limited the success of the pioneering funds. Heinrich Liechtenstein, who have taken the
heroic step of trying to draw together all the
But in the past few years, the venture information needed to assess whether a market
capital and private equity industry has been is ready for venture capital and private equity.
globalizing at a dramatic pace. Funds are
increasingly being raised internationally and The country attractiveness index—which builds
invested globally. More and more firms have on academic research into the determinants
established multinational operations. There is of these funds world wide—provides valuable
an increasing appreciation by entrepreneurs information to investors and political leaders
world wide of the benefits that venture and about which markets are most suited for
growth equity investors can bring. Company private investments. The index results both
managers are increasingly setting ambitious provide answers and raise questions—e.g., to
goals and looking to these investors to provide what extent will the financial crisis upend
the capital, advice, and strategic partnerships the established order of the most attractive
they need to bring their plans to fruition. markets?—but represent an important step in
systemizing our understanding of these issues.
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 7
Sponsors
We are very grateful to our sponsors IESE Business School/CIIF, Ernst & Young,
and DLA Piper Weiss-Tessbach for the financial support, their feedback
throughout the project and their direct contributions to the index.
IESE Business School – University of Navarra Business School and has established itself as a nu-
is one of the world´s top 10 business schools and cleus of study within the School’s activities.
has pioneered executive education in Europe since Sixteen years on, our chief objectives remain
its foundation in 1958 in Barcelona. In 1964 IESE the same:
introduced Europe’s first full-time MBA program. • Find answers to the questions that confront the
IESE distinguishes itself in its general-management owners and managers of finance companies,
approach, extensive use of case method, interna- and the finance director of all kind of compa-
tional outreach, and emphasis on placing people at nies in the performance of their duties.
the heart of managerial decision-making. With a • Develop new tools for financial management.
truly global outlook, IESE currently runs executive- • Study in depth the changes that occur in the
education programs on four continents. market and their effects on the financial dimen-
The CIIF, International Center for Financial Re- sion of business activity.
search, is an interdisciplinary center with an inter- All of these activities are programmed and carried
national outlook and a focus on teaching and re- out with the support of our sponsoring companies.
search in finance. It was created at the beginning Apart from providing vital financial assistance, our
of 1992 to channel the financial research interest sponsors also help to define the Center’s research
of a multidisciplinary group of professors at IESE projects, ensuring their practical relevance.
Ernst & Young is a global leader in assurance, tax, Our private equity and venture capital practices
transaction and advisory services. Worldwide, our therefore offer a holistic, tailored approach that en-
144,000 people are united by our shared values and compasses the needs of funds, their M&A process
an unwavering commitment to quality. We make a and portfolio companies while addressing market,
difference by helping our people, our clients and industry and regulatory concerns and opportunities.
our wider communities achieve their potential. We hope that the Global VC/PE Country Attrac-
Potential is a key word for equity capital ma- tiveness Index proves to be a valuable tool in hel-
nagement. Deal success doesn’t end when the deal ping funds navigate through this uncertain time.
closes. Acquirers know success and stakeholder For more information please visit www.ey.com
value lie in portfolio companies’ continued growth
under their watch and after their exits.
8 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
About the editors
Tobias Götz
Research Assistant,
IESE Business School Barcelona
Markus Grabellus
Research Assistant,
IESE Business School Barcelona
Markus Biesinger
Research Assistant,
IESE Business School Barcelona
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 9
I.
10 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
The Global VC/PE Country
Attractiveness Index
Article written by Alexander Groh, agroh@iese.edu, and Heinrich Liechtenstein, hl@iese.edu,
both, IESE Business School Barcelona.
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 11
The Global VC/PE Country Attractiveness Index
12 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
What are institutional investors’ Importance of Economic Activity the findings are equally valid for the later
selection criteria? Intuitively, the state of a country’s eco- stage. Jeng and Wells (2000) stress that
Our index addresses the concerns of insti- nomy should affect the VC/PE activity. IPO activity is the main force behind cy-
tutional investors and looks at the criteria An economy’s size is an indicator of the clical swings because it reflects the poten-
they base their international VC and PE quantity of corporations and deal flow op- tial return to the VC/PE funds. Kaplan and
allocation decisions upon. Their allocation portunities in general. Economic growth Schoar (2005) confirm this. Analogous to
criteria will include, in the first instance, should lead to demand for finance. Gom- Black and Gilson (1998), Gompers and Ler-
the expected economic opportunities of pers and Lerner (1998) focus on the VC ner (2000) point out that risk capital flou-
a country or region from a macro pers- segment and point out that more attrac- rishes in countries with deep and liquid
pective. However, they will also include a tive opportunities exist for entrepreneurs stock markets. Likewise, Schertler (2003)
particular investment strategy of a fund if the economy is growing quickly. Wilken uses either the capitalization of stock mar-
management team, the team’s compe- (1979) argues that a situation of econo- kets or the number of listed companies as
tence, their track record and other para- mic prosperity and development facilitates a measure for the liquidity of stock mar-
meters. The latter criteria will be addressed entrepreneurship, as it provides a greater kets. She finds that the liquidity of stock
as part of their fund due diligence before accumulation of capital for investments. markets has a significant positive impact
limited partners consider committing to a The ease of start-ups is expected to be re- on VC investments in its early stages.
particular general partner. These criteria lated to societal wealth, not solely due to Alongside the disadvantages of bank-
are beyond of the scope of our index be- the availability of start-up financing, but centered capital markets, Greene (1998)
cause they depend on individual cases. Our also to higher income among potential emphasizes that low availability of debt
index points to the general opportunities customers in the domestic market. Ro- financing is an obstacle for start-ups in
that arise from the socio-economic state main and van Pottelsberghe de la Potterie many countries. Entrepreneurs need to
of a country or region and as a result, we (2004) find that VC/PE activity is cyclical find backers - whether banks or VC/PE
contribute to the macro perspective of the and significantly related to gross domestic funds - who are willing to bear risk. Ce-
fund due diligence. Our index provides va- product (GDP) growth. torelli and Gambera (2001) provide evi-
luable information to investors as it is the dence that bank concentration promotes
first time that the different factors that de- Importance of the Depth of a Capital the growth of those industrial sectors that
termine the attractiveness of a country for Market have a higher need for external finance by
limited partners have been summarized in Black and Gilson (1998) focus on the diffe- facilitating credit access to younger com-
a composite measure. The decisive factors rences between bank-centered and stock panies in said industry sectors.
that render a country attractive have been market-centered capital markets. They
extensively discussed in literature about the argue that a well-developed stock mar- Importance of Taxation
determinants of vibrant VC and PE markets. ket that permits venture capitalists to exit We assume that two types of taxes affect
We give a brief overview over this literature through an initial public offering (IPO) is VC and PE activity; those directly related to
and group the articles into six sub-chap- crucial for the existence of a vibrant VC the asset class, such as taxes on dividends
ters that already reveal the structure of our market. In general, bank-centered capital and capital gains, and those with an im-
index. Each heading represents one of six markets show less ability to produce an ef- pact on corporations and entrepreneurship,
key drivers that we regard as important, ficient VC infrastructure. They affirm that such as corporate tax rates. Gompers and
appropriate and quantifiable to determine it is not merely the strong stock market Lerner (1998) stress that the capital gains
the attractiveness of a country for limited that is missing in bank-centered capital tax rate influences VC/PE activity. In fact,
partners. The key drivers name and define markets; it is also the secondary institu- they confirm Poterba’s finding (1989), who
a set of criteria we need to assess for our tions, including the bankers’ conservative builds a decision-model to become entre-
sample countries.1 approach to lending and investing, and preneur. Bruce (2000 and 2002), and Cullen
the social and financial incentives that and Gordon (2002) prove that taxes mat-
reward entrepreneurs less richly (and pe- ter for business entry and exit. Djankov et
1. Groh, Alexander, Liechtenstein, Heinrich and Lieser,
Karsten (2009a) : The European Venture Capital and Private nalize failure more severely), that compro- al. (2008) show that corporate tax rates
Equity Country Attractiveness Indices, forthcoming in the mise entrepreneurial activity. While their strongly affect entrepreneurship. Bruce and
Journal of Corporate Finance (Re-print). Available at
http://ssrn.com/author=330804. paper focuses on the early stage segment, Gurley (2005) explain that increases in the
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 13
The Global VC/PE Country Attractiveness Index
personal income tax raise the probability of ting standards have a significant impact Rigid labor market policies negatively
becoming an entrepreneur. Hence, the dif- on the governance of investments in the affect the evolution of a VC/PE market.
ference between personal income tax rates VC/PE industry. Desai et al. (2006) show, Lazear (1990) and Blanchard (1997) dis-
and corporate tax rates tends to be an in- that fairness and property rights protec- cuss how protection of workers can reduce
centive to create self-employment. tion largely determine the growth and employment and growth. Black and Gilson
emergence of new enterprises. Cumming (1998) argue that labor market restric-
Importance of Investor Protection and Johan (2007), meanwhile, highlight tions influence VC/PE activity, though not
and Corporate Governance the perceived importance of regulatory to the same extent as the stock market.
Legal structures and the protection of harmonization with respect to increasing Djankov et al. (2002) investigate the
property rights also influence the at- institutional investor commitments to role of several societal burdens for start-
tractiveness of a VC/PE market. La Porta the asset class. La Porta et al. (2002) find ups in different countries. They conclude
et al. (1997 and 1998) confirm that the a lower cost of capital for companies in that the highest barriers and costs are
legal environment strongly determines countries with better investor protection, associated with corruption, crime, a lar-
the size and extent of a country’s capital and Lerner and Schoar (2005) confirm ger unofficial economy, and bureaucratic
market and local companies’ ability to re- these findings. Johnson et al. (1999) show delay.
ceive outside financing. They emphasize that weak property rights limit the rein-
the difference between statutory law and vestment of profits in start-up compa- Importance of Entrepreneurial
the quality of law enforcement in some nies. Finally and more broadly, Knack and Culture and Opportunities
countries. Roe (2006) comprehensively Keefer (1995), Mauro (1995), and Svens- Access to viable investments is one of the
discusses and compares the political deter- son (1998) demonstrate that property most important factors for the attracti-
minants of corporate governance rules for rights significantly affect investments and veness of a regional VC market, especially
the major economies and focuses on the economic growth. for early stage or start-up deals. The num-
importance of strong minority sharehol- ber of potential investments relates to the
der protection to develop a vibrant capital Importance of the Human and Social research output in an economy. Gompers
market. Glaeser et al. (2001) and Djankov Environment and Lerner (1998) show that both indus-
et al. (2003 and 2005) suggest that parties Black and Gilson (1998), Lee and Peterson trial and academic research and deve-
in common-law countries have greater (2000), and Baughn and Neupert (2003) lopment (R&D) expenditure significantly
ease in enforcing their rights from com- argue that national culture shapes both correlates with VC activity. Kortum and
mercial contracts. Cumming et al. (2006) individual orientation and environmental Lerner (2000) highlight that the growth in
find that the quality of a country’s legal conditions, which lead to different levels VC fundraising in the mid-1990s may be
system is more closely connected to faci- of entrepreneurial activity in particular due to a surge of patents in the late 1980s
litating VC/PE backed exits than the size countries. Megginson (2004) argues that, and 1990s. Schertler (2003) emphasizes
of a country’s stock market. Cumming et in order to foster a growing risk capital that the number of both R&D employees
al. (2009) extend this finding and show industry, research culture plays an impor- and patents, as an approximation of the
that cross-country differences in lega- tant role, especially in universities or na- human capital endowment, has a positive
lity, including legal origin and accoun- tional laboratories. and highly significant influence on VC ac-
14 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
tivity. Furthermore, Romain and von Pot- For the index calculation, it would be
telsberghe de la Potterie (2004) find that ideal to include all parameters. However,
start-up activity interacts with the R&D some of the cited papers focus on parti-
capital stock, with technological opportu- cular economies or regions, depending
nities, and the number of patents. Simi- on the data available, and their datasets
lar to Djankov et al. (2002), Baughn and are difficult to compare. Therefore, we try
Neupert (2003) argue that bureaucracy in to find the best possible proxies for the
the form of excessive rules and procedural aforementioned drivers of VC/PE activity,
requirements, multiple institutions from which are available for a large number of
which approvals are needed, and cumber- countries. From the foregoing review of
some documentation requirements may prior research, we identified six main cri-
severely constrain entrepreneurial activity. teria that ultimately determine the attrac-
Lee and Peterson (2000) stress that the tiveness of an individual country for VC/
time and money required to meet such PE investments: Economic Activity, Depth
administrative burdens may discourage of a Capital Market, Taxation, Investor
new venture creations. Protection and Corporate Governance,
Human and Social Environment, and En-
Summary on the determinants of trepreneurial Culture and Opportunities.
vibrant VC and PE markets We regard these criteria as “key drivers”,
The research findings discussed emphasize confirm their choice via a survey among
the difficulty of identifying the appro- institutional investors, reported in Groh
priate parameters for our index. There is and Liechtenstein (2009b) and (2009c),
neither consensus about the most impor- and base the index structure upon them.
tant parameters for VC/PE investment, Since none of the key drivers are di-
nor any ranking. While some parameters rectly measurable, we regard them as
are more comprehensively discussed, “constructs” and seek for data series that
and certainly of very high relevance, it adequately express their character.
remains unclear how these interact. For
example, it is debatable whether the VC/
PE activity in a country with a high cor-
porate governance level is more affected
by the liquidity of the national stock
market or by labor regulations. While an
IPO exit is, in principle, possible at many
stock exchanges in the world, labor mar-
ket frictions can hardly be evaded.
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 15
The Global VC/PE Country Attractiveness Index
16 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Table 1: Structure of the VCPE Index, the separate VC, and PE Indices, and the weighting schemes
VCPE VC PE VCPE VC PE
Index Index Index Index Index Index
1 Economic Activity 0.14 0.14 0.18 4.2.3 Intellectual Property Protection 0.33 0.33 0.33
1.1 Gross Domestic Product 0.33 0.33 0.33 4.3 Quality of Legal Enforcement 0.25 0.25 0.25
1.1.1 Total Economic Size 0.33 0.33 0.33 4.3.1 Judicial Independence 0.25 0.25 0.25
1.1.2 GDP per Capita 0.33 0.33 0.33 4.3.2 Impartial Courts 0.25 0.25 0.25
1.1.3 Real GDP year-on-year Growth 0.33 0.33 0.33 4.3.3 Integrity of the Legal System 0.25 0.25 0.25
1.2 Inflation 0.33 0.33 0.33 4.3.4 Rule of Law 0.25 0.25 0.25
1.3 Unemployment 0.33 0.33 0.33 4.4 Regulatory Quality 0.25 0.25 0.25
2 Depth of a Capital Market 0.23 0.19 0.29 5 Human and Social Environment 0.18 0.19 0.18
2.1 Size and Liquidity of the Stock Market 0.20 0.25 0.20 5.1 Education and Human Capital 0.25 0.25
2.1.1 Market Capitalization of Listed Companies 0.33 0.33 0.33 5.1.1 Quality of the Educational System 0.50 0.50
2.1.2 Total Trading Volume 0.33 0.33 0.33 5.1.2 Quality of Scientific Research Institutions 0.50 0.50
2.1.3 Listed Domestic Companies 0.33 0.33 0.33 5.2 Labor Market Rigidities 0.25 0.25 0.33
2.2 IPO Market Activity 0.20 0.25 0.20 5.2.1 Difficulty of Hiring Index 0.25 0.25 0.25
2.2.1 Market Volume 0.50 0.50 0.50 5.2.2 Rigidity of Hours Index 0.25 0.25 0.25
2.2.2 Number of IPOs 0.50 0.50 0.50 5.2.3 Difficulty of Firing Index 0.25 0.25 0.25
2.3 M&A Market Activity 0.20 0.25 0.20 5.2.4 Firing Costs 0.25 0.25 0.25
2.3.1 Market Volume 0.50 0.50 0.50 5.3 Bribing and Corruption 0.25 0.25 0.33
2.3.2 Number of Deals 0.50 0.50 0.50 5.3.1 Bribing and Corruption Index 0.33 0.33 0.33
2.4 Debt and Credit Market 0.20 0.20 5.3.2 Control of Corruption 0.33 0.33 0.33
2.4.1 Domestic Credit provided by Banking Sector 0.17 0.17 5.3.3 Extra Payments/Bribes 0.33 0.33 0.33
2.4.2 Ease of Access to Loans 0.17 0.17 5.4 Costs of Crime 0.25 0.25 0.33
2.4.3 Credit Information Index 0.17 0.17 5.4.1 Business Costs of Crime and Violence 0.50 0.50 0.50
2.4.4 Soundness of Banks 0.17 0.17 5.4.2 Costs of Organized Crime 0.50 0.50 0.50
2.4.5 Interest Rate Spread 0.17 0.17 6 Entrepreneurial Culture and Opportunities 0.18 0.19 0.06
2.4.6 Bank Non-performing Loans to Total Gross Loans 0.17 0.17 6.1 Innovation and R&D 0.25 0.25
2.5 Financial Market Sophistication 0.20 0.25 0.20 6.1.1 General Innovativeness Index 0.20 0.20
3 Taxation 0.09 0.10 0.06 6.1.2 Capacity for Innovation 0.20 0.20
3.1 Tax Incentives 0.50 0.50 1.00 6.1.3 Company Spending on R&D 0.20 0.20
3.1.1 Marginal Corporate Tax Rate 0.25 0.25 0.50 6.1.4 Utility Patents 0.20 0.20
3.1.2 Entrepreneurship Incentive 0.25 0.25 6.1.5 Scientific and Technical Journal Articles 0.20 0.20
3.1.3 Labor Tax and Contributions 0.25 0.25 6.2 Ease of Starting and Running a Business 0.25 0.25
3.1.4 Profit and Capital Gains Tax 0.25 0.25 0.50 6.2.1 Number of Procedures to start of Business 0.20 0.20
3.2 Administrative Tax Burdens 0.50 0.50 6.2.2 Time needed to start a Business 0.20 0.20
3.2.1 Number of Payments 0.50 0.50 6.2.3 Costs of Business Start-Up Procedures 0.20 0.20
3.2.2 Time spent on Tax Issues 0.50 0.50 6.2.4 Minimum Capital 0.20 0.20
4 Investor Protection and Corporate Governance 0.18 0.19 0.24 6.2.5 Administrative Requirements 0.20 0.20
4.1 Corporate Governance 0.25 0.25 0.25 6.3 Simplicity of Closing a Business 0.25 0.25 1.00
4.1.1 Disclosure Index 0.20 0.20 0.20 6.3.1 Time 0.33 0.33 0.33
4.1.2 Director Liability Index 0.20 0.20 0.20 6.3.2 Costs 0.33 0.33 0.33
4.1.3 Shareholder Suits Index 0.20 0.20 0.20 6.3.3 Recovery Rate 0.33 0.33 0.33
4.1.4 Legal Rights Index 0.20 0.20 0.20 6.4 ICT Infrastructure 0.25 0.25
4.1.5 Efficacy of Corporate Boards 0.20 0.20 0.20 6.4.1 Broadband Subscribers 0.25 0.25
4.2 Security of Property Rights 0.25 0.25 0.25 6.4.2 Fixed Line and Mobile Phone Subscribers 0.25 0.25
4.2.1 Legal Enforcement of Contracts 0.33 0.33 0.33 6.4.3 Internet Users 0.25 0.25
4.2.2 Property Rights 0.33 0.33 0.33 6.4.4 Secure Internet Servers 0.25 0.25
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 17
The Global VC/PE Country Attractiveness Index
18 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Exhibit 1: 2009/2010 VCPE Country Attractiveness Index
0 10 20 30 40 50 60 70 80 90 100
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 19
The Global VC/PE Country Attractiveness Index
Rankings according to the separate For the PE index, we discard all constructs
VC and PE indices that are related to innovations, and foun-
Exhibit 2 combines the prior results and ding or running a business in early stages.
the ranking according to the separate VC We realize that Brazil, India, China, France,
and PE indices. The red squares mark the Spain and Malaysia gain many ranks with
VCPE index ranks. The white squares desi- respect to their attractiveness for PE in-
gnate the VC index, and the grey squares vestments. The rationale is simple: the
the PE index ranks. The VC index country aforementioned countries show relative
ranking does not change greatly. The ran- liquid and developed capital markets. As
king remains because we only discard the the measure for the depth of a capital
level 2 construct to assess the “Debt and market gains a higher weight in the PE
Credit Market” from the VC index. Howe- index, these countries rank on superior le-
ver, we receive a stronger ranking varia- vels, consequently.
tion if we focus on the PE segment only.
20 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Exhibit 2: Rankings of the three different indices
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 21
The Global VC/PE Country Attractiveness Index
22 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Exhibit 3: Six key driving forces. Comparison of the US, Slovenia and Venezuela
1. Economic Activity
125
100
6. Entrepreneurial
75 2. Depth of a
Culture &
Opportunities 50
Capital Market
25
United States
4. Investor Protection &
Slovenia
Corporate Governance
Venezuela
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 23
The Global VC/PE Country Attractiveness Index
24 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Exhibit 5: Ranking of geographic regions
North America 97
Australasia 76
Western Europe 67
World 55
Asia 54
Middle East 46
Eastern Europe 42
Latin America 35
Africa 33
0 20 40 60 80 100
Exhibit 6: Key driver scores of geographic regions Exhibit 7: Key driver scores of geographic regions
25
25
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 25
The Global VC/PE Country Attractiveness Index
26 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Exhibit 8: Rank changes between index version 2005/2006 and 2009/2010
-15 -10 -5 0 5 10 15
United States (1.)
Canada (2.)
United Kingdom (3.)
Australia (4.)
Hong Kong (5.)
Singapore (6.)
Japan (7.)
Switzerland (8.)
Netherlands (9.)
Germany (10.)
Sweden (11.)
Denmark (12.)
Republic of Korea (13.)
Norway (14.)
Finland (15.)
France (16.)
Belgium (17.)
New Zealand (18.)
Austria (19.)
Spain (20.)
Ireland (21.)
Israel (22.)
Taiwan (23.)
Luxembourg (24.)
Malaysia (25.)
United Arab Emirates (26.)
Portugal (27.)
China (28.)
Italy (29.)
Saudi Arabia (30.)
Poland (31.)
Chile (32.)
Slovenia (33.)
Czech Republic (34.)
Estonia (35.)
Thailand (36.)
Hungary (37.)
India (38.)
Greece (39.)
Lithuania (40.)
Slovakia (41.)
Kuwait (42.)
South Africa (43.)
Turkey (44.)
Croatia (45.)
Oman (46.)
Romania (47.)
Russian Federation (48.)
Mexico (49.)
Latvia (50.)
Brazil (51.)
Uruguay (52.)
Peru (53.)
Indonesia (54.)
Bulgaria (55.)
Morocco (56.)
Egypt (57.)
Colombia (58.)
Argentina (59.)
Vietnam (60.)
Philippines (61.)
Nigeria (62.)
Ukraine (63.)
Kenya (64.)
Paraguay (65.)
Venezuela (66.)
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 27
The Global VC/PE Country Attractiveness Index
The idea of our index is to assess the at- the actual VC and PE activity in the va- The statistical measure for such a com-
tractiveness of a country to receive VC/ rious countries. We use data from Thom- parison is the Pearson Correlation Coeffi-
PE allocations from institutional investors son Financial on VC and PE activity. Our cient. It ranges between 0 and 1, where 0
based on socio-economic parameters that activity measure is the natural logarithm signals “no” and 1 “perfect tracking”. The
we regard relevant. The composite measure of an average of all VC and PE invest- coefficient for our index is 0.8104, signa-
can deviate from the actual risk capital ments made by the general partners in a ling that the index excellently(!) tracks
market activity, and deviations between certain country over the last three years. a country’s capacity to actually “absorb”
our attractiveness score and actual acti- We use the natural logarithm to account the committed capital. If we compare the
vity might either point to under- or over- for the large activity divergence (e.g., ac- results of our VC index with VC activity,
funding of particular countries, or to the tivity in the US vs. Venezuela), and we use analogue to the above defined activity
fact that our chosen criteria are not rele- an average over three years to smooth measure, the correlation is 0.8100. The
vant for VC and PE investors. Experience fluctuations. Especially for some emer- correlation of our PE index with actual
reveals that investors are often influenced ging countries, annual activity fluctuates PE activity is 0.7807. Both results are still
by herding behavior and follow trends to strongly from peak levels to zero in sub- confirmative. However, the slightly de-
invest in certain countries or regions. The sequent years. We chose the criterion lo- crease of the tracking power regarding the
countries might not have the “infrastruc- cation of the general partners - and not two separate indices is partly due to inho-
ture” to absorb the investments, leading of the investments - for the following mogeneous definitions of the two market
to over-funding. The “infrastructure” is reason: some financial centers serve as segments in different parts of the world.
exactly what we aim to measure: can we hubs and channel VC and PE investments In other words, in some cases, VC transac-
expect sufficient deal opportunities resul- abroad. Investors allocate their capital in tions in emerging countries might rather
ting from the entrepreneurial culture in a these hubs because they rely on the effi- be called infrastructure investments, or
country, from its economic soundness, or ciency of the financial community there. project financing (but not VC transac-
from innovations? Are potential transac- This is exactly what we measure with our tions) in more developed economies.
tions sufficiently supported by the finan- index. In fact, we focus on the demand for
cial community? Are the stock and M&A VC and PE in a particular economy, and Does the global financial crisis have
markets sufficiently liquid to facilitate likewise on the state of the professional an impact on the robustness of our
divestments? Are investors’ concerns le- financial community to support the supply index?
gally taken care of? We do not claim that side. Therefore, investments, according to We have seen the biggest crisis since the
our index provides the correct answers the location of the general partners, cor- great depression and the question remains
to these questions. But, we claim that respond best with the idea of our index. whether this has an impact on the robus-
our index is very helpful in this respect. Additionally, we use investments - and not tness of our index. The data for the last
Therefore, we expect deviations between raised funds - because our index targets quarter of the year 2008 (where quar-
our attractiveness measure and actual VC the “absorption-capacity” (either caused terly data is available) and later captures
and PE activity in the particular countries. by direct local demand or by channeling the major consequences of the financial
However, these deviations should not be funds abroad) of the particular econo- crisis. We realize that the impact on eco-
great on average. If they are great we mies. Funds raised might deviate from this nomic activity and the depth of the ca-
would doubt the reliability of our index. capacity due to herding behavior of inves- pital market is large for many countries,
Hence, we compare our index scores with tors or negligence. especially for those that had high ran-
28 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
kings with respect to these two key drivers we expect several emerging countries to
before the financial crisis. IPO and M&A strongly improve their position over the
activity has come down significantly. The course of 2009/2010. However, we have to
size and liquidity of the stock markets wait for the following edition, to provide
melted down. The access to loans deterio- evidence for our expectations.
rated and interest rates increased to peak
levels. It became clear that the fraction How our index differs from
of non-performing loans is probably the other, more general indices on
highest seen in banking history, and the competitiveness
soundness of banks might be doubted in Some institutions provide competitiveness
several countries. These are all data series indices or assess the general conditions
we use for our index construction, and we for making business in various countries.
believe that the financial crisis will have These indices have a broader scope and do
a strong impact on all of them. However, not focus on the particularities of the VC
the data series are not yet updated for all and PE capital market segment. Therefore,
countries, and hence, we are not able to their rankings usually differ from ours and
draw conclusions for the quality of our their tracking power to explain VC and
index at that time. PE activity is lower. For example, the Glo-
We assume that these effects will move bal Competitiveness Index from the WEF
several emerging countries to higher ranks tracks VC and PE activity with 0.69, while
for one simple reason. The rationale is the the IMD World Competitiveness Index
typical pattern we discussed above: the correlates with 0.57 only. This reveals that
high ranked countries are particularly our index is the more precise indicator
strong with respect to their capital mar- for VC and PE country attractiveness. The
kets. They will be affected most by the fi- reason for the superior tracking power of
nancial crisis because they lose dispropor- our index is simply that it is tailor-made,
tionally their competitive advantage by according to the particular determinants
the deteriorated capital market conditions. for vibrant VC and PE markets. There is no
Several emerging countries with sound other indicator tracking the actual VC and
growth opportunities, but negligible ca- PE activity over the 66 countries, and over
pital markets will benefit (in terms of in- time as good as our index.
dex scores) from the crisis. It is said that
their economic growth will be affected to
a minor extend, only. The crisis will har-
dly impact their scores with respect to the
other key drivers such as Taxation, Inves-
tor Protection and Corporate Governance,
the Human and Social Environment, or
their Entrepreneurial Culture. Therefore,
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 29
The Global VC/PE Country Attractiveness Index
We provide a composite measure that We find a general pattern if we com- bor markets, bribery, and corruption, there
determines the attractiveness of 66 pare the country characteristics. There is a will be no demand for VC and PE. If there
countries to receive capital allocations lot of dispersion with respect to the six key is no demand, there is no opportunity to
from investors in the VC and PE asset drivers. Especially, the emerging countries establish a vibrant VC and PE market.
class. The composite measure is based on attract investors with tax incentives. Many We invite you to observe and thorou-
six main criteria: Economic Activity, the countries show strong Entrepreneurial ghly analyze our results. If you are an
Depth of Capital Markets, Taxation, Inves- Culture and Opportunities. There is great investor, please enrich the provided in-
tor Protection and Corporate Governance, dispersion in Economic Activity, and in the formation with your own expertise and
the Human and Social Environment, and Human and Social Environment. However, knowledge about the key driving forces
Entrepreneurial Culture and Opportu- the two key criteria, Investor Protection and market conditions in the particular
nities. The definition of these criteria is and Corporate Governance, and Depth countries to make your allocation deci-
based on an extensive review of academic of Capital Markets, make the difference. sions. If you are a politician, please use our
literature, and on a survey we conducted The common law countries dominate the analyses as demonstration how investors
among institutional investors prior to others regarding these criteria. We can evaluate and benchmark your country. If
our study. The six criteria are not directly conclude that strong investor protection you are a researcher, and this is equally
observable, so we use proxy variables to leads to liquid and efficient capital mar- valid for the whole constituency, please
assess them for each country. As a result, kets, and these evoke the required profes- do not hesitate to criticize our approach.
we receive a country ranking, and pro- sional community to secure deal flow and We will continue with annual updates of
vide detailed analyses on the strengths exit opportunities for VC and PE funds. our index. Thereby, we aim to cover more
and weaknesses of the particular nations This ultimately affects a country’s attrac- and more countries, include new data se-
and information on the historic develop- tiveness for institutional investments in ries (discard others), and we will optimize
ment of the criteria. Our index tracks real the VC and PE asset class. the data selection and index structure.
VC and PE activity better than any other However, this discussion reflects the Hence, we very much appreciate any cri-
existing indicator. However, it shall not capital supply side only. We should also tique and comments.
be interpreted as a crystal ball for invest- take into account that, as revealed in our
ment advisers. We highlight our intention analyses, many countries lack several im-
to challenge discussion and to propose a portant attractiveness criteria. Without a
valuable informational tool, but not an sufficient entrepreneurial culture and en-
arbitrage instrument. trepreneurial opportunities, with rigid la-
30 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
II.
32 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Legal systems, taxes
and VC and PE activity
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 33
Legal systems, taxes and VC and PE activity
After a period of remarkable growth in latory and tax regimes in which these riod of ownership and then selling well.
the amount of money raised and inves- funds operate. But the dynamic environ- There are many elements to picking the
ted by VC and PE funds in the period ment also brings with it opportunities right deals, of course, but a proper un-
up to 2007, the past two years have for the funds to make impressive returns derstanding of the geographies in which
brought a number of major challenges for their investors through backing the businesses operate is clearly a key part
to the industry – supporting existing right businesses through the upturn. of the assessment.
investee companies, the backlog of The VC and PE industry has a history of
exits, new deal pricing, debt finance evolving to meet the challenges and op- Signs of a positive future
constraints, fundraising, and the regu- portunities it faces, and is doing so again PE funds have a significant amount of
in the context of the recent turbulence. capital available to invest, and the PE
ownership model can play a key role in
Talent comes to the fore helping businesses and the wider econo-
Article written by :
In investing, as in many industries, a my recover from the downturn. In the
• Simon Perry
boom period can allow average perfor- current environment, PE can be a solu-
Partner, Ernst & Young LLP, London
mers to look very good, whilst challen- tion for large corporates who may divest
sperry@uk.ey.com
ging times are more likely to differenti- divisions where they can put the capital
• Alexander Reiter
ate between the best performers and the to better use elsewhere, for companies
Partner, Ernst & Young GmbH, Munich
rest. Many PE and VC funds made excel- which need to time and investment to
alexander.reiter@de.ey.com
lent returns in the boom years, aided by restructure. It can also be appropriate
• Gil Forer
plentiful cheap debt for the LBO deals for companies with the potential to
Partner, Ernst & Young LLP, New York
and rising underlying markets in gene- grow through investment, or through
gil.forer@ey.com
ral. Many PE funds have spent much of the minority investments and strategic
the past 18 months or so working with partnerships we have seen evolving in
This publication contains information in summary portfolio companies whose leveraged recent times. There is recognition that a
form and is therefore intended for general
guidance only. It is not intended to be a substitute balance sheets have been strained by the lot of people made very strong returns in
for detailed research or the exercise of professional economic downturn. With debt capacity the upturn from the last recession, but
judgment. Neither the authors nor Ernst & significantly reduced and new debt more at the same time there is a real sense of
Young member firms can accept responsibility
for loss to any person relying on this article. expensive and equity markets less re- caution not to jump too early.
liable as a driver of sustainable increases In the VC sector, on a longer times-
in valuations, the challenge for funds is cale, the innovation pipeline is quite ro-
to prove to existing and potential LP in- bust, there is no shortage of capital and
vestors that they can outperform on the capital markets show signs of recovery.
fundamentals – in both the PE and VC The indicators of recovery are, however,
segments this at its most basic level is still just “signs”.
about picking the right businesses and In both the PE and VC segments, the
management teams, investing at the dramatic slowdown in exits remains a
right time and price, working with the key challenge, as the PE and VC business
businesses to create value during the pe- models only work if the funds can return
34 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
money to their investors. We have seen Italy – which could continue to creep
some VC-backed IPOs starting to come across Europe. Venture capital has also
through again, and there is much spe- been pressured by the changing rules for
culation around the return of IPOs for the carry-forward of losses – in the cur-
large PE portfolio companies, but no- rent environment, many companies are
one really knows the pace of recovery or making losses, but if the tax treatment
what volume we are going to see. The of how those losses are carried forward
reopening of exit routes for PE and VC changes then the investment may be-
funds will be a major enabler of future come unattractive. But for all of this,
fundraising and investing activity. the tax implications on PE and VC are
Geography will continue to be a key largely secondary to the overall quality
factor in future buoyancy, as the Glo- of investment and the likelihood of a
bal VC/PE Country Attractiveness Index good fundamental return.
shows it has in the past, although it is
not always possible to generalize about Picking the winners
which types of areas will prosper. Many As LPs consider where to allocate their
people talk about China as a whole as capital, and PE and VC funds look to
being strong, for example, but in the US make the right investments themselves,
the VC ecosystem of Silicon Valley is the the investing landscape will inevitably
standard against which every other area change. There will undoubtedly be
is benchmarked. comparative winners and losers, and
the Global PE/VC Country Attractiveness
A changing tax topography Index could prove to be a valuable tool
The tax treatment of venture capital and in helping funds navigate through this
private equity is also changing rapidly. uncertain time.
With governments easing fiscal purse
strings but tightening anti-avoidance in
ways pertinent to both VC and PE, in-
vestors need clear and up-to-date advice
on what to do. In July, for example, the
Obama administration proposed legisla-
tion that affects foreign investment in
US funds – from next year, funds might
have to consider how they restructure
to attract foreign investment. Another
big issue is the limitation of interest
deductions – first applied by Germany
and subsequently seen in Denmark and
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 35
Legal systems, taxes and VC and PE activity
Legal systems tions and protecting investor equity. PE lawyers to give unqualified opinions on
There is a traditional distinction between investors have until very recently relied such structures.
legal systems of Anglo-Saxon countries, on leverage and debt push down struc- The second, arguably more perti-
whose legal system built on a common tures to increase their return multiples. nent reason may be that common law
law, and so-called civil law countries In most jurisdictions following the conti- countries whose economies are based on
whose legal system is in the most part nental European law tradition such struc- strong capital markets traditionally give
built on statutory law. Results of the in- tures are either prohibited or discouraged very strong protection to minority share-
dex seem to suggest that countries whose under strict capital maintenance and/ holder rights and offer a greater transpa-
legal systems are based on common law or creditor protection rules. As a conse- rency to such shareholders. Therefore, gi-
are clearly the more attractive countries quence, structuring and executing such ven the need for flexibility in structuring
for VC and PE. The top six spots in all in- transactions in jurisdictions following and strong investor protection rights, it is
dices are taken by countries deeply roo- the continental European law tradition is not surprising that countries which have
ted in the common law tradition. cumbersome and introduces an additio- common law systems are at the top of the
A bird’s-eye view across jurisdictions nal element of risk because investors and index.
suggests that the increased attracti- financing banks will not be able to rely on In our view the German, Scandina-
veness of countries following the Anglo- unqualified legal opinions. vian and Netherland civil law systems
Saxon common law system vis-à-vis the VC transactions usually require ratchets offer slightly stronger investor protection
civil law systems are twofold. and other anti dilution mechanisms to rights and flexibility with regard to struc-
PE and VC requires a certain degree of bridge the valuation gap between inves- turing than the more Roman law based
flexibility with regard to capital creation tors and management/founders. Investors countries following the French, Italian
and capital maintenance rules, in parti- will under preset circumstances require and Spanish tradition. This may be part
cular with regard to structuring transac- the issuance of additional free shares (e.g., of the reason why countries following
when certain milestones are not met or in the German, Scandinavian and Nether-
the event of "down rounds"). The flexibility land legal regimes are in terms of attrac-
in terms of timing when executing such tiveness in the second tier of the index.
Article written by :
mechanism will in most civil law jurisdic- The third obvious reason is that com-
• Phillip Dubsky
tions not be possible because the creation mon law jurisdictions have traditionally
Partner
of new shares requires shareholder appro- relied more on capital markets as a source
DLA Piper Weiss-Tessbach, Vienna
val with qualified majorities the adherence of financing while jurisdictions following
phillip.dubsky@dlapiper.com
to certain notice periods. Moreover, most the continental European approach have
jurisdictions will not allow the creation of resorted to lender financing. As a result,
shares without a minimum issue price. common law jurisdictions have deve-
Common law countries generally show loped capital markets systems which of-
greater flexibility with regard to capital fer strong investor protection rights and
creation. Most common law jurisdictions forcefully prohibit insider dealings. The
allow issuance of no-par-value-shares common law history of transparency and
or shares with negligible par-value. In investor protection has resulted in sophis-
addition, rules on capital maintenance ticated and mature capital markets. Such
will under certain circumstances allow markets in turn offer both the sources
debt-push-down structures and enable (i.e., targets) for PE as well as an impor-
36 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
tant exit route. In summary, the common Specific regulation targeted towards so high that in practice most funds tend
law countries were until now more suc- private equity to not use the specifically targeted struc-
cessful in creating a PE and VC friendly The VCPE index shows a certain trend: ture but resort to more traditional or/and
environment with an experienced indus- countries, which have enacted specific incen- offshore fund structures. This may help to
try of market participants and advisers. tives for VC and PE, tend to be more attrac- explain the comparatively low rank Aus-
tive than countries which have not enacted tria takes among industrialised nations.
Investor protection - strength of such rules. Other jurisdictions such as Germany
judicial system – corruption The UK, for example, offers generous have very recently enacted legislation
The index clearly shows that countries tax-incentives to investments in certain which generally abolishes most tax ad-
with a strong judicial system and little or funds that target small unquoted high- vantages of certain types of PE funds by
no perceived corruption take the top 20 tech companies, companies in disadvan- introducing a flat rate withholding tax of
places in terms of attractiveness. taged areas or start-ups. Under certain 25% percent for distributions.
Countries such as Nigeria, Venezuela circumstances private individuals can ob-
or the Ukraine where judicial systems tain tax relief on investments in unquoted Summary
are generally said to be not very reliable companies and offset losses against in- In summary it appears fair to conclude
and a certain degree of corruption is per- come tax should there be no capital gains that jurisdictions with flexible and trans-
ceived by market participants rank at the against which to offset them. parent legal systems with an emphasis on
bottom of the index. While economic and Another good example is Israel whose investor protection offer a fertile bree-
tax incentives are helpful ingredients bri- economy relies heavily on the high tech- ding ground for PE and VC investments.
bery and uncertainty of enforcement of nology sector. Israel offers generous Specific legislation targeted towards
contractual commitments remain strong tax breaks for founders of start up bu- improving PE will only improve such en-
deterrents for building a vibrant VC and sinesses as well as VC funds. This is one vironment if tax incentives are not en-
PE community. An example for this trend of the reasons why Israel has one of the cumbered by hurdles which contravene
is Bulgaria which European Union mem- most vibrant VC scenes outside the Uni- established commercial market practice.
bership notwithstanding remains trou- ted States. Therefore, notwithstanding
bled with regard to enforcement and its precarious geopolitical situation, Is-
transparency and thus ranks in the bot- rael remains comparatively attractive for
tom tier of the index. VC and PE financings and is ranked top
A good example for the positive deve- among its peer group.
lopment of a country is, in our view, Slove- Another example for a regional winner
nia. Slovenia has since its accession to the (Latin America) is Chile where tax profits
European Union introduced the VC Act of made by angel or seed capital investors
2007 and has made particular strong ef- in risk-capital funds are exempted form
forts to reform its judicial system and fight capital gains.
corruption. As a result, it ranks first among In some instances, however, specifi-
the former communist countries. cally targeted but cumbersome regula-
Therefore, one can conclude that an tions may not have the desired effect.
experienced and non-corruptible judiciary One example is Austria, where notwiths-
are the bed-rock for a country to be at- tanding certain legislative efforts, the
tractive for VC and PE investments. hurdles to qualify for tax exemptions are
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 37
III.
38 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
An insight into
different VC
and PE markets
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 39
An insight into different VC and PE markets
Introduction although well behind Asia (58%), held up livering attractive returns to sophisticated
According to a 2008 Organization for well compared to other emerging regions investors. Consequently, as the previously
Economic Co-operation and Develop- (Latin America: 8%; Middle East/North cited OECD report put it, PE investments
ment (OECD) report, PE is “the African Africa: 8%; and CEE/Russia: 10%).”5 in “consumer-related and communica-
investment story to watch.”4 The Inter- Significantly too, local sourcing of ca- tions sectors ... have an arguably stronger
national Monetary Fund (IMF) estimates pital has also been on the increase, with a impact on Africans’ daily lives ... and stand
that between 2000 and 2007, private quarter of the funds raised for the conti- out as a dynamic and diversified counter-
capital flows into sub-Saharan African nent coming from South Africa e.g., Pa- point to classic sources of foreign invest-
countries increased almost fivefold, from modzi, a South African private equity firm, ment in Africa.”7
US$11bn to US$53bn, with Nigeria and launched a US$1.3 billion fund in 2007,
South Africa accounting for about 47% Africa’s largest. Overall, a lot of the re- Structural problems continue to limit
of these figures. Within this, the amount cent activity is coming from sub-Saharan VC and PE growth
of private equity raised, jumped by 200% Africa, with South African funds managing Nonetheless, although African funds might
between 2004 and 2006, to reach US$2.3 80% of total sub-Saharan VC/PE capital, post higher returns than in many other
billion in 2006. followed by Nigerian funds with 10%.6 markets, VC/PE investors in Africa have to
According to the OECD, “This brought Much of this growth is driven by the contend with a number of socio-political
sub-Saharan Africa’s share of emerging efforts of an increasing number of African problems which still continue to act as a
market private equity funds to 7%, which governments to encourage foreign par- dampener on growth. Fragile or/and often
ticipation in newly liberalized industries unrepresentative democratic institutions
4. Dickinson, T. 2008. Private Equity: An Eye for Investment such as telecommunications and banking. are still more the rule, than the exception.
under African Skies? OECD Development Centre Policy In addition, increasing government em- In many countries, freedom of the press,
Insights 60: 1-2.
phasis on investments in infrastructure, the rule of law and government transpa-
along with a growth in the popularity of rency remain weak, and corruption is often
public-private partnerships (PPPs), were extensive in the public sector.
Article written by Tunji Adegbesan also determining factors for the consi- Although the effects of the global re-
Lagos Business School derable chunk of funds that ended up in cession, in the main, are not as severe as
Lagos, Nigeria infrastructure-related projects. As African in most parts of the West, Africa has not
tAdegbesan@lbs.edu.ng governments turn to the private sector been spared either. The OECD expects
for help in funding urgently needed in- Africa’s growth for 2009 to fall to 2.8%,
frastructure investments (via PPPs), firms after growing above 5% for four conse-
and funds with prior experience (mostly cutive years. Nevertheless, a return to
located in South Africa and Nigeria), are 4.8% growth is expected for 2010. In the
rolling out and replicating their business meantime, economies like Nigeria, which
models across other countries. are heavily reliant on commodity exports,
Thus, VC, and especially PE, are acqui- will be harder hit in 2009/2010. In addition,
ring a reputation for driving development, persistent high prices of internationally
alongside considerable profit, in African traded food (e.g., grains and vegetable oils)
countries. Investments in social and eco- and moderately rising inflation, will affect
nomic infrastructure in the areas of finan- consumers, especially the urban poor.
cial services, transportation and informa- As a result, in the short to medium term,
tion and communication technologies are most of the promising deals will continue
enhancing African development while de- to revolve around infrastructure, both so-
cial and economic, as well as around basic
5. Ibid.
6. Ibid. 7. Ibid.
40 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
needs, such as power and communication. is emblematic of the rising opportunities some of the advances made toward grea-
For as long as consumer purchasing power in Africa’s telecommunications and other ter democracy and better governance. Yet,
remains low, there will be limited absorp- infrastructure-related sectors. Similarly, compared to 10 years ago, wiser macroe-
tive capacity for major funds outside the Vodafone recently acquired full control conomic policies and recent multilateral
relatively wealthier African countries. of Vodacom Group Ltd, South Africa’s lea- debt-relief will stand African economies
ding wireless operator. In November 2008, in good stead. In addition, growing ties
Africa retains a very strong medium- it bought an additional 15% of Vodacom with Latin America and Asian emerging
and long-term potential from Telkom South Africa Ltd., for US$2.82 economies as development and trade par-
Nevertheless, there is a virtual consensus billion, raising its stake to 65%. The pur- tners reduce the continent’s vulnerability
that Africa’s long-term prospects remain chase valued Vodacom, which has 39.6 mil- to the global recession.
attractive. Very often, steady positive and lion customers in five African countries, at
economically significant progress goes about US$19.3 billion. Meanwhile, Bharti Governance and investment
unnoticed by news channels more attuned Airtel Ltd., India’s largest mobile-phone In the long term therefore, Africa’s pros-
to spectacular (usually negative) news. operator, and Johannesburg-based MTN pects are hinged on balancing macroeco-
For example, although democracy ad- Group Ltd., Africa’s largest operator, are in nomic fundamentals and structural reforms
mittedly remains weak in many African talks to buy stakes in each other to create a (infrastructure development, institutional
countries, weak democracies are still a step company with annual sales of US$20 billion improvements and poverty-reduction pro-
forward from military dictatorships. As the and 200 million subscribers, making it the grams); sustainable fiscal policies; transpa-
Economist Intelligence Unit points out, third largest in the world. Almost 400 mil- rent governance; socio-political cohesion;
“Over the next five years there will be na- lion Africans now have mobile phones, and a business-conducive environment; remo-
tional, multiparty elections in nearly every Africa was the first region in the world to val of hurdles to ICT infrastructure deve-
country in sub-Saharan Africa.”8 Less than offer free, mobile roaming services across lopment; improved regulation and regional
20 years ago, Africa’s 54 countries were several countries. economic development.
embroiled in about 10 major wars (none of Other recent deals have seen US$382 Paul Collier, Professor of Economics at
which remain today), and the majority did million raised in November 2008 for Nige- Oxford University, in a recent interview
not have functioning democracies. Today, ria’s first PPP, (and the first PPP toll road with Finance and Development said aid to
the African country that does not profess in West-Africa), the Lekki-Epe Expressway Africa hasn’t worked because the focus has
a democratic system (even if inefficiently in Lagos; as well as the 2007 investment of been almost exclusively on macro issues:
implemented) is very much the exception. US$130 million in Diamond Bank (a West "It’s largely a microeconomic agenda and
In fact, in a few countries, the last 10 African bank) by Actis. so the macro depends upon the micro.”9
years have also seen the appearance of a In these markets, the innovative use To Collier, “The micro agenda that seems
crop of younger, savvier political leaders of information and communication tech- to work there involves freeing up firms to
who have begun to usher in economic nologies e.g., to scale up levels of bank- be able to enter quickly and exit quickly.
development, attracting fresh investment users, building on the ubiquity of mobile Using the database from the World Bank’s
and creating the conditions for local en- phones, is vital for breaking barriers to Doing Business surveys, this is what we
trepreneurship to thrive. Such stable pro- market development. For example, in Ke- find. Where countries have easy entry and
gress, even from poor initial conditions, nya, where only 26% of the population exit for firms, the consequence of a falling
creates attractive virgin soil in which VC/ has a bank account, mobile-payment ser- commodity price is much smaller for GDP.”
PE investors can find risk diversification, vices have attracted over five million users Multilateral organizations, economists
along with attractive returns. in less than two years. and analysts say Africa needs a prolonged
The US$3.4 billion PE-backed buyout of Nevertheless, good governance and phase of investment – in physical infras-
Mo Ibrahim’s Celtel in 2006, for instance, the reduction of corruption remain as im- tructure through public and private ca-
portant as ever, since the deterioration of
8. “Africa votes”, The Economist Intelligence Unit ViewsWire, the economic situation could jeopardize 9. “Still the Bottom Billion”, Finance & Development, 46(2):
July 1st 2009. June 2009.
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 41
An insight into different VC and PE markets
pital – to catch-up with the rest of the Africa as a continent maintained the 8th
world. According to Collier, “To catch up, position in the 2009/2010 VCPE ranking. As
to converge with other economies, (invest- expected, South Africa performs best of
ment in Africa) needs to be over 30%. So the four considered African countries. Fac-
they must move from under 20% to over tors such as investors’ protection, taxation
30%. That’s a big change.” and capital markets, similar to what’s ob-
Governance also makes a huge change. tainable in half of the countries surveyed,
The World Bank’s 2009 World Governance buoyed South Africa’s position.
Indicators (WGI) lends weight to this. The South Africa ranked 43rd overall, and
report remarks that “improved gover- 5th among its direct peers. In descending
nance strengthens development, and not order, Israel, UAE, Saudi Arabia, Kuwait,
the other way around. When governance South Africa, Oman, Morocco, Egypt,
is improved by one standard deviation, in- Nigeria and Kenya are the countries wi-
fant mortality declines by two-thirds and thin this group. Between 2005/2006 and
incomes rise about three-fold in the long 2009/2010, South Africa slightly impro-
run.” The rule of law provides stability. ved the ranking of the sub-indices capital
Stable laws mean businesses can predict, market, and investors’ protection. Of the
to some extent, future risks on potential four African countries, Morocco’s capital
outcomes. Risks are also minimized when market sub-index moved up the most by
there are legal institutions that curtail nine places. Overall Nigeria was ranked
corruption, enforce property rights and 62nd, slightly above Kenya (64). In Kenya,
enforce contracts. two factors, taxation and investor protec-
tion, declined strongly.
African results in the Global VCPE Looking forward therefore, although it
Index is nothing new to remark that Africa re-
In summary, Africa remains a continent mains, unfortunately, the least-developed
with extraordinary potentials and chal- continent, the massive upside potential
lenges. The recent past has seen rapid that this situation implies, represents a
development in Africa’s investment po- very attractive potential for VC and PE
tential, but slower development in go- funds, which are able to pick countries
vernance, although there has undeniably and sectors carefully in the short to me-
been progress on this front as well. These dium term; as well as for those investors
broad brushstrokes therefore present a who are able to build significant local
context within which to understand the knowledge in the medium to long term.
results of the VC/PE index. This index pro-
vides a glimpse of the opportunities, or
lack thereof, facing the featured African
countries.
42 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Asia: Does vibrant entrepreneurial activity and
expected growth compensate some weaknesses?
General points cision-making for VC and PE investments for corruption. Civil servants are very well
The overall ranking of Asia as a region in the region. The qualitative factors are paid, with salaries that are at least com-
seems quite appropriate. It ranks 4th, af- considered in the discussions below. parable with the private sector. Taxes are
ter North America, Australasia, and Wes- relatively low, especially, at the indirect tax
tern Europe. Surprisingly, Hong Kong (5) The top Asian countries level. Income tax rates for both corpora-
and Singapore (6) beat Japan (7) in terms Hong Kong took top spot in Asia, ranking tions and individuals are among the lowest
of overall attractiveness. 5th overall in attractiveness. It managed in the region and compliance is excellent.
Malaysia (25), Taiwan (23), China (28) to obtain this ranking on the basis of high In the case of Japan, it outperforms
and Thailand (36) were in the mid-range, scores for all the categories, on a consistent Singapore only in the areas of Economic
with their raw overall scores clustering basis. Its category ranking was 3rd in Inves- Activity and Depth of Capital Markets. In
around the sample average. Indonesia tor Protection and Corporate Governance, terms of economic activity, the size of its
(54), the Philippines (61), and Vietnam 5th in Capital Market, and 9th in Taxation. economy, being only 2nd to the United
(60) were in the bottom 20% of scores In fact, Singapore ranks higher with respect States, makes a lot of difference. Its in-
and rankings. It is surprising, though, that to Investor Protection and Taxation. Howe- flation rate for the past two decades has
these countries are ranked so much worse, ver, Hong Kong’s worst position is rank 19 been very low, and in fact, it fell into a de-
than for example, South Africa. for Economic Activity. It is a small territory, flationary mode from 1994-2004. Howe-
Anyway, as we will see below, these though bigger than Singapore. ver, Japan has only experienced low level
rankings may not fully reflect the oppor- Singapore beats Japan and Korea on economic growth in recent years. In terms
tunities in the different Asian markets, the basis of its attractiveness in the fol- of the capital markets, again the size and
but are an interesting basis for actual de- lowing areas: (1) Investor Protection and diversity of listed firms give it a big edge
Corporate Governance, (2) Human and So- over Singapore. Its banking sector is able
cial Environment, and (3) Taxation. It is a to provide credit to domestic firms and
regional financial center with transparent, the availability of credit information is
well-defined and well-applied laws and re- excellent.
Article written by Victor Abola gulations. There are no foreign exchange South Korea plays a close third to Ja-
The University of Asia and the Pacific controls, and capital and dividends, royal- pan, which it outperforms only in the area
Pasig City, Philippines ties etc., can be transferred abroad without of Taxation. Marginal corporate tax rates
vabola@uap.edu.ph question. Since stock market listings are not are lower than in Japan and more favo-
restricted to Singapore companies, a num- rable profit tax and capital gains laws go-
ber of firms from other Asian countries are vern. It edges Singapore in capital market
also listed at its stock exchange. The latter's standing, since it has a larger and more
rules on listings and disclosures are quite diverse listing of companies in the stock
stringent and at par with world standards. market. The large size of the economy pro-
Corporations, especially listed firms, play by vides it with greater opportunities in M&A
the rules and correspondingly have good than Singapore. It should be remembered
governance structures and enforcement. that South Korea undertook a very serious
Thus, firms here will tend to be more trans- corporate and banking restructuring after
parent than in Japan or South Korea. For it was battered by the Asian financial cri-
the second point, it has very high standard sis in 1997-98. Its industry has moved to
of education, which includes professors and a high level of technology and is fiercely
researchers from all over the world. English competitive in the world market. It is now
is the official language. Labor regulations threatening Japan in areas the latter used
are fair for both employers and employees. to dominate, such as in LCD technology,
But most of all, it has very little tolerance cell phones, shipbuilding, cars, etc. It does
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 43
An insight into different VC and PE markets
stand fairly close to Singapore in terms world-class brands, and sophisticated ronment. Thailand has a low VAT rate
of economic activity, since it has recove- design capability. Besides that, it has a of only 7% compared to China's 17%.
red very rapidly and effectively from the wide basis of small-to-medium support However, it still offers tax incentives to
Asian financial crisis, building up its fo- enterprises, which have enabled the foreign investors, like Malaysia. Finally,
reign exchange reserves to absolute levels country to withstand the Asian financial it has minimal labor taxes compared to
well above US$200 billion, or next only to crisis since these were less dependent on China. In terms of investor protection
Taiwan in the region. It also has managed external financing. Economic activity is and corporate governance, Thailand has
to keep the inflation rate relatively low. higher than Malaysia given Taiwan's sta- better regulations on the liability of di-
tus as an advanced country and slightly rectors and affords better security of
Asian countries in the middle bigger population. It follows Malaysia in property rights than China, as already ex-
Taiwan (23), Malaysia (25), China (28), and two areas: taxation and capital market plained above. Thailand performs better
Thailand (36) may be considered to be in development. than China in providing a good human
the middle range in terms of overall at- China performs better than Malaysia and social environment. This is evident
tractiveness. and Taiwan in two areas: (1) Depth of a in the ease of firing of labor and lower
Malaysia easily beats China in three Capital Market, and (2) Economic Activity. incidence of corruption, especially with
areas: (1) Taxation, (2) Investor Protec- The size and diversity of its economy is the presence of a more independent and
tion and Corporate Governance, and reflected in its capital market. This is mir- reliable judiciary.
(3) Human and Social Environment. The rored in magnitude and liquidity of listed
margins are largest in the latter two ca- shares, in opportunities for mergers and Bottom three countries
tegories. In terms of taxation, Malaysia's acquisitions. It edges Malaysia and Taiwan The last three Asian countries are closely
advantage lies in lower corporate and VAT in the area of economic activity again by bunched together: Indonesia (54), Viet-
rates. China's VAT rate of 17% is one of virtue of the size of the economy (now nam (60) and the Philippines (61). In terms
the highest in the region. Malaysia also the third largest in the world), and its very of raw score, Indonesia grabs the top spot
offers better investor protection than rapid growth in the last three decades. in three areas: (1) Economic Activity, (2)
China because it functions with a well-es- Annual growth has averaged close to 10% Depth of a Capital Market, and (3) Hu-
tablished rule-of-law and good corporate during this period, even with accelera- man and Social Environment. Surprisin-
governance practices. It has a long tra- tion in the second half of this period. It gly, Vietnam tops the other two countries
dition of legal excellence, inherited from is one of the few countries that are ex- in (1) Taxation, and (2) Entrepreneurial
the British, and a fairly reliable judiciary. pected to post a positive growth in 2009 Culture and Opportunities. The Philippines
Corporate governance is definitely better as a result of the size of its domestic mar- managed to get highest scores only in the
than in China since it has stricter disclo- ket (1.3 billion population), high savings area of Investor Protection and Corporate
sure requirements, sanctions on directors, rate, and rapidly expanding middle class. Governance. It should be noted that In-
etc. In terms of the human and social en- Its main drawbacks are the weak judicial donesia, Vietnam and the Philippines, in
vironment, Malaysia manages a small, but system and difficulty in maintaining the terms of raw score, are clustered with the
highly effective educational system. Labor rule of law. Weakness of other institu- lower-tiered Latin American countries like
laws are clear, and employment and firing tions, like the media and academia, is also Argentina, Brazil, Colombia and Peru.
are not problematic. Finally, it can boast pronounced because of the great control Indonesia has the largest economy and
of little corruption in the government. still being exercised by the government (a the highest per capita income among the
Therefore, it is more transparent and ac- monopoly of the Communist Party, even three countries. Even though Vietnam had
countable than China. though this may only be nominal). the fasted growth in recent years, Indone-
Taiwan is slightly ahead of Malaysia. A bit distant third among these middle sia and the Philippines' growth record are
It does better than Malaysia in two ca- countries is Thailand. Actually, it outper- above average. Because of an inflation
tegories: (1) Entrepreneurial Culture and forms China in half of the six categories rate above 20% in 2008, Vietnam lags
Opportunities, and (2) Economic Activity. of interest, such as (1) Taxation, (2) In- way behind the other two economies. Ac-
Entrepreneurial opportunities are at the vestor Protection and Corporate Gover- tually, the Philippines stick very close to
forefront of computer technology with nance, and (3) Human and Social Envi- Indonesia in economic activities. Indone-
44 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
sia's large economic size makes it also the formally communist regime, but unders- depressed export sector, and the improving
frontrunner in the capital market, again tandable, since it is trying to imitate the consumer sector are clear areas where VC
by a slight margin over the Philippines. success of China. It also had a higher ICT and PE can be quite promising, considering
This means greater stock market turnover, infrastructure rating over the other two a long history of overleveraging. All these
liquidity, and diversity of firms represen- countries. would tend to negate a somewhat less fa-
ted in the market. This means more IPOs For the last tier, the rankings may be vorable situation of its investor protection
and M&A opportunities as well. almost maintained even with qualitative and corporate governance.
In terms of human and social environ- considerations factored in. Actually, In- Finally, Indonesia gains attraction. Its
ment, the quality of the educational sys- donesia has become an increasingly at- continued relatively strong growth since
tem and of scientific research spelled the tractive investment area, considering the it began more serious reforms after the
difference between Indonesia and Viet- political and judicial stability that it has Asian financial crisis is providing ample
nam. The Philippines lags badly behind the recently shown, and its large need for ex- opportunities in this largest population
other two in this area. It should be noted ternal finance. We think Vietnam comes in the Association of Southeast Asian
that together with China, Indonesia and a far third from Indonesia and the Philip- Nations (ASEAN). Improved political sta-
the Philippines are expected to have posi- pines in view of export vulnerability and bility and the judicial system are proving
tive growth in 2009. weaknesses in capital market development to be responsive to an economy that was
The Philippines rank behind Indonesia and in investor protection. thought to be particularly vulnerable to
because of its economic activity, capi- China's emergence as an economic super
tal market, and taxation. The size of the Summary power in the region. All these would tend
Philippine economy was a little less than China, particularly in its consumer sec- to offset negative assessments on investor
half of Indonesia in 2008 and growth tor, is certainly a very interesting country protection and corporate governance.
was slightly slower at 4.1%, compared for VC and PE allocations. The breadth
to Indonesia's 6.0% growth. But the Phi- of market opportunities due to its rapid
lippines performed much better in terms economic growth, the depth of talent and
of inflation in 2008, clocking at 9.3%, the capital markets, overcome the nega-
while Indonesia had above 12.0% and tive factor of poor investor protection.
Vietnam was way above 20%. The Phi- The latter is often addressed by having a
lippines scored most among the three reliable domestic partner and a manage-
countries with respect to investor protec- ment team that is attuned to the demands
tion and corporate governance. Security of government.
of property rights and regulatory capacity By virtue of their “being part of Grea-
were the strong points noted. The courts ter China”, as well as their specific strong
uphold the right to private property so points discussed above, we think that
much that expropriations for infrastruc- Hong Kong and Taiwan are particular at-
ture projects get delayed. tractive too. These territories both offer
Although it captured the top spot in excellent jump-off points for the China
two areas, Vietnam lagged much behind market. Singularly, however, they have
in the other areas where Indonesia and sufficiently high levels of income and so-
the Philippines were fairly closed. It phistication in the capital markets that
ranks high in taxation mainly because render them especially attractive.
of the generosity of tax incentives and South Korea is technologically very
lower tax rates. In terms of entrepreneu- much advanced, supported by a large, hi-
rial opportunity, it bested the other two ghly qualified labor pool. It has a relatively
countries with a ratio of 2:1. This relies large economy, and a powerful export sec-
much on the ease of starting and run- tor. The capital market has improved dra-
ning a business. This is surprising, for a matically in the last decade. Its currently
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 45
An insight into different VC and PE markets
PE funds may become a fabulous tool for class in Latin America is only a fraction of • The country’s strong appeal arises
promoting economic and business deve- what it was in the developed countries, from the size of its domestic market,
lopment in the emerging Latin American we would be dealing with a phenomenon the strength of the industrial sector
markets, once the financial crisis starts to of considerable magnitude. and the expected high growth rates
recede. among several Brazilian industries.
Considering the lack of much previous Prospects for Latin America • Moreover, the tax law in Brazil in-
VC and PE activity in Latin America, the Although the value of investments in cludes significant tax incentives for
asset class can still be considered a “new emerging markets has been hit hard by this type of investment.
species” in the region. However, taking the global financial crisis, we should keep Chile has been for some years a major
into account the growth levels the asset in mind that the sources of the crisis were target for foreign direct investment. This
class experienced in developed markets, definitely not the emerging countries. development could be similar for the flow
the growth potential for VC and PE in La- These markets did not suffer any severe into VC and PE funds.
tin America seems enormous. credit crises. Mortgages – which trigge- • The Chilean economy has a strong
Worldwide, the total volume raised red the crisis – were not and will not be a foundation built on commodity pro-
by VC and PE funds amounts more than cause of concern in the region. duction, particularly copper.
US$3.5 trillion.10 The funds raised in Latin Some Latin American economies • The country’s political leaders have
America are a very small part of this total. might be better prepared to recover from won the trust of the investment com-
However, if the future growth of the asset the crisis than several of the more deve- munity through the consistent eco-
loped economies. They are, in principle, nomic policy followed by different
10. 2009 Preqin Global Private Equity Review, p. 34. in better economic shape. The level of democratic governments.
consumer debt among the Latin Ameri- • One example that highlights success-
can middle classes is much less than that ful efforts of Chilean policy makers
of developed countries and the banking has been the creation of a stabiliza-
Article written by Gabriel Noussan system can be regarded stronger and tion fund during the years of strong
IAE Business School more stable. A number of Latin Ameri- growth. This fund allows the present
Buenos Aires, Argentina can countries have followed orthodox government now to soften the impact
GNoussan@iae.edu.ar macroeconomic policies, and some have of the financial crisis.
even generated stabilization funds to • The country has a dynamic, modern
support their economies. entrepreneurial class with a strong
Experts consider that the Latin Ame- focus on growth and exports. Within
rican countries that seem to offer best the region, a large number of leading
conditions for a strong growth in VC and Chilean companies have embarked
PE activity are Brazil and Chile. upon a significant expansion pro-
Brazil is one of the emerging countries cess with investments in neighboring
with the greatest appeal for the invest- countries.
ment community. Another two countries can be added to
• As one of the renowned BRIC (Brazil, the former two: Mexico, obviously, be-
Russia, India, and China) countries, cause of its strong ties to the US, and
Brazil has become an attractive tar- Peru, because of its strong recent growth.
get for VC and PE allocations be- Similarly, Colombia and Uruguay showed
cause of the confidence created by sound economic growth in the last few
the continuously good economic years.
management of different democratic However, for various reasons, the
governments. analysts and the investment community
46 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
are still not convinced about the deve- respect to the small number of listed do- rent political and economic inclinations.
lopment of the economies of Argentina, mestic companies, the IPO opportunities, On the other hand, Chile, a country with
Paraguay, Ecuador, Bolivia and Venezuela. as well as the low dynamic of the M&A orthodox economic policies and manage-
market. ment, is at the top of the Latin American
“The Global Venture Capital Recapitulating, the index shows the ranking, with some sub-index rankings as
and Private Equity Country importance of the level of economic ac- good as those of Germany for example.
Attractiveness Index” tivity for the development of VC and PE The results of the Global Venture Ca-
This index provides a good snapshot in Latin America. An analysis of the data pital and Private Equity Attractiveness
of the status of this type of asset class provided by the index on the region’s per- Index confirm what experts have been
around the world, especially for emerging ceived weaknesses enables us to unders- asking for a long time. The index points
regions such as Latin America. By obser- tand which key factors need to improve to the particular determinants for growth
ving the relative position of individual to achieve greater growth of the asset of VC and PE activities. We are especially
Latin American countries and the region class in Latin America. talking about the urgent need for strong
compared to the world, it is possible to First, in developed countries, the PE’s capital markets in the region. Depth of
infer the opportunities arising from likely business model was originally based on capital markets provide one of the main
future developments. extensive leverage. However, the current exit routes to investors in VC and PE
The index groups multiple factors crisis will lead to a change in the bu- funds – initial public offerings. This exit
in six dimensions. Latin America shows siness model, even in the more developed route, so common in the more developed
strengths in only two of the six dimen- countries, as, at least for some time ac- markets, is virtually non-existent in Latin
sions analyzed: Economic Activity and cess to credit will not be as generalized America. Consequently, financial inves-
Taxation. Within economic activity, the as it was before the credit market crash. tors mostly sell their holdings to strategic
sub-factor with greatest importance is Consequently, it will not be possible to buyers.
the annual growth rates of the GDP. finance investments using a leveraged The index also shows investors’ fragi-
It is precisely in this aspect, where the buy-out (LBO) type model. Instead it will lity in certain countries from the region
main opportunities valued by investors in be necessary to rely on capital from in- with respect to the protection of their
Latin America apparently lie: the region’s vestors who seek growth. rights. The protection of investors’ rights
enormous capacity for investments in bu- In emerging countries in general, and is a clear weakness that, unfortunately, is
sinesses that showed growth in developed Latin America in particular, PE activities widespread in almost all Latin American
countries but which are not yet existent were unable to apply the original model countries and inevitably has an impact on
or only at infant stages in the region. due to the lack of local debt finance. the perception of the region as a whole.
With respect to the impact of taxes on In fact, the PE funds showed incipient Within this construct, the item that gives
the attractiveness of VC and PE in Latin growth in the countries with the least most fragility to the investors’ perception
America, it becomes evident that tax in- lending facilities. Within the Depth of a of security is the protection of intellec-
centives contribute comprehensively to Capital Market construct, the factor Debt tual property. Although almost all of
the region’s appreciation. and Credit Markets shows an interesting the countries in the region score poorly
On the other hand, the other four discriminating power between the va- in these aspects, it is interesting to see
dimensions where the region shows rious Latin American countries. This is not how precisely the report differentiates
weaknesses are: the Depth of Capital only consistent with the aforementioned, between countries, with, for example, Ve-
Markets, Entrepreneurial Culture and Op- but also with the perception of these as- nezuela at the bottom of the ranking and
portunities, Investor Protection and Cor- pects in the investment community. For Chile at the top.
porate Governance, and the Human and example, Argentina, which was the “Cin- To close my remarks, I want to hi-
Social Environment. Among these, the di- derella” of Latin America in the 1990’s, ghlight that it is interesting to reflect on
mension in which the region is most fra- now takes a poor ranking position. This the characteristics of Latin America com-
gile is the Depth of Capital Markets with is perfectly in line with Argentina’s cur- pared to the world average, using the in-
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 47
An insight into different VC and PE markets
48 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
IV.
50 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Regional and
country profiles
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 51
Regional and country profiles
The first page of the performance overview shows basic facts, a strengths, weakenesses, opportunities
and threats (SWOT) analysis provided by country leaders from Ernst & Young, the VCPE-Ranking,
the key factor performance, the performance of the separate VC and PE Indices, as well as a
comparison within the regional peer group.
1 Basic Facts and Opportunities and Challenges 3 Separate VC and PE indices and comparison within
Basic Facts comprises main indicators such as GDP, Population, peer group
and their growth rates, and the country’s position regarding its The upper chart shows the country’s ranking position for the
IPO, M&A, and VC and PE market activity expressed in quartiles. combined VCPE and for the separate Venture Capital and Private
The section “Opportunities and Challenges” provides the reader Equity Country Attractiveness Indices over time. Below, we pre-
with a SWOT analysis with respect to the country’s VC/PE invest- sent the country relative to its peers. The peer group is determi-
ment conditions. These analyses are provided by local experts ned by nine countries from its region. If we cover less than nine
from Ernst & Young. countries from that region we add countries from other regions
to the peer group. The set of peers is not always the same for a
2 VCPE-Ranking and Key Factor Performance region. It is the selection of eight other countries in alphabetical
The “VCPE-Ranking” table exhibits the index values and the ranking order, and the country in question.
positions of the country for the overall index, and for each key
driver separately, for the 2005/2006 and for the 2009/2010 VCPE 4 The Global Venture Capital and Private Equity
Country Attractiveness Index. Next to the current rank, the change Country Attractiveness Index in detail
of a ranking position is indicated by green arrows for positive, red The second page of information for the individual countries pre-
arrows for negative and yellow arrows for no movements. The sents the ranks achieved for each of the level 2 constructs. Once
quartiles indicate the country’s position among all the countries in again, the arrows mark ranking changes, and the crosses indicate
the sample. The spider chart on the right shows the performance the country’s position measured in quartiles, with respect to all
of each key driver compared to the region’s average where the other countries from the sample.
country is located.
We should note that the overall VCPE Ranking is not the ave-
rage rank from all the key drivers. First, the key drivers have dif-
ferent weights, and second, the ranking is always the result of a
benchmark process: the rank of a country depends on the ranks
of the other sample countries. A simple example helps to explain
this issue: imagine there are four countries to benchmark with
the following key driver ranks:
Country
Key drivers/ranks
A B C D
Economic Activity 2 1 3 4
Depth of a Capital Market 2 1 3 4
Taxation 2 3 1 4
Investor Protection and Corporate Governance 2 3 1 4
Human and Social Environment 2 3 4 1
Entrepreneurial Culture and Opportunities 2 3 4 1
Overall rank 1 2 3 4
Even if country A ranks on the second position with all the key
driver scores its final rank is number one.
52 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Regional and country profiles
Africa
Basic Facts VCPE-Ranking Details
2005/06 2009/10 QuarƟle
1 VCPE Ranking
Rank Value Rank
8 33,2 8
4th 1st
2 4 y
1. Economic Activity
2005/06
Rank
2009/10
Value Rank
Quartile
4th1st
Economŝc AcƟǀŝƚLJ 8 53,9 8 8 31,5 8
1.1 GrossDomesticProduct
Depth of Cap. Market 6 10,9 6 8 65,7 8
1.2 Inflation
TaxaƟon 7 103,6 7 8 75,7 8
1.3 Unemployment
Inǀ. Prot. & Corp. Goǀ. 7 53,6 7
Hum. & Soc. Enǀ. 8 48,5 7
2DepthofCapitalMarket
2. Depth of Capital Market
QuarƟle
4th 1st Entrepr. Culture & Opp. 8 22,2 8 2005/06 2009/10 Quartile
GDP 613 [bn USD] IPO Volume Rank Value Rank 4th1st
PopulĂƟon 271 [mn] M&A Volume
GDP Growth VC ĐƟǀŝƚLJ 2.1 SizeandLiquidityoftheStockMarket 6 19,1 6
'02 '08
Pop. Growth '02 '08 PE ĐƟǀŝƚLJ Key Factors Performance 8 1,4 8
2.2 IPOMarketActivity
Economŝc 2.3 M&AMarketActivity 7 1,6 8
AcƟǀŝtLJ
125 2.4 Debt&CreditMarket 7 67,2 7
SWOT Analysis 100
2.5 FinancialMarketSophistication 5 54,4 6
Entrepr. Culture 75 Depth of Cap.
Strengths & Opp. 50
Market
Weaknesses Afrŝca
• Large geographical region characterized by significant differences Inǀ. Prot. & WorlĚ 4InvestorProtection&CorporateGovernance
Corp. Goǀ.
4. Investor Protection and Corporate Governance
United States = 100 Points 2005/06 2009/10 Quartile
in culture, language, legal and regulatory systems across the
Rank Value Rank 4th1st
continent
Separate VC and PE Indices 4.1 CorporateGovernance 4 71,5 5
• Small number of pan-African funds competing with larger
number of regional specialists 4.2 SecurityofPropertyRights 7 46,4 7
0
• Transaction activity is driven by a few countries, mainly South
Africa and Nigeria
• VC/PE is dependent on foreign investors who often prefer other
1
2
3 4.3
4.4
QualityofLegalEnforcement
RegulatoryQuality
7
8
52,4
47,5
7
8
3
emerging markets
Index Rank
• Preference of debt and public equity markets over VC/PE funding 4 5Human&SocialEnvironment
5. Human and Social Environment
5 2005/06 2009/10 Quartile
Opportunities 6
Rank Value Rank 4th1st
• Historical underinvestment in infrastructure and resources, and 5.1 Education&HumanCapital 7 48,9 7
7
growing adoption of PPPs by African governments 5.2 LaborMarketRigidities 5 64,5 5
8
• Under-banked population with rising incomes, improved access to 8 31,3 8
9 5.3 Bribing&Corruption
credit and increasing spending tendencies
2005/06 2006/07 2007/08 2008/09 2009/10 5.4 CostsofCrime 8 56,2 8
Threats VC PE VCPE
54 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 55
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 53
Regional and country profiles
Africa
Basic Facts VCPE-Ranking
2005/06 2009/10 QuarƟle
Rank Value Rank 4th 1st
VCPE Ranking 8 33,2 8
Economŝc AcƟǀŝƚLJ 8 53,9 8
Depth of Cap. Market 6 10,9 6
TaxaƟon 7 103,6 7
Inǀ. Prot. & Corp. Goǀ. 7 53,6 7
Hum. & Soc. Enǀ. 8 48,5 7
QuarƟle
4th 1st Entrepr. Culture & Opp. 8 22,2 8
GDP 613 [bn USD] IPO Volume
PopulĂƟon 271 [mn] M&A Volume
GDP Growth '02 '08 VC ĐƟǀŝƚLJ
Pop. Growth '02 '08 PE ĐƟǀŝƚLJ Key Factors Performance
Economŝc
AcƟǀŝtLJ
125
the region
• Before the financial crisis, investor confidence in Africa was Hum. & Soc.
TaxaƟon
increasing, as was Africa's understanding of the VC/PE offering Enǀŝronment
Weaknesses Afrŝca
• Large geographical region characterized by significant differences Inǀ. Prot. & WorlĚ
Corp. Goǀ. United States = 100 Points
in culture, language, legal and regulatory systems across the
continent
• Small number of pan-African funds competing with larger Separate VC and PE Indices
number of regional specialists 0
• Transaction activity is driven by a few countries, mainly South
1
Africa and Nigeria
2
• VC/PE is dependent on foreign investors who often prefer other
3
emerging markets
Index Rank
4
• Preference of debt and public equity markets over VC/PE funding
5
Opportunities 6
• Historical underinvestment in infrastructure and resources, and
7
growing adoption of PPPs by African governments
8
• Under-banked population with rising incomes, improved access to
9
credit and increasing spending tendencies
2005/06 2006/07 2007/08 2008/09 2009/10
Threats VC PE VCPE
54 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Africa
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 55
55
Regional and country profiles
Asia
Basic Facts VCPE-Ranking
2005/06 2009/10 QuarƟle
Rank Value Rank 4th 1st
VCPE Ranking 4 53,5 4
Economŝc AcƟǀŝtLJ 5 73,9 4
Depth of Cap. Market 4 27,3 3
TaxaƟon 5 116,5 4
Inǀ. Prot. & Corp. Goǀ. 4 68,1 4
Hum. & Soc. Enǀ. 5 74,0 5
QuarƟle
4th 1st Entrepr. Culture & Opp. 4 37,4 5
GDP 14941 [bn USD] IPO Volume
PopulaƟon 3379 [mn] M&A Volume
GDP Growth '02 '08 VC AcƟǀŝtLJ
Pop. Growth '02 '08 PE AcƟǀŝtLJ Key Factors Performance
Economŝc
AcƟǀŝtLJ
125
100
SWOT Analysis
Entrepr. Culture 75 Depth of Cap.
& Opp. 50
Market
Strengths
• Very large and powerful economic region 25
2
investment
• Several fragmented industries with potential for consolidation 3
• Relatively large, young and growing middle-income population in
emerging urban centers 4
Threats
• Increasingly negative sentiment towards the asset class if VC/ 5
2005/06 2006/07 2007/08 2008/09 2009/10
PE investors are not regarded appropriately supporting investee
VC PE VCPE
companies in the current economic climate
• Inadequate power and transport infrastructure in selected areas
• Cultural, ethnical, religious, or even terroristic turmoil in certain regions Comparison within Peer Group
Outlook 2005/06 2009/10 QuarƟle
• Progress towards greater transparency and global economic integration Rank Value Rank 4th 1st
• Many companies will find it increasingly hard to obtain access North Amerŝca 1 96,9 1
to additional capital and will need to deploy their capital more Australasŝa 2 76,4 2
effectively Western Europe 3 67,5 3
• Many companies will be forced to divest non-core businesses Asŝa 4 53,5 4
• Continuing strong global position in high-tech sector
MŝĚĚle East 5 45,9 5
• Continuing relaxation of restrictions of capital flows
Eastern Europe 6 41,9 6
>aƟn Amerŝca 7 34,9 7
Afrŝca 8 33,2 8
56 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Asia
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 57
Regional and country profiles
Australasia
Basic Facts VCPE-Ranking
2005/06 2009/10 Quartile
Rank Value Rank 4th
4th1st
1st
VCPERanking 2 76,4 2
EconomicActivity 2 95,5 2
DepthofCap.Market 2 29,7 2
Taxation 8 104,1 6
Inv.Prot.&Corp.Gov. 1 107,4 1
Hum.&Soc.Env. 1 114,5 1
Quartile Entrepr.Culture&Opp. 2 85,8 2
4th 1st
GDP 1106 [bnUSD] IPOVolume
Population 25 [mn] M&AVolume
GDPGrowth '02 '08 VCActivity
Pop.Growth '02 '08 PEActivity Key Factors Performance
Economic
Activity
125
Threats
• High interest rate environment making current debt raisings 2
difficult
Outlook
• Investment funds are likely to restrict allocation to PE, but the 3
industry will continue to attract capital from other sources 2005/06 2006/07 2007/08 2008/09 2009/10
including sovereign wealth funds and high net worth individuals VC PE VCPE
58 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Australasia
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 59
Regional and country profiles
Eastern Europe
Basic Facts VCPE-Ranking
• The financial crisis affected strongly the generally weak capital EasternEurope
market structure World
Inv.Prot.&
• Lack of experience in connection with structuring and completing Corp.Gov.
UnitedStates =100Points
complex transactions
• Lack of management teams for MBO situations
Separate VC and PE Indices
Opportunities 0
• Catching-up entrepreneurial culture and opportunities for venture
1
capital investors
• Privatization projects are still going on 2
• Reform of legal systems provides increasing security and
IndexRank
3
attractive environment for VC/PE.
4
Threats
5
• Financial crisis may make funding difficult for local GPs
• Increasingly unstable regulatory and enforcement environment if 6
financial crisis continues for more than two years
7
Outlook 2005/06 2006/07 2007/08 2008/09 2009/10
60 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Eastern Europe
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 61
Regional and country profiles
Latin America
Basic Facts VCPE-Ranking
2005/06 2009/10 Quartile
Rank Value Rank 4th
4th1st
1st
VCPERanking 7 34,9 7
EconomicActivity 7 73,6 5
DepthofCap.Market 8 10,0 7
Taxation 6 112,6 5
Inv.Prot.&Corp.Gov. 8 45,8 8
Hum.&Soc.Env. 7 48,2 8
Quartile
4th 1st Entrepr.Culture&Opp. 7 29,1 7
GDP 3846 [bnUSD] IPOVolume
Population 471 [mn] M&AVolume
GDPGrowth '02 '08 VCActivity
Pop.Growth '02 '08 PEActivity Key Factors Performance
Economic
Activity
125
62 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Latin America
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 63
Regional and country profiles
Middle East
Basic Facts VCPE-Ranking
2005/06 2009/10 Quartile
Rank Value Rank 4th
4th1st
1st
VCPERanking 5 45,9 5
EconomicActivity 4 72,2 7
DepthofCap.Market 5 13,8 5
Taxation 1 133,3 1
Inv.Prot.&Corp.Gov. 5 66,6 5
Hum.&Soc.Env. 4 76,4 4
Quartile
4th 1st Entrepr.Culture&Opp. 6 35,5 6
GDP 1270 [bnUSD] IPOVolume
Population 119 [mn] M&AVolume
GDPGrowth '02 '08 VCActivity
Pop.Growth '02 '08 PEActivity Key Factors Performance
Economic
Activity
150
125
SWOT Analysis 100
Entrepr.Culture DepthofCap.
&Opp. 75 Market
Strengths 50
25
• Sufficiently diversified cash rich economies 0
• Relatively robust economic growth
• Steady growing population with "real demand" Hum.&Soc.
Taxation
• Government’s commitment to continuous growth Environment
MiddleEast
Weaknesses
Inv.Prot.& World
• Weak corporate governance as most businesses are still controlled by Corp.Gov.
families UnitedStates =100Points
Threats 5
• Economic growth to slow down due to decrease in global tourism
6
industry
2005/06 2006/07 2007/08 2008/09 2009/10
• Managing expectations of existing shareholders/family members a VC PE VCPE
key challenge
• Size and liquidity of stock markets may affect exits
Comparison within Peer Group
• Decrease in availability of private funds as a result of the crisis
• Lack of liquidity impacting setting up new funds 2005/06 2009/10 Quartile
Rank Value Rank 4th1st
Outlook NorthAmerica 1 96,9 1
• Global economic downturn to slow down activity in the short term Australasia 2 76,4 2
• Potential for acquiring assets at attractive valuations
WesternEurope 3 67,5 3
• Transformations from family run businesses to corporate structures
Asia 4 53,5 4
• IPO markets to re-open as a result of a gradual recovery
MiddleEast 5 45,9 5
Phil Gandier, Partner, Ernst & Young Middle East EasternEurope 6 41,9 6
LatinAmerica 7 34,9 7
Africa 8 33,2 8
64 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Middle East
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 65
Regional and country profiles
North America
Basic Facts VCPE-Ranking
2005/06 2009/10 Quartile
Rank Value Rank 4th
4th1st
1st
VCPERanking 1 96,9 1
EconomicActivity 1 100,3 1
DepthofCap.Market 1 82,0 1
Taxation 4 100,8 8
Inv.Prot.&Corp.Gov. 2 101,1 2
Hum.&Soc.Env. 2 106,3 2
Quartile
4th 1st Entrepr.Culture&Opp. 1 99,9 1
GDP 15984 [bnUSD] IPOVolume
Population 342 [mn] M&AVolume
GDPGrowth '02 '08 VCActivity
Pop.Growth '02 '08 PEActivity Key Factors Performance
Economic
Activity
125
Weaknesses
Hum.&Soc.
• Financial services have a very large stake of the overall economic Environment
Taxation
2
2005/06 2006/07 2007/08 2008/09 2009/10
VC PE VCPE
66 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
North America
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 67
Regional and country profiles
Western Europe
Basic Facts VCPE-Ranking
Threats
• Regulation together with reputation damages from 2007/2008 1
investments and a deeper crisis than expected might cause a real
IndexRank
Outlook
• It is more likely that we will see something like the 2002/2003 3
VC PE VCPE
Florian Huber, Senior Manager, Ernst & Young Germany
Comparison within Peer Group
68 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Western Europe
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 69
Regional and country profiles
Argentina
Capital:BuenosAires++OfficialLanguage:Spanish++Currency:ArgentinePeso
Threats 54
VC PE VCPE
70 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Argentina
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 71
Regional and country profiles
Australia
Capital:Canberra++OfficialLanguage:English++Currency:AustralianDollar
4
prospects for exits
• VC/PE investors have a significant amount of dry powder to make
5
new investments
• Strong stock market listed culture, providing good opportunities
6
for IPO
Threats 7
2005/06 2006/07 2007/08 2008/09 2009/10
• High interest rate environment making current debt raisings
VC PE VCPE
difficult
• Liquidity issues continue to restrict the level and availability of
leverage Comparison within Peer Group
• P2P’s and PIPES are proving more difficult in finding support 2005/06 2009/10 Quartile
from boards/shareholders Rank Value Rank 4th1st
• Refinance of existing senior debt packages in the next two years Australia 6 81,9 4
Outlook HongKong 4 79,5 5
• Business models and margins continue to be under pressure Singapore 5 78,5 6
• Increasing pressure from LPs to exit less successful investee Japan 7 76,5 7
companies RepublicofKorea 15 67,5 13
• Financing and acquisition opportunities are expected to increase
NewZealand 18 60,0 18
72 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Australia
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 73
Regional and country profiles
Austria
Capital:Vienna++OfficialLanguage:German(officialnationwide);Slovene,Croatian,Hungarian(eachofficialinoneregion)++
Currency:Euro
Basic Facts VCPE-Ranking
2005/06 2009/10 Quartile
Rank Value Rank 4th
4th1st
1st
VCPERanking 20 58,6 19
EconomicActivity 17 96,3 8
DepthofCap.Market 31 11,8 37
Taxation 38 114,7 36
Inv.Prot.&Corp.Gov. 15 93,0 16
Hum.&Soc.Env. 11 103,9 9
Quartile
4th 1st Entrepr.Culture&Opp. 17 76,1 19
GDP 411 [bnUSD] IPOVolume
Population 8 [mn] M&AVolume
GDPGrowth '02 '08 VCActivity
Pop.Growth '02 '08 PEActivity Key Factors Performance
Economic
Activity
125
SWOT Analysis 100
Entrepr.Culture 75 DepthofCap.
&Opp. Market
Strengths 50
Weaknesses
Hum.&Soc.
• Almost a “closed shop”, which takes a lot of effort to enter for a Environment
Taxation
19
Outlook
20
• Will stay a niche, but might be used as base for Eastern European 21
acquisitions as Austria offers good resources with respect to the 22
necessary language skills and the cultural understanding. 23
24
Florian Huber, Senior Manager, Ernst & Young Germany 25
2005/06 2006/07 2007/08 2008/09 2009/10
VC PE VCPE
74 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Austria
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 75
Regional and country profiles
Belgium
Capital:Brussels++OfficialLanguage:Dutch,French,German++Currency:Euro
Weaknesses Belgium
• Due to the limited size of the deals, takeover opportunities are still Inv.Prot.& WesternEurope
fundable from a bank perspective Corp.Gov.
UnitedStates =100Points
• Prominent role of government backed VC's
Opportunities Separate VC and PE Indices
• Most SMEs are still in private hands
15
• More and more private SMEs are open to external investors
Threats 16
Outlook 19
• Increasing number of strategic deals
• The new tax/legal framework favors R&D investments (tax 20
Marc Guns, Partner, Ernst & Young Belgium Comparison within Peer Group
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
Germany 9 69,1 10
Denmark 10 67,7 12
Finland 12 65,9 15
France 17 65,2 16
Belgium 19 61,1 17
Austria 20 58,6 19
Ireland 16 58,3 21
Italy 32 47,5 29
Greece 44 40,7 39
76 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Belgium
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 77
Regional and country profiles
Brazil
Capital:Brasília++OfficialLanguage:Portuguese++Currency:BrazilianReal
Threats 45
Outlook 60
• Brazil leads the region in the development of a local PE/VC 2005/06 2006/07 2007/08 2008/09 2009/10
industry VC PE VCPE
78 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Brazil
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 79
Regional and country profiles
Bulgaria
Capital:Sofia++OfficialLanguage:Bulgarian++Currency:BulgarianLev
Threats
• Continuing impact of crisis 45
• Small market
IndexRank
VC PE VCPE
80 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Bulgaria
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 81
Regional and country profiles
Canada
Capital:Ottawa++OfficialLanguage:English,French++Currency:CanadianDollar
4
2005/06 2006/07 2007/08 2008/09 2009/10
VC PE VCPE
82 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Canada
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 83
Regional and country profiles
Chile
Capital:Santiago++OfficialLanguage:Spanish++Currency:ChileanPeso
taxation 27
28
Opportunities
IndexRank
29
• Law stimulates PE/VC activity through a new form of corporate 30
organization, the share-issuing limited-liability company, which 31
provides a more flexible instrument to receive venture capital 32
33
Threats
34
• The cost of protecting trademarks and patents is high, and the
35
country remains on the US Special 301 Watch List for intellectual
2005/06 2006/07 2007/08 2008/09 2009/10
property violations.
VC PE VCPE
84 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Chile
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 85
Regional and country profiles
China
Capital: Beijing ++ Oĸcial Language: Standard Mandarin ++ Currency: Yuan Renminbi
4th
QuarƟle
1st
Entrepr. Culture & Opp. 50 29,6 50
GDP 4192 [bn USD] IPO Volume
PopulaƟon 1336 [mn] M&A Volume
GDP Growth '02 '08 VC AcƟǀŝtLJ
Pop. Growth '02 '08 PE AcƟǀŝtLJ Key Factors Performance
Economŝc
AcƟǀŝtLJ
125
100
SWOT Analysis
Entrepr. Culture 75 Depth of Cap.
& Opp. 50
Market
Strengths
25
• Period from first VC/PE round to IPO is shorter than in other
0
countries
• Various IPOs with high international recognition in the past few
years Hum. & Soc.
TaxaƟon
Enǀŝronment
• Numerous alternative stock markets available for VC/PE exits
• Large companies acquiring VC/PE investees seen as attractive Chŝna
alternative exit Inǀ. Prot. & Asŝa
Corp. Goǀ.
United States = 100 Points
Weaknesses
• Downturn of economy due to poor export atmosphere
Separate VC and PE Indices
• Poor market sentiment due to financial crisis
• Government policy may affect the availability of exits in overseas 15
86 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
China
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 87
Regional and country profiles
Colombia
Capital:Bogotá++OfficialLanguage:Spanish++Currency:ColombianPeso
Opportunities 54
56
Threats
57
• Corruption and the weakness of the local judicial system are still
roadblocks 58
VC PE VCPE
88 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Colombia
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 89
Regional and country profiles
Croatia
Capital:Zagreb++OfficialLanguage:Croatian++Currency:CroatianKuna
Threats 45
Outlook 60
• The Croatian market is traditionally bank oriented. Reduced access 2005/06 2006/07 2007/08 2008/09 2009/10
to bank loans for SMEs is expected to provide a platform for VC PE VCPE
increasing VC/PE activities. Hidden values are expected to be more
tapped by VC/PE in the near future. Comparison within Peer Group
2005/06 2009/10 Quartile
Balazs Tuske, Partner, Ernst & Young Hungary
Rank Value Rank 4th1st
Poland 41 45,8 31
CzechRepublic 33 45,5 34
Estonia 30 44,5 35
Hungary 34 41,1 37
Lithuania 37 40,4 40
Croatia 47 38,6 45
Romania 52 38,1 47
Latvia 39 35,6 50
Bulgaria 48 30,6 55
90 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Croatia
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 91
Regional and country profiles
Czech Republic
Capital:Prague++OfficialLanguage:Czech++Currency:CzechKoruna
33
• Opportunities in non-cyclical industries such as healthcare 34
Threats 35
92 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Czech Republic
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 93
Regional and country profiles
Denmark
Capital:Copenhagen++OfficialLanguage:Danish++Currency:DanishKrone
Denmark
Opportunities
• Many PE houses have raised funds recently Inv.Prot.& WesternEurope
Corp.Gov.
• Backlog of exits from PE houses UnitedStates =100Points
Threats
Separate VC and PE Indices
• Financing can still be a problem
• Imbalance between financing opportunities and market pricing 8
on companies 9
10
Outlook 11
• Continuous PE activity expected
IndexRank
12
13
Christian Aarosin, Partner, Ernst & Young Denmark 14
15
16
17
18
2005/06 2006/07 2007/08 2008/09 2009/10
VC PE VCPE
94 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Denmark
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 95
Regional and country profiles
Egypt
Capital:Cairo++OfficialLanguage:Arabic++Currency:EgyptianPound
54
• Ideal time to have a closer look at distressed companies having 55
good business models 56
Threats 57
58
• Over the short-term, economic growth is projected to slow down
59
as the global tourism industry slows down
60
Outlook 2005/06 2006/07 2007/08 2008/09 2009/10
• Over the short-term period, global economic slow-down will VC PE VCPE
impact growth prospects and overall business performance in
Egypt. However, the long-term positive impact of the economic Comparison within Peer Group
reforms will filter into the economy.
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
Nawal Nely, Senior Manager, Ernst & Young Egypt
Israel 21 55,8 22
UnitedArabEmirates 26 51,7 26
SaudiArabia 36 46,4 30
Kuwait 29 40,1 42
Oman 38 38,1 46
Morocco 58 30,3 56
Egypt 53 30,1 57
Nigeria 64 24,4 62
Kenya 63 19,3 64
96 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Egypt
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 97
Regional and country profiles
Estonia
Capital:Tallinn++OfficialLanguage:Estonian++Currency:EstonianKroon
35
Threats
• Difficulties in obtaining bank financing in the near future 40
98 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Estonia
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 99
Regional and country profiles
Finland
Capital:Helsinki++OfficialLanguage:Finnish,Swedish++Currency:Euro
14
15
Petri Ojala, Partner, Ernst & Young Finland 16
17
18
19
20
2005/06 2006/07 2007/08 2008/09 2009/10
VC PE VCPE
100 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Finland
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 101
Regional and country profiles
France
Capital:Paris++OfficialLanguage:French++Currency:Euro
Threats 11
IndexRank
• Outlook 15
16
• French tax policies may foster new promising opportunities for
17
VC/PE
18
2005/06 2006/07 2007/08 2008/09 2009/10
Philippe Grand, Partner, Ernst & Young France
VC PE VCPE
102 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
France
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 103
Regional and country profiles
Germany
Capital:Berlin++OfficialLanguage:German++Currency:Euro
7
Opportunities
• Unfavorable loan situation makes many companies look for other 8
104 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Germany
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 105
Regional and country profiles
Greece
Capital:Athens++OfficialLanguage:Greek++Currency:Euro
Outlook 46
106 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Greece
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 107
Regional and country profiles
Hong Kong
Capital: ++ Oĸcial Language: Chinese, English ++ Currency: Hong Kong Dollar
4th
QuarƟle
1st
Entrepr. Culture & Opp. 14 77,9 18
GDP 219 [bn USD] IPO Volume
PopulĂƟon 7 [mn] M&A Volume
GDP Growth '02 '08 VC ĐƟǀŝƚLJ
Pop. Growth '02 '08 PE ĐƟǀŝƚLJ Key Factors Performance
Economŝc
AcƟǀŝtLJ
150
125
SWOT Analysis 100
Entrepr. Culture Depth of Cap.
& Opp. 75 Market
Strengths 50
• Financial center with a very strong and professional infrastructure 25
0
• Period from first VC/PE round to IPO is shorter than in other
countries
• Various IPOs with high international recognition in the last few Hum. & Soc.
TaxaƟon
Enǀŝronment
years
HongKong
Weaknesses
Inǀ. Prot. & Asŝa
• Downturn of Chinese exports due to world-wide recession Corp. Goǀ.
United States = 100 Points
• Poor market sentiment due to financial crisis
Opportunities Separate VC and PE Indices
• Strong growing Chinese economy 3
• Focus on new industries, such as solar and wind power
• Higher chances of success for green field investments
Threats 4
Index Rank
108 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Hong Kong
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 109
Regional and country profiles
Hungary
Capital:Budapest++OfficialLanguage:Magyar(Hungarian)++Currency:Forint
38
• Difficult to raise financing for local players 40
• Hidden values due to under-developed management structures 42
• Government's support for the EU funded “Jeremie-Program” (Oct 44
2009) to fuel VC activities and to encourage companies to come 46
to market, presenting viable investment opportunities 48
50
Threats
2005/06 2006/07 2007/08 2008/09 2009/10
• Reduced availability of debt financing
VC PE VCPE
• Currency volatility
• Recent drop in investor confidence
Comparison within Peer Group
Outlook
2005/06 2009/10 Quartile
• Strengthening investments of regional VC/PE players leveraging Rank Value Rank 4th1st
market consolidation and untapped values
Poland 41 45,8 31
110 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Hungary
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 111
Regional and country profiles
India
Capital: New Delhi ++ Oĸcial Language: Hindi, English ++ Currency: Indian Rupee
4th
QuarƟle
1st
Entrepr. Culture & Opp. 63 11,5 64
GDP 1201 [bn USD] IPO Volume
PoƉƵůĂƟon 1186 [mn] M&A Volume
GDP Growth '02 '08 VC ĐƟǀŝƚLJ
Pop. Growth '02 '08 PE ĐƟǀŝƚLJ Key Factors Performance
Economŝc
AcƟǀŝtLJ
125
100
SWOT Analysis
Entrepr. Culture 75 Depth of Cap.
& Opp. 50
Market
Strengths
25
• Second-fastest growing economy; increased consumption among
0
youth driving cross-sector growth
• Strong private sector; VC/PE investments growing at CAGR of
84% (from US$1 billion in 2002 to US$41.3 billion by 2008) Hum. & Soc.
TaxaƟon
Enǀŝronment
• High intellectual capital, leading to emergence of VC hotspots
(e.g., Bengaluru) Indŝa
• Active equity capital and transaction markets facilitating exit Inǀ. Prot. & Asŝa
Corp. Goǀ.
options United States = 100 Points
Weaknesses
Separate VC and PE Indices
• Regulatory restrictions on foreign investment in certain sectors,
albeit easing gradually 25
Opportunities
Index Rank
35
• Capital required for core (and defensive) sectors (e.g., infrastructure,
manufacturing, healthcare) 40
• Stable government with a long-term secular and growth oriented
outlook 45
• Few large domestic funds provide foreign investment
opportunities 50
2005/06 2006/07 2007/08 2008/09 2009/10
Threats
VC PE VCPE
• Competition from emerging nations (e.g., Brazil, China) to attract
foreign VC/PE funds
• Unclear policy and taxation Comparison within Peer Group
2005/06 2009/10 QuarƟle
Outlook
Rank Value Rank 4th 1st
• Cross-sector growth and a strong financial services framework
Hong Kong 4 79,5 5
characterize the economy. A stable government is also expected
to encourage further foreign investment, thereby providing Japan 7 76,5 7
opportunities for VC/PE ReƉƵďůŝc of Korea 15 67,5 13
MalaLJƐŝa 23 54,4 25
Nishesh Dalal, Associate Director, Ernst & Young India CŚŝŶa 42 48,5 28
IŶĚŝa 46 40,9 38
ZƵƐƐŝĂn FedeƌĂƟon 49 38,0 48
IndoneƐŝa 60 30,7 54
PŚŝůŝƉƉŝŶes 57 26,1 61
112 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
India
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 113
Regional and country profiles
Indonesia
Capital: Jakarta ++ KĸĐŝĂl Language: Indonesia ++ Currency: Rupiah
4th
QuarƟle
1st
Entrepr. Culture & Opp. 61 16,6 61
GDP 478 [bn USD] IPO Volume
PopulaƟon 234 [mn] M&A Volume
GDP Growth '02 '08 VC AcƟǀŝtLJ
Pop. Growth '02 '08 PE AcƟǀŝtLJ Key Factors Performance
Economŝc
AcƟǀŝtLJ
125
100
SWOT Analysis
Entrepr. Culture 75 Depth of Cap.
& Opp. 50
Market
Strengths
25
• High economic growth
0
• High market potential from large population and rich natural
resources
Hum. & Soc.
TaxaƟon
Weaknesses Enǀŝronment
• Disadvantageous tax system towards double taxation on income
Indonesŝa
• Inefficient IPO regulation that reduces VC/PE exit options Inǀ. Prot. & Asŝa
Corp. Goǀ.
Opportunities United States = 100 Points
• Opportunities for acquiring under-valued assets of under-
managed large family companies Separate VC and PE Indices
• Intensification of infrastructure development and natural resource 52
exploration
54
Threats
• Indonesian law does not recognize limited partnership 56
Index Rank
114 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Indonesia
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 115
Regional and country profiles
Ireland
Capital:Dublin++OfficialLanguage:English,Irish++Currency:Euro
Weaknesses Ireland
18
• Valuations are coming down as there are less funding alternatives
available to investees 20
22
Threats
• Recession is significantly deeper than in other countries 24
• Company failures are increasing
26
• Declining opportunities for start-ups in the recession except in 2005/06 2006/07 2007/08 2008/09 2009/10
defensive sectors VC PE VCPE
• Declining M&A market means reduced exit opportunities and
returns for VC/PE
Comparison within Peer Group
Outlook Quartile
2005/06 2009/10
• Increasing VC/PE focus on technology and biotech with high Rank Value Rank 4th1st
expertise developed in these sectors less competition from private Germany 9 69,1 10
high net worth funds due to their exposure in declining markets
Denmark 10 67,7 12
• Government provides tax breaks
Finland 12 65,9 15
John O’Halloran, Director, Ernst & Young Ireland France 17 65,2 16
Belgium 19 61,1 17
Austria 20 58,6 19
Ireland 16 58,3 21
Italy 32 47,5 29
Greece 44 40,7 39
116 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Ireland
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 117
Regional and country profiles
Israel
Capital:Jerusalem++OfficialLanguage:Hebrew,Arabic++Currency:NewIsraeliShekel
• Some privatization 22
• Opportunities in cleantech market
IndexRank
23
Threats
24
• Security and political environment
• Lack of long-term planning 25
Outlook 26
VC PE VCPE
Oren Bar-On, Partner, Ernst & Young Israel
Comparison within Peer Group
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
Israel 21 55,8 22
UnitedArabEmirates 26 51,7 26
SaudiArabia 36 46,4 30
Kuwait 29 40,1 42
Oman 38 38,1 46
Morocco 58 30,3 56
Egypt 53 30,1 57
Nigeria 64 24,4 62
Kenya 63 19,3 64
118 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Israel
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 119
Regional and country profiles
Italy
Capital:Rome++OfficialLanguage:Italian++Currency:Euro
countries 28
• Investments in infrastructure below European average and low
30
level of Internet penetration and computer literacy
IndexRank
market 40
• Launch of AIM Italy dedicated to small/mid size companies and 2005/06 2006/07 2007/08 2008/09 2009/10
simplified listing procedures VC PE VCPE
• Change in bankruptcy law creates opportunities for turnaround
transactions Comparison within Peer Group
Threats 2005/06 2009/10 Quartile
• Limited VC role in supporting R&D activity and early stage Rank Value Rank 4th1st
financing in innovative ventures Germany 9 69,1 10
Outlook Denmark 10 67,7 12
• Once current uncertainty is overcome, the Italian market may Finland 12 65,9 15
present good grounds for investment opportunities and growth France 17 65,2 16
Belgium 19 61,1 17
Umberto Nobile, Partner, Ernst & Young Italy
Austria 20 58,6 19
Ireland 16 58,3 21
Italy 32 47,5 29
Greece 44 40,7 39
120 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Italy
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 121
Regional and country profiles
Japan
Capital: Tokyo ++ Oĸcial Language: Japanese ++ Currency: Yen
4th
QuarƟle
1st
Entrepr. Culture & Opp. 8 94,7 8
GDP 5009 [bn USD] IPO Volume
PopulĂƟon 128 [mn] M&A Volume
GDP Growth '02 '08 VC ĐƟǀŝƚLJ
Pop. Growth '02 '08 PE ĐƟǀŝƚLJ Key Factors Performance
Economŝc
AcƟǀŝtLJ
125
100
SWOT Analysis
Entrepr. Culture 75 Depth of Cap.
& Opp. 50
Market
Strengths
25
• Japan is still the world’s second largest economy
0
• Market leading technology in many sectors
Weaknesses Hum. & Soc.
TaxaƟon
• VC/PE investors are seen critically regarding their commitment to Enǀŝronment
the companies’ interests
Japan
• Relatively weak corporate governance compared to Western Inǀ. Prot. & Asŝa
standards Corp. Goǀ.
United States = 100 Points
Opportunities
• Japanese companies receive limited investments and would Separate VC and PE Indices
benefit from VC/PE as they are broadly diversified with many non-
5
core businesses
• Succession issues in family-owned businesses foster VC/PE 6
investment
7
• Take-private deals and PIPEs are becoming more understood and
Index Rank
accepted by management 8
Threats
9
• Increasingly negative sentiment towards VC/PE if VC/PE investors
are not seen as appropriately supporting investee companies in 10
the current economic climate
11
• Increasingly difficult funding environment
2005/06 2006/07 2007/08 2008/09 2009/10
Outlook VC PE VCPE
• VC/PE sector will likely pick up in 2011
• Many companies will find it increasingly hard to obtain access Comparison within Peer Group
to additional capital and will need to deploy their capital more
2005/06 2009/10 QuarƟle
effectively
Rank Value Rank 4th 1st
• Many companies will be forced to divest non-core businesses
Hong Kong 4 79,5 5
Michael Buxton, Partner, Ernst & Young Japan Japan 7 76,5 7
ReƉƵďůŝc of Korea 15 67,5 13
MalaLJƐŝa 23 54,4 25
CŚŝŶa 42 48,5 28
IŶĚŝa 46 40,9 38
ZƵƐƐŝĂn FedeƌĂƟon 49 38,0 48
IndoneƐŝa 60 30,7 54
PŚŝůŝƉƉŝŶes 57 26,1 61
122 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Japan
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 123
Regional and country profiles
Kenya
Capital: Nairobi ++ Oĸcial Language: English, Swahili ++ Currency: Kenyan Shilling
4th
QuarƟle
1st
Entrepr. Culture & Opp. 60 17,6 60
GDP 30 [bn USD] IPO Volume
PopulaƟon 39 [mn] M&A Volume
GDP Growth '02 '08 VC AcƟǀŝtLJ
Pop. Growth '02 '08 PE AcƟǀŝtLJ Key Factors Performance
Economŝc
AcƟǀŝtLJ
125
100
SWOT Analysis
Entrepr. Culture 75 Depth of Cap.
& Opp. 50
Market
Strengths
25
• Regional hub, providing access to the rest of East Africa
0
• Well developed IT and communication infrastructure
• Highly qualified pool of professionals in all disciplines
• Increased access to credit, and presence of Development Banks Hum. & Soc.
TaxaƟon
Enǀŝronment
e.g., PTA Bank, IFC, EADB, ADB
• Government encouraging and facilitating PPPs KenLJa
• Presence of International VC/PE firms coupled with large local Inǀ. Prot. & Afrŝca
Corp. Goǀ.
firms United States = 100 Points
Weaknesses
Separate VC and PE Indices
• Preference of bank debt and public equity markets
• Shocks of the 2008 political unrest result in higher risk rating 62
Opportunities 64
• Returning professionals from developed countries
• Economic liberalization programs, and Internationalization
• SMEs face financing challenges 65
VC PE VCPE
Threats
• Potential political instability
• Opening of COMESA markets may lead to cheap imports that Comparison within Peer Group
harm local industries 2005/06 2009/10 QuarƟle
• Level of corruption Rank Value Rank 4th 1st
Israel 21 55,8 22
Outlook
• Increased focus on PPP will boost the growth of VC/PE Saudŝ Arabŝa 36 46,4 30
• Projected higher economic growth Kuwaŝt 29 40,1 42
• The global crisis has increased interest in Africa, with Kenya being South Afrŝca 43 39,5 43
a beneficiary Oman 38 38,1 46
Morocco 58 30,3 56
Evans Kamau, Senior Manager, Ernst & Young Kenya
EgLJpt 53 30,1 57
Nŝgerŝa 64 24,4 62
KenLJa 63 19,3 64
124 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Kenya
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 125
Regional and country profiles
Kuwait
Capital:KuwaitCity++OfficialLanguage:Arabic++Currency:KuwaitiDinar
32
Threats
• Size and liquidity of stock market may affect exits 37
Outlook 42
• Increased PE activity as a result of consolidation in selected
sectors – motivated in part by the current economic environment 47
• Availability of assets at attractive valuations 2005/06 2006/07 2007/08 2008/09 2009/10
VC PE VCPE
Anil Menon, Director, Ernst & Young Kuwait
Comparison within Peer Group
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
Israel 21 55,8 22
UnitedArabEmirates 26 51,7 26
SaudiArabia 36 46,4 30
Kuwait 29 40,1 42
Oman 38 38,1 46
Morocco 58 30,3 56
Egypt 53 30,1 57
Nigeria 64 24,4 62
Kenya 63 19,3 64
126 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Kuwait
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 127
Regional and country profiles
Latvia
Capital:Riga++OfficialLanguage:Latvian++Currency:LatvianLats
Threats 39
43
Outlook 45
• Development of VC/PE investments will be much dependent on 47
the general public perceptions about growth prospects of Baltic 49
economies 51
• GPs from abroad will start showing stronger interest for Baltic 53
companies when the bottom has been reached and the growth 55
opportunities become visible 2005/06 2006/07 2007/08 2008/09 2009/10
VC PE VCPE
Raimonds Kulbergs, Manager, Ernst & Young Latvia
Comparison within Peer Group
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
Poland 41 45,8 31
CzechRepublic 33 45,5 34
Estonia 30 44,5 35
Hungary 34 41,1 37
Lithuania 37 40,4 40
Croatia 47 38,6 45
Romania 52 38,1 47
Latvia 39 35,6 50
Bulgaria 48 30,6 55
128 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Latvia
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 129
Regional and country profiles
Lithuania
Capital:Vilnius++OfficialLanguage:Lithuanian++Currency:LithuanianLitas
Threats 41
130 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Lithuania
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 131
Regional and country profiles
Luxembourg
Capital:Luxembourg++OfficialLanguage:Luxermbourgish,French,German++Currency:Euro
24
• Re-domiciliation of businesses looking for an on-shore European 25
VC/PE Fund label 26
• Stock options tax treatment could be used to support talent 27
retention in investee company 28
• VC/PE structures very relevant for investment in cleantech and 29
renewable energies 30
2005/06 2006/07 2007/08 2008/09 2009/10
Threats
VC PE VCPE
• Duplication of available products and tax incentives by
competitive locations
• Treaty access requires strict compliance with substance Comparison within Peer Group
requirements 2005/06 2009/10 Quartile
Rank Value Rank 4th1st
Outlook
Germany 9 69,1 10
• Thanks to a tradition of innovation and client-focused attitude
of authorities, Luxembourg managed to position itself as a major Denmark 10 67,7 12
center for VC/PE on-shore investment and fund structuring in Finland 12 65,9 15
Europe. The country seems fully prepared to welcome VC/PE France 17 65,2 16
players considering on-shore re-domiciliation in a global context Belgium 19 61,1 17
calling for increased regulation
Austria 20 58,6 19
Ireland 16 58,3 21
Luxembourg 24 54,6 24
Greece 44 40,7 39
132 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Luxembourg
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 133
Regional and country profiles
Malaysia
Capital: Kuala Lumpur ++ KĸĐŝĂl Language: Bahasa Melayu ++ Currency: Malaysian Ringgit
4th
QuarƟle
1st
Entrepr. Culture & Opp. 31 43,2 32
GDP 209 [bn USD] IPO Volume
PopulaƟon 27 [mn] M&A Volume
GDP Growth '02 '08 VC AcƟǀŝtLJ
Pop. Growth '02 '08 PE AcƟǀŝtLJ Key Factors Performance
Economŝc
AcƟǀŝtLJ
125
100
SWOT Analysis
Entrepr. Culture 75 Depth of Cap.
& Opp. 50
Market
Strengths
25
• Established regulatory framework and financial markets, both
0
conventional and Islamic
• Government support and tax incentives for the VC/PE industry
• Liberalization of foreign equity restrictions should widen the Hum. & Soc.
TaxaƟon
Enǀŝronment
spectrum of opportunities in PIPEs and buyouts by foreign funds
MalaLJsŝa
Weaknesses
Inǀ. Prot. & Asŝa
• Sources of capital still come predominantly from government Corp. Goǀ. United States = 100 Points
agencies, despite consistent calls for banks, pensions funds and
insurance companies to increase their participation
Separate VC and PE Indices
• Governmental and regulatory approval processes remain sub-
optimal despite current liberalization measures 17
134 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Malaysia
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 135
Regional and country profiles
Mexico
Capital:MexicoCity++OfficialLanguage:Spanish++Currency:MexicanPeso
Threats
50
• Growing evidence of violence and crime
• Need to lift barriers to institutional investment and improve the 51
access to equity markets for SMEs
52
Outlook 2005/06 2006/07 2007/08 2008/09 2009/10
• Underperform relative to the size and the potential of the VC PE VCPE
country´s economy
Comparison within Peer Group
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
Chile 27 45,8 32
Mexico 51 35,8 49
Brazil 56 34,6 51
Uruguay 50 33,4 52
Peru 54 32,4 53
Colombia 55 29,4 58
Argentina 59 29,1 59
Paraguay 66 14,9 65
Venezuela 65 8,9 66
136 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Mexico
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 137
Regional and country profiles
Morocco
Capital:Rabat++OfficialLanguage:Arabic++Currency:MoroccanDirham
Opportunities 55
• Economic growth rates of 5% expected
56
• Political activity to ease capital flows
IndexRank
Threats 59
• Political tensions with Algeria
60
Outlook 2005/06 2006/07 2007/08 2008/09 2009/10
• Business-friendly reforms are expected to spur VC/PE activity VC PE VCPE
138 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Morocco
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 139
Regional and country profiles
Netherlands
Capital:Amsterdam++OfficialLanguage:Dutch++Currency:Euro
Threats
• Number of transactions in the Dutch buy-out market remains low 10
Outlook 16
• More equity capital is required for new investments 2005/06 2006/07 2007/08 2008/09 2009/10
• Disappointing performance of some portfolio companies VC PE VCPE
• Anticipated that portfolio companies of VC/PE firms surpass the
financial performance of publicly-listed companies Comparison within Peer Group
2005/06 2009/10 Quartile
Marc Guns, Partner, Ernst & Young Netherlands
Rank Value Rank 4th1st
Netherlands 14 70,1 9
Germany 9 69,1 10
Denmark 10 67,7 12
Finland 12 65,9 15
France 17 65,2 16
Belgium 19 61,1 17
Austria 20 58,6 19
Ireland 16 58,3 21
Greece 44 40,7 39
140 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Netherlands
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 141
Regional and country profiles
New Zealand
Capital:Wellington++OfficialLanguage:English,Maori++Currency:NewZealandDollar
Threats 19
VC PE VCPE
Bryan Zekulich, Partner, Ernst & Young New Zealand
Comparison within Peer Group
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
Australia 6 81,9 4
HongKong 4 79,5 5
Singapore 5 78,5 6
Japan 7 76,5 7
RepublicofKorea 15 67,5 13
NewZealand 18 60,0 18
Taiwan 25 55,3 23
Malaysia 23 54,4 25
China 42 48,5 28
142 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
New Zealand
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 143
Regional and country profiles
Nigeria
Capital:Abuja++OfficialLanguage:English++Currency:Naira
Threats
63
• Poor infrastructure
• Social/ethnic and religious unrest 64
• High corruption levels
65
Outlook 2005/06 2006/07 2007/08 2008/09 2009/10
• Nigeria was strongly affected by the global economic downturn VC PE VCPE
and might need longer to emerge from the slowdown
Comparison within Peer Group
Graham Stokoe, Associate Director, Ernst & Young South Africa
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
Israel 21 55,8 22
SaudiArabia 36 46,4 30
Kuwait 29 40,1 42
SouthAfrica 43 39,5 43
Oman 38 38,1 46
Morocco 58 30,3 56
Egypt 53 30,1 57
Nigeria 64 24,4 62
Kenya 63 19,3 64
144 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Nigeria
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 145
Regional and country profiles
Norway
Capital:Oslo++OfficialLanguage:BokmålNorwegian,NynorskNorwegian++Currency:NorvegianKrone
Threats 9
• Shortage of funding from Norwegian banks 10
• IPOs do not exist as an exit strategy
11
IndexRank
Outlook 12
• Norway remains attractive for overseas investors, especially within
13
oil services sector
• VC/PE activities expected to increase at the end of 2009 14
15
VC PE VCPE
146 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Norway
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 147
Regional and country profiles
Oman
Capital:Muscat++OfficialLanguage:Arabic++Currency:RialOmani
Threats 34
148 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Oman
Details
y
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 149
Regional and country profiles
Paraguay
Capital:Asunción++OfficialLanguage:Spanish,Guaraní++Currency:Guaraní
Threats
• Democracy is not yet fully established and the possibility of a 64
military putsch is omnipresent
IndexRank
67
2005/06 2006/07 2007/08 2008/09 2009/10
VC PE VCPE
150 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Paraguay
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 151
Regional and country profiles
Peru
Capital:Lima++OfficialLanguage:Spanish,Quéchua(bothofficial)++Currency:NuevoSol
entrepreneurship 51
IndexRank
Threats 52
• The IIPA asked that Peru be elevated to the US Trade
53
Representative’s Special 301 priority watch list
• Local culture about VC/PE needs to be developed 54
Outlook 56
• Peru is considered an incipient new market for PE/VC investment 2005/06 2006/07 2007/08 2008/09 2009/10
• Government support for the formation of a PE/VC industry VC PE VCPE
remains tepid
Comparison within Peer Group
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
Chile 27 45,8 32
Mexico 51 35,8 49
Brazil 56 34,6 51
Uruguay 50 33,4 52
Peru 54 32,4 53
Colombia 55 29,4 58
Argentina 59 29,1 59
Paraguay 66 14,9 65
Venezuela 65 8,9 66
152 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Peru
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 153
Regional and country profiles
Philippines
Capital: Manila ++ Oĸcial Language: Filipino, English ++ Currency: Philippine Peso
4th
QuarƟle
1st
Entrepr. Culture & Opp. 62 11,0 65
GDP 170 [bn USD] IPO Volume
PopulaƟon 90 [mn] M&A Volume
GDP Growth '02 '08 VC AcƟǀŝtLJ
Pop. Growth '02 '08 PE AcƟǀŝtLJ Key Factors Performance
Economŝc
AcƟǀŝtLJ
125
100
SWOT Analysis
Entrepr. Culture 75 Depth of Cap.
& Opp. 50
Market
Strengths
25
• Relatively large, young and growing middle-income population in
0
emerging urban centers
• Competent professionals and affordable workforce
• Robust remittances from over 8 million overseas Filipinos drive Hum. & Soc.
TaxaƟon
Enǀŝronment
consumer spending and economic activities
Phŝlŝppŝnes
Weaknesses
Inǀ. Prot. & Asŝa
• Inadequate power and transport infrastructure in selected areas Corp. Goǀ.
United States = 100 Points
• Persistent politicking in the National Capital Region and persistent
terrorist activities in surrounding provinces
Separate VC and PE Indices
• Budget deficits restrain government from undertaking programs
to improve infrastructure 53
54
Opportunities 55
• Increasing off-shoring and outsourcing activities in the US and 56
other industrial economies provide investment opportunities
Index Rank
57
• As signatory of China-ASEAN FTA, country is part of the world’s 58
most dynamic emerging regional market and investment 59
destination 60
61
Threats
62
• Politicking and terrorism concerns may disrupt business and
63
economic activities
2005/06 2006/07 2007/08 2008/09 2009/10
• Failure to improve infrastructure and lower cost of doing business
VC PE VCPE
may discourage prospective investors
Outlook Comparison within Peer Group
• Moderate growth may continue with large and young growing
2005/06 2009/10 QuarƟle
middle-income consumers
Rank Value Rank 4th 1st
• Growth opportunities may accelerate with improved
Hong Kong 4 79,5 5
infrastructure facilities
Japan 7 76,5 7
Renato Galve Ernst & Young Philippines Republŝc of Korea 15 67,5 13
MalaLJsŝa 23 54,4 25
Chŝna 42 48,5 28
InĚŝa 46 40,9 38
Russŝan FederaƟon 49 38,0 48
Indonesŝa 60 30,7 54
Phŝlŝppŝnes 57 26,1 61
154 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Philippines
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 155
Regional and country profiles
Poland
Capital:Warsaw++OfficialLanguage:Polish++Currency:Zloty
36
Threats 38
• Financing investments with bank loans is unpredictable at this 40
stage
42
• Size of local companies limits number of large transactions
44
Outlook
• Euro zone in 2014/2015 2005/06 2006/07 2007/08 2008/09 2009/10
VC PE VCPE
Brendan O’Mahony, Partner, Ernst & Young Poland
Comparison within Peer Group
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
Poland 41 45,8 31
CzechRepublic 33 45,5 34
Estonia 30 44,5 35
Hungary 34 41,1 37
Lithuania 37 40,4 40
Croatia 47 38,6 45
Romania 52 38,1 47
Latvia 39 35,6 50
Bulgaria 48 30,6 55
156 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Poland
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 157
Regional and country profiles
Portugal
Capital:Lisbon++OfficialLanguage:Portuguese++Currency:Euro
Threats 26
• Government bonds yields very high (currently above 4.3%),
27
increasing opportunity cost of capital
IndexRank
VC PE VCPE
José Gonzaga Rosa, Partner, Ernst & Young Portugal
Comparison within Peer Group
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
Germany 9 69,1 10
Denmark 10 67,7 12
Finland 12 65,9 15
France 17 65,2 16
Belgium 19 61,1 17
Austria 20 58,6 19
Ireland 16 58,3 21
Portugal 28 49,5 27
Greece 44 40,7 39
158 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Portugal
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 159
Regional and country profiles
Republic of Korea
Capital:Seoul++OfficialLanguage:Korean++Currency:SouthKoreanWon
10
Threats 11
160 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Republic of Korea
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 161
Regional and country profiles
Romania
Capital:Bucharest++OfficialLanguage:Romanian++Currency:Leu
Threats 46
IndexRank
• Poor infrastructure 48
Cornelia Bumbacea, Partner, Ernst & Young Romania Comparison within Peer Group
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
Poland 41 45,8 31
CzechRepublic 33 45,5 34
Estonia 30 44,5 35
Hungary 34 41,1 37
Lithuania 37 40,4 40
Croatia 47 38,6 45
Romania 52 38,1 47
Latvia 39 35,6 50
Bulgaria 48 30,6 55
162 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Romania
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 163
Regional and country profiles
Russian Federation
Capital:Moscow++OfficialLanguage:Russian++Currency:RussianRuble
Outlook 50
164 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Russian Federation
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 165
Regional and country profiles
Saudi Arabia
Capital:Riyadh++OfficialLanguage:Arabic++Currency:SaudiRiyal
33
Threats 35
• Limited appreciation of VC/PEs’ role and value added 37
• Most VC/PE activity is happening in the private/family space
39
• Managing expectations of existing shareholders/family members
41
is a key challenge
43
Outlook 2005/06 2006/07 2007/08 2008/09 2009/10
• Significant interest from regional and international GPs looking to VC PE VCPE
Saudi Arabia
• As more transactions take place, the sellers' market will mature Comparison within Peer Group
2005/06 2009/10 Quartile
Tanuj Paruthi, Director, Ernst & Young Saudi Arabia
Rank Value Rank 4th1st
Israel 21 55,8 22
UnitedArabEmirates 26 51,7 26
SaudiArabia 36 46,4 30
Kuwait 29 40,1 42
Oman 38 38,1 46
Morocco 58 30,3 56
Egypt 53 30,1 57
Nigeria 64 24,4 62
Kenya 63 19,3 64
166 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Saudi Arabia
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 167
Regional and country profiles
Singapore
Capital: Singapore ++ Oĸcial Language: English, Malay,Chinese, Tamil ++ Currency: Singapore Dollar
4th
QuarƟle
1st
Entrepr. Culture & Opp. 6 93,8 10
GDP 186 [bn USD] IPO Volume
PopulĂƟon 5 [mn] M&A Volume
GDP Growth '02 '08 VC ĐƟǀŝƚLJ
Pop. Growth '02 '08 PE ĐƟǀŝƚLJ Key Factors Performance
Economŝc
AcƟǀŝtLJ
150
125
SWOT Analysis 100
Entrepr. Culture Depth of Cap.
& Opp. 75 Market
Strengths 50
• Corporate perceptions of VC/PE is positive 25
0
• Liberal financial environment conducive to optimizing innovative
financing structures, and access to a well developed capital
market Hum. & Soc.
TaxaƟon
Enǀŝronment
• Government’s active role through co-investment in new
enterprises, and favorable taxation for VC/PE funds Sŝngapore
Inǀ. Prot. & Asŝa
Weaknesses Corp. Goǀ.
United States = 100 Points
• Cultural challenges in achieving control of private enterprises
• Lack of new deal opportunities; tight control by the GLC of the
Separate VC and PE Indices
economic landscape limits the need for external capital
• Valuation gap continues 3
Opportunities
• Several fragmented industries with potential for consolidation 4
Threats
• Competition from the SWF and government-backed VCs 6
• Competition by hedge funds and other speculative players
Outlook 7
• Strong fundamentals for economic growth and a liberal, 2005/06 2006/07 2007/08 2008/09 2009/10
supportive government should support the growth of VC/PE VC PE VCPE
activity
• Increased liquidity and stabilization of financial markets in the Comparison within Peer Group
recent months should soon support a reemergence of VC/PE
2005/06 2009/10 QuarƟle
activity
Rank Value Rank 4th 1st
Hong Kong 4 79,5 5
Purandar Rao, Partner, Ernst & Young Singapore
Sŝngapore 5 78,5 6
Japan 7 76,5 7
ReƉƵďůŝc of Korea 15 67,5 13
MalaLJƐŝa 23 54,4 25
CŚŝŶa 42 48,5 28
IŶĚŝa 46 40,9 38
IndoneƐŝa 60 30,7 54
PŚŝůŝƉƉŝŶes 57 26,1 61
168 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Singapore
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 169
Regional and country profiles
Slovakia
Capital:Bratislava++OfficialLanguage:Slovak++Currency:Euro
40
foreign investors
41
Threats
• Export-oriented economy with a significant exposure to 42
automotive 43
• Substantial dependency on Russia’s gas/oil supplies
44
• Euro zone entry means loss of exchange rate flexibility and poses
2005/06 2006/07 2007/08 2008/09 2009/10
a threat to price levels
VC PE VCPE
Outlook
• Challenging economic environment will facilitate distinguishing Comparison within Peer Group
strong performers and those who have "risen with the tide", and
2005/06 2009/10 Quartile
limits the number of local players who have traditionally used
Rank Value Rank 4th1st
connections and speed to their advantage, thereby presenting
Poland 41 45,8 31
interesting opportunities.
CzechRepublic 33 45,5 34
Vladislav Severa, Partner, Ernst & Young Czech and Slovakia Estonia 30 44,5 35
Hungary 34 41,1 37
Lithuania 37 40,4 40
Slovakia 40 40,3 41
Croatia 47 38,6 45
Latvia 39 35,6 50
Bulgaria 48 30,6 55
170 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Slovakia
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 171
Regional and country profiles
Slovenia
Capital:Ljubljana++OfficialLanguage:Slovene++Currency:Euro
33
Threats 35
172 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Slovenia
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 173
Regional and country profiles
South Africa
Capital:Pretoria(exec.),Bloemfontein(judic.),CapeTown(legis.)++OfficialLanguage:Afrikaans,Englishandothers++
Currency:Rand
Basic Facts VCPE-Ranking
2005/06 2009/10 Quartile
Rank Value Rank 4th
4th1st
1st
VCPERanking 43 39,5 43
EconomicActivity 56 53,3 58
DepthofCap.Market 23 18,0 20
Taxation 34 115,2 34
Inv.Prot.&Corp.Gov. 28 73,8 27
Hum.&Soc.Env. 63 34,3 63
Quartile
4th 1st
Entrepr.Culture&Opp. 46 30,3 48
GDP 283 [bnUSD] IPOVolume
Population 49 [mn] M&AVolume
GDPGrowth '02 '08 VCActivity
Pop.Growth '02 '08 PEActivity Key Factors Performance
Economic
Activity
125
42
Threats
44
• Government perceived as being soft in wage negotiations
46
Outlook
• Recovery from recession in South Africa may lag global recovery 48
174 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
South Africa
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 175
Regional and country profiles
Spain
Capital:Madrid++OfficialLanguage:Spanish++Currency:Euro
exchange 18
Threats
20
• Current discussion about a more restrictive EU regulation on
investments 22
Outlook 24
• These challenges may create an attractive market for transactions 2005/06 2006/07 2007/08 2008/09 2009/10
in the future VC PE VCPE
Remigio Barroso, Partner, Ernst & Young Spain Comparison within Peer Group
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
Germany 9 69,1 10
Denmark 10 67,7 12
Finland 12 65,9 15
France 17 65,2 16
Belgium 19 61,1 17
Austria 20 58,6 19
Spain 22 58,3 20
Ireland 16 58,3 21
Greece 44 40,7 39
176 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Spain
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 177
Regional and country profiles
Sweden
Capital:Stockholm++OfficialLanguage:Swedish++Currency:SwedishKrona
Outlook 12
• Sweden remains attractive to both local and overseas investors
13
15
16
2005/06 2006/07 2007/08 2008/09 2009/10
VC PE VCPE
178 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Sweden
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 179
Regional and country profiles
Switzerland
Capital:Bern++OfficialLanguage:German,French,Italian,Romansh++Currency:SwissFranc
Weaknesses
Separate VC and PE Indices
• Small market
• Average deals are small- or medium-sized and so below the radar 6
of major PE houses
7
Opportunities
8
• Presence of major multinationals leads to spin-off opportunities
IndexRank
180 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Switzerland
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 181
Regional and country profiles
Taiwan
Capital: Taipei ++ Oĸcial Language: Standard Mandarin ++ Currency: New Taiwan Dollar
4th
QuarƟle
1st
Entrepr. Culture & Opp. 26 59,9 24
GDP 406 [bn USD] IPO Volume
PopulaƟon 23 [mn] M&A Volume
GDP Growth '02 '08 VC AcƟǀŝtLJ
Pop. Growth '02 '08 PE AcƟǀŝtLJ Key Factors Performance
Economŝc
AcƟǀŝtLJ
125
100
SWOT Analysis
Entrepr. Culture 75 Depth of Cap.
& Opp. 50
Market
Strengths
25
• Strong global position in the manufacturing of semiconductors
0
and other high-tech products
• Abundance of well-educated workforce and skilled labors
• Robust infrastructure Hum. & Soc.
TaxaƟon
Enǀŝronment
Weaknesses
Taŝwan
• As export-driven economy, Taiwan has suffered severely from the Inǀ. Prot. & Asŝa
recession in the US and Europe Corp. Goǀ.
United States = 100 Points
• Considerably high tax levels compared to regional peers
• Rising land and labor costs have forced manufacturers to move
Separate VC and PE Indices
plants to China or South East Asian countries
22
Opportunities
• Improved investment environment through normalization of the
cross-strait relationship with Mainland China 23
Mainland China 24
• Progressive tax reforms by the government with an aim to bolster
domestic demands and attract foreign investments
• Well-established ties to Silicon Valley and the global tech 25
182 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Taiwan
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 183
Regional and country profiles
Thailand
Capital:Bangkok++OfficialLanguage:Thai++Currency:Baht
Threats 34
foreign investors 36
184 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Thailand
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 185
Regional and country profiles
Turkey
Capital:Ankara++OfficialLanguage:Turkish++Currency:TurkishLira
44
• Positive outlook for nearly all industries, especially in consumer
related sectors 45
• Increasing understanding and acceptance of VC/PE 46
Threats 47
• Low protection of intellectual property rights
48
• Highly volatile market
2005/06 2006/07 2007/08 2008/09 2009/10
Outlook VC PE VCPE
• High potential growth market
Comparison within Peer Group
Musfik Cantekinler, Partner, Ernst & Young Turkey
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
Poland 41 45,8 31
CzechRepublic 33 45,5 34
Estonia 30 44,5 35
Hungary 34 41,1 37
Lithuania 37 40,4 40
Turkey 45 39,1 44
Croatia 47 38,6 45
Latvia 39 35,6 50
Bulgaria 48 30,6 55
186 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Turkey
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 187
Regional and country profiles
Ukraine
Capital:Kyiv++OfficialLanguage:Ukrainian++Currency:Hryvnia
60
• Prospects of a more formal trade arrangement with the EU
• Financial pressure placed on business owners together with local 61
currency depreciation may lead to unexpected deal flow 62
• Liquidity problems of Ukrainian firms might lead to low valuations
• Low labor costs 63
188 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Ukraine
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 189
Regional and country profiles
Threats 24
• Size and liquidity of stock markets may affect exits
25
• Lack of liquidity impacts setting up new funds
IndexRank
26
Outlook
• Given a significant accumulation of dry powder and reduced 27
valuation expectations, we could see increased VC/PE activity 28
• Availability of assets at attractive valuation
29
VC PE VCPE
190 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
United Arab Emirates
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 191
Regional and country profiles
United Kingdom
Capital:London++OfficialLanguage:English++Currency:PoundSterling
Threats
IndexRank
more selective
4
Outlook
• Numerous assets exiting and therefore many opportunities for 5
selective acquisitions will exist. Deals are likely to be smaller as the 2005/06 2006/07 2007/08 2008/09 2009/10
case for leverage becomes tougher. Fund raising expected to be VC PE VCPE
much harder, with a “flight to quality” by investors
Comparison within Peer Group
Steve Ivermee, Partner, Ernst & Young United Kingdom
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
UnitedKingdom 3 84,3 3
Germany 9 69,1 10
Denmark 10 67,7 12
Finland 12 65,9 15
France 17 65,2 16
Belgium 19 61,1 17
Austria 20 58,6 19
Ireland 16 58,3 21
Greece 44 40,7 39
192 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
United Kingdom
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2.2DepthofCapitalMarket
Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4.4InvestorProtection&CorporateGovernance
Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5.5Human&SocialEnvironment
Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6.6EntrepreneurialCulture&Opportunities
Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 193
Regional and country profiles
Outlook 1
• Strong industry with new investment and growth opportunities
• The number of players will continue to shrink: less funds will be
able to raise follow-on funds
VC PE VCPE
194 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
United States of America
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 195
Regional and country profiles
Urugay
Capital:Montevideo++OfficialLanguage:Spanish++Currency:UruguayanPeso
51
Threats 52
• Minority rights are generally weak 53
• Uruguay has almost no capital markets, so IPOs are not a viable
54
exit option.
55
Outlook 56
• The country could make its PE/VC business environment more 2005/06 2006/07 2007/08 2008/09 2009/10
attractive by adopting a better legal framework for nationally VC PE VCPE
domiciled fund formation and operation
Comparison within Peer Group
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
Chile 27 45,8 32
Mexico 51 35,8 49
Brazil 56 34,6 51
Uruguay 50 33,4 52
Peru 54 32,4 53
Colombia 55 29,4 58
Argentina 59 29,1 59
Paraguay 66 14,9 65
Venezuela 65 8,9 66
196 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Urugay
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 197
Regional and country profiles
Venezuela
Capital:Caracas++OfficialLanguage:Spanish++Currency:BolívarFuerte
Threats
Separate VC and PE Indices
• Strong decrease of GDP and productivity
64
Outlook
• The political situation renders the country not very attractive for
international investment
65
IndexRank
66
67
2005/06 2006/07 2007/08 2008/09 2009/10
VC PE VCPE
198 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Venezuela
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 199
Regional and country profiles
Vietnam
Capital:Hanoi++OfficialLanguage:Vietnamese++Currency:Dong
Economic
Activity
125
200 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Vietnam
Details
1EconomicActivity
1. Economic Activity
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
2DepthofCapitalMarket
2. Depth of Capital Market
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
4InvestorProtection&CorporateGovernance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
5Human&SocialEnvironment
5. Human and Social Environment
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
6EntrepreneurialCulture&Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile
Rank Value Rank 4th1st
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 201
202 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Appendices
Methodology, technical descriptions, limitations,
data descriptions, data sources and references
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 203
Appendices
Regional averages
The VCPE attractiveness of each of the co- The regional and world averages are calculated for each data
series. They are calculated either without weights or weighted by
vered countries is computed by calculating
GDP, or population.
a weighted average of country performance
scores in the before mentioned categories.
The scores within each category are derived
• xq,i = raw data value of category q and country i
from several raw data series. • vi = weight for country i
• i = country i
Some of the raw data series provide values
that are highly related to other country
characteristics (e.g., it is quite comprehen- Normalization
sible that a country with a high population In order to make the cross-sectional data series comparable, the
raw data has to be converted into a common range. The rescaling
has higher expenditures on educations than
method is used to normalize indicators to such a range by linear
a country with a lower population). The- transformation. Thereby, 100 represents the best score, while 1
the worst.
refore, all data series measuring efficiency
For every individual variable, we define whether high values
rather than absolute size are deflated by an influence the attractiveness for investors positively or negatively,
and hence, assign 100 points either to the highest score (e.g., in
appropriate measure. We use the GDP and
case of the GDP per capita) or to the lowest (e.g., in case of high
population to deflate those data series. hiring costs).
The sub-item points for every country are calculated accor-
ding to the following formula:
Example
Raw data value 1 12 20
[any unit] (lowest value in (highest value
sample) in sample)
Normalized value 99x[(1-1)/(20- 99x[(12-1)/(20- 99x[(20-1)/(20-
[1-100] 1)]+1=1 1)]+1=58 1)]+1=100
204 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Aggregation Weighting
For the index-score calculation, we use geometric aggregation After calculating the performance scores for each data series on
because it is better suited than arithmetic aggregation. Geome- the lowest level, the scores are aggregated using the aforemen-
tric aggregation rewards those countries or those sub-indicators tioned aggregation method. On the lowest level, items are aggre-
with higher scores. Overall, a shortcoming in the value of one gated with equal weights, i.e., the weights are derived from the
variable or sub-index can be compensated by a surplus in ano- number of components that are aggregated.
ther. Compensability is constant in linear aggregation, while it is The following Exhibit shows the aggregation path from the
smaller in geometric aggregation for the sub-indicators with low normalized and deflated (raw) data series to the final VCPE
values. Therefore, countries with low scores in some sub-indices Country Attractiveness Index score.
would benefit from linear aggregation.
For this reason, we use geometric aggregation as follows. (Raw) Data Series Sub-Items Key-factors Index
normalized, deflated
3/22
Economic
Activity
• Index Value i = Index value of country i
• yq,i = normalized value of category q and country i
• wq = weight of category q Capital 5/22
VPC Index
Markets Score
Example
Economic Depth of a Investor
Category 2/22
Activity Capital Market Protection Taxation
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 205
Appendices
VC/PE invest-
VC investments PE investments
ments
LN (average 2006-2008) LN (average 2006-2008)
LN (average 2006-2008)
VC/PE Index
0,8104 - -
2009/2010
VC Index
- 0,8100 -
2009/2010
PE Index
- - 0,7807
2009/2010
206 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Limitations of our index and FAQs
From interviews with limited partners we learnt: “For us, a we would create the crystal ball for investment advisers.
country is attractive if there is low competition among expe- Unfortunately, we are unable to do that – at least to the
rienced general partners for many high quality transactions, extent described above. The constraint is not insufficient
which can be executed quickly at low valuation levels with knowledge on the drivers of VC and PE activity, the constraint
excellent exit perspectives.” Hence, we were advised to assess is data availability and (very much related) the lack of quanti-
exactly these criteria with our index, and as a result tative measures.
How to measure GP quality and potential deal flow? the quality) of deal supporting institutions, such as investment
How should we determine the experience and quality of local fund banks, M&A boutiques, consultants, law firms, and similar. Se-
managers and the competition for transactions among the teams in cond, we would have to assess the IPO and M&A market acti-
an objective way for all our sample countries? It is already challen- vity for some time in the future to determine exit perspectives.
ging to find information about the number of VC and PE players in While we might find data on the number of investment banks,
many of them. How shall we estimate the potential deal flow in the law firms, and deal supporting institutions (not about their qua-
particular countries? We could try to assess the number of start-ups lity) for some of the more developed economies, this informa-
that deserve VC backing. We could also run analyses on the number tion is non-existent for the majority of our sample countries.
of corporations that might spin-off from larger conglomerates, on And, investors might be more interested in learning about the
the number of medium-sized firms, which might have a succession less developed countries and regions they do not deal with on a
problem, turn into restructuring activities; or, in principle, qualify for regular base. We want to draw their attention to the different
PE backing just due to a typical size or business segment. Additio- emerging regions of the world which they might not cover yet.
nally, we could try to determine potential take private candidates.
This might be feasible for selected economies. However, it is impos- Our proposed solution: Assessing the six key drivers
sible for the majority of our countries covered, due to missing data. We hope that our arguments reveal the impossibility to create
How could we conclude from the potential deal flow to the quality the investment adviser’s crystal ball. We propose the use of the
of the proposed transactions? We would need to gather informa- six latent key drivers to assess the attractiveness of a country for
tion on industry segments, growth potential, and on the corporate VC and PE investors. We regard this as the only solution to over-
management teams for thousands of transactions – and we would come the measurement problem for the magnitude of our sample
still not be able to distinguish the quality of potential deals in an countries.
objective way.
Is our index a good indicator of special opportunities or
How to proof current levels of valuation? individual fund performances?
How shall we estimate if a current level of valuation is appro- We are aware that there are probably many successful general
priate? Valuations are the result of a benchmarking process where partners in countries scoring low in our index. This means that
the benchmark value is observable. This first raises the question smart managers of these funds are able to benefit from deficien-
about the adequate benchmark, and then, problems to control for cies of the local markets and might also be successful due to low
liquidity risks, leverage risks, size, growth, and finally sovereign competition. Anyway, the opposite might be valid for the very at-
and currency risks for all the different countries. We are unable tractive countries. Our index cannot capture these special oppor-
to control for these factors for two simple reasons: first, there is tunities, nor can it explain individual fund or aggregate country
no model yet to account for all of these risks, and second, once performance. We point to the focus of our index again: we aim
again, we do not get the necessary data on the valuations of VC to assess attractiveness of countries for investors in VC and PE on
and PE transactions. a macro-perspective by general socio-economic conditions and
not by special opportunities or quality assessments of particular
How to assess the professionalism of deal supporting management teams.
institutions?
How should we assess the required time to perform transactions,
and the perspectives to divest holdings after a certain holding
period? We would first need to collect data on the number (and
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 207
Appendices
208 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Indicators Dimension Positive/ VC PE Explanation Source
for index negative
calculation impact
2.2 IPO Market Activity
2.2.1 IPO Volume [% of total + X X Proceeds amount + overallotment sold in this market: Thomson One Banker
sample sum] This data series shows the proceeds amount of the issue in this
market plus the overallotment amount (a.k.a. green shoe) sold in this
market; i.e., number of shares in this market plus the overallotment
shares sold in this market multiplied by the offer price. A green shoe
clause in an underwriting agreement provides that, in the case of
excess demand, the issuer will authorize additional shares to be sold
through the existing syndicate.
2.2.2 Number of IPOs [% of total + X X Number of IPOs in a country. Thomson One Banker
sample sum]
2.3 M&A Market Activity
2.3.1 M&A Market [% of total + X X The data comprise M&A ranking value incl. net debt of target. Thomson One Banker
Volume sample sum] According to Thomson the ranking value is calculated as follows:
RANKVAL = VALNOLIA + straight debt + short-term debt + preferred
equity-cash; VALNOLIA = transaction value excluding liabilities
assumed; transaction value minus the value of any liabilities agreed
to be assumed in the transaction.
2.3.2 Number of M&A [% of total + X X Number of M&A deals in a country. Thomson One Banker
Deals sample sum]
2.4 Debt and Credit Market
2.4.1 Domestic Credit [% of GDP] + - X Domestic credit provided by the banking sector includes all credit World Bank (World
provided by to various sectors on a gross basis, with the exception of credit to Development Indicator)
Banking Sector the central government, which is net. The banking sector includes
monetary authorities and deposit money banks, as well as other banking
institutions where data are available (including institutions that do not
accept transferable deposits but do incur such liabilities as time and
savings deposits). Examples of other banking institutions are savings and
mortgage loan institutions and building and loan associations.
2.4.2 Ease of Access to [-] + - X This data series measures the perceived simplicity of obtaining a bank WEF
Loans loan in a country with only a good business plan and no collateral.
2.4.3 Credit Information [-] + - X The depth of credit information index measures rules affecting World Bank, Doing
Index the scope, accessibility and quality of credit information available Business
through either public or private credit registries. The index ranges
from 0 to 6, with higher values indicating the availability of more
credit information, from either a public registry or a private bureau,
to facilitate lending decisions. If the registry is not operational or has
coverage of less than 0.1% of the adult population, the score on the
depth of credit information index is 0.
2.4.4 Soundness of [-] + - X This data series measures the perceived “Soundness of Banks” in a WEF
Banks country. The index ranges from 1 to 7, with higher values indicating
that banks are generally healthy with sound balance sheets and low
values indicating that banks are in danger of insolvency and may
require a government bailout.
2.4.5 Interest Rate [%] - - X Interest rate spread is the interest rate charged by banks on loans International Monetary
Spread to prime customers minus the interest rate paid by commercial or Fund (IMF), World
similar banks for demand, time, or savings deposits. Development Indicators
(WDI)
2.4.6 Bank Non- [%] - - X Bank non-performing loans to total gross loans are the value of World Bank (World
performing Loans non-performing loans divided by the total value of the loan portfolio Development Indicator)
to Total Gross (including non-performing loans before the deduction of specific
Loans loan-loss provisions). The loan amount recorded as non-performing
should be the gross value of the loan as recorded on the balance
sheet, not just the amount that is overdue.
2.5 Financial Market [-] + X X This data series measures the perceived level of sophistication of WEF
Sophistication financial markets in a country. The index ranges 1 to 7, with higher
values indicating that financial market sophistication is excellent by
international standards and low values indicating that it is poor by
international standards.
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 209
Appendices
210 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Indicators Dimension Positive/ VC PE Explanation Source
for index negative
calculation impact
4.1.3 Shareholder Suits [-] + X X This index measures the extent of shareholders’ ability to sue officers World Bank (Doing
Index and directors for misconduct. The index ranges from 0 to 10, with Business)
higher values indicating greater powers of shareholders to challenge
the transaction.
4.1.4 Legal Rights Index [-] + X X The strength of legal rights index measures the degree to which World Bank (Doing
collateral and bankruptcy laws protect the rights of borrowers and Business)
lenders and thus facilitate lending. The index ranges from 0 to 10,
with higher scores indicating that collateral and bankruptcy laws are
better designed to expand access to credit.
4.1.5 Efficacy of [-] + X X Corporate governance by investors and boards of directors in WEF
Corporate Boards your country is characterized by (1 = management has little
accountability, 7 = investors and Boards exert strong supervision of
management decisions)
4.2 Security of Property Rights
4.2.1 Legal Enforcement [-] + X X This component is based on the World Bank’s Doing Business Fraser Institute
of Contracts estimates for the time and money required to collect a clear-cut
debt.
4.2.2 Property Rights [-] + X X “Property rights” is an assessment of the ability of individual to Heritage Foundation
accumulate private property, secured by clear laws that are fully
enforced by the state.
4.2.3 Intellectual [-] + X X This data series measures the perceived “Intellectual Property WEF (Executive Opinion
Property Protection” in a country. The index ranges from 1 to 7, with higher Survey 2007, 2008)
Protection values indicating that Intellectual property protection and anti-
counterfeiting measures in a country are strong and enforced
whereas low values indicate the opposite.
4.3 Quality of Legal Enforcement
4.3.1 Judicial [-] + X X This data series measures the perceived “Judicial Independence” in a Fraser Institute. WEF
Independence country. The index ranges from 0 to 7, with higher values indicating (Global Competitiveness
that the judiciary in a country is independent from political Report )
influences of members of government, citizens, or firms and lower
values indicating that it is heavily influenced.
4.3.2 Impartial Courts [-] + X X This data series measures the perceived quality of the legal Fraser Institute
framework in a country. The index ranges from 0 to 10, with
higher values indicating that the framework in a country for
private businesses to settle disputes and challenge the legality of
government actions and/or regulations follows a clear, neutral
process. Lower values indicate that the framework seems to be
inefficient and subject to manipulation.
4.3.3 Integrity of the [-] + X X This component is based on two sub-components. Each sub- Fraser Institute. PRS Group
Legal System component equals half of the total. The “law” sub-component (International Country
assesses the strength and impartiality of the legal system, and the Risk Guide)
“order” sub-component assesses popular observance of the law. The
index ranges from 0 to 10. High rating values indicate a sound legal
system.
4.3.4 Rule of Law [-] + X X “Rule of Law” measures the extent to which agents have confidence World Bank (Worldwide
in and abide by the rules of society, in particular the quality of Governance Indicator)
contract enforcement, the police, and the courts, as well as the
likelihood of crime and violence. The index ranges from 0 to 100.
4.4 Regulatory [-] + X X “Regulatory Quality” measures the ability of the government to World Bank (Worldwide
Quality formulate and implement sound policies and regulations that Governance Indicator)
permit and promote private sector development. The index ranges
from -2.5 to 2.5 with higher values corresponding to better
governance outcomes.
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 211
Appendices
212 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Indicators Dimension Positive/ VC PE Explanation Source
for index negative
calculation impact
5.3 Bribing and Corruption
5.3.1 Bribing and [-] + X X This index describes the overall extent of corruption (frequency and/ Transparency International
Corruption Index or size of bribes) in the public and political sectors. The index ranges
from 0 to 10. Countries where bribing and corruption cases are
frequent receive a low rating score.
5.3.2 Control of [-] + X X This data series measures the perception of the extent to which World Bank (Worldwide
Corruption public power is exercised for private gain, including both petty and Governance Indicator)
grand forms of corruption, as well as "capture" of the state by elites
and private interests. Countries in which seemingly public power
is frequently used for private gain a low rating score. The index
ranges from -2.5 to 2.5 with higher values corresponding to better
governance outcomes.
5.3.3 Extra Payments/ [-] + X X This index measures the frequency of extra payments and bribes Fraser Institute
Bribes firms pay in a country. The index ranges from 0 to 10 with higher
values corresponding to better governance outcomes. Countries
where these payments are frequent receive a low rating score.
5.4 Costs of Crime
5.4.1 Business Costs [-] + X X This data series measures the costs on businesses imposed by the WEF
of Crime and incidence of common crime and violence in a country. The index
Violence ranges from 1 to 7. High values are assigned to countries where
crime does not impose significant costs on businesses.
5.4.2 Cost of Organized [-] + X X This data series measures the perceived “Cost of Organized Crime” in WEF
Crime a country. The index ranges from 1 to 7 with higher values indicating
that organized crime (mafia-oriented racketeering, extortion) in
a country does not impose significant costs on businesses. Lower
values indicate that organized crime imposes significant costs on
businesses.
6 Entrepreneurial Opportunities
6.1 Innovation and R&D
6.1.1 General [-] + X - The framework groups the eight pillars of innovation into two INSEAD
Innovativeness categories: inputs and outputs. The five input pillars – institutions
Index and policies, human capacity, infrastructure, technological
sophistication and business markets and capital - represent aspects
which enhance the capacity of a nation to generate ideas and
leverage them for innovative products and services. The three
output pillars - knowledge, competitiveness, and wealth - represent
the ultimate benefits of innovation for a nation - more knowledge
creation, increased competitiveness and greater wealth generation.
Each pillar of the GII model is measured by a number of quantitative
and qualitative variables. The averaged scores for the input and
output pillars together give an overall score - the Global Innovation
Index. The values of each variable for the country are scaled on a
range of 1 to 7.
6.1.2 Capacity for [-] + X - This index measures the perceived “Capacity for Innovation” in a WEF
Innovation country. The index ranges from 1 to 7 with higher values indicating
that companies obtain technology by conducting formal research
and pioneering their own new products and processes. Low values
indicate that companies obtain technology exclusively from licensing
or imitating foreign companies.
6.1.3 Company [-] + X - This index measures the “Company Spending on R&D” in a country. WEF
Spending on R&D The index ranges from 1 to 7 with higher values indicating that
companies in a country spend heavily on research and development
relative to international peers. Low values indicate that companies do
not spend money on research and development.
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 213
Appendices
214 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Indicators Dimension Positive/ VC PE Explanation Source
for index negative
calculation impact
6.3.2 Cost [% of estate] - X X This data series provides the average costs of closing a business in World Bank (Doing
a country. The cost of the proceedings is recorded as a percentage Business)
of the estate’s value. The cost is calculated on the basis of survey
responses by insolvency practitioners and includes court fees as well
as fees of insolvency practitioners, independent assessors, lawyers
and accountants. Respondents provide cost estimates from among
the following options: less than 2%, 2–5%, 5–8%, 8–11%, 11–18%,
18–25%, 25–33%, 33–50%, 50–75% and more than 75% of the
value of the business estate.
6.3.3 Recovery Rate [Cents on US$] + X X The recovery rate is recorded as cents on the dollar recouped by World Bank (Doing
[Cents on US$] creditors through the bankruptcy or insolvency proceedings. The Business)
calculation takes into account whether the business emerges from
the proceedings as a going concern as well as costs and the loss
in value due to the time spent closing down. If the business keeps
operating, no value is lost on the initial claim, set at 100 cents on the
dollar. If it does not, the initial 100 cents on the dollar are reduced
to 70 cents on the dollar. Then the official costs of the insolvency
procedure are deducted (one cent for each percentage of the initial
value). Finally, the value lost as a result of the time the money
remains tied up in insolvency proceedings is taken into account,
including the loss of value due to depreciation of the hotel furniture.
Consistent with international accounting practice, the depreciation
rate for furniture is taken to be 20%. The furniture is assumed to
account for a quarter of the total value of assets. The recovery rate
is the present value of the remaining proceeds, based on end-
2006 lending rates from the IMFs International Financial Statistics,
supplemented with data from central banks.
6.4 ICT Infrastructure (Information and Communications Technology)
6.4.1 Broadband [# per 100 + X - This data series provides the total number of broadband subscribers World Bank (World
Subscribers people] with a digital subscriber line, cable modem, or other high-speed Development Indicator)
technologies in a country.
6.4.2 Fixed Line and [# per 100 + X - Fixed lines are telephone mainlines connecting a customer's World Bank (World
Mobile Phone people] equipment to the public switched telephone network. Development Indicator)
Subscribers
6.4.3 Internet Users [# per 100 + X - Internet users are people with access to the worldwide network. World Bank (World
people] Development Indicator)
6.4.4 Secure Internet [# per mn + X - Secure servers are servers using encryption technology in Internet World Bank (World
Servers people] transactions. Development Indicator)
Correlation Data
Venture Capital LN [USD mn] X Amount of venture capital investments in a country per year. The Thomson One
Investments country is defined by fund location. Thomson Reuters uses the term
to describe the universe of venture investing. It does not include
buyout investing, mezzanine investing, fund of fund investing,
secondaries, etc.
Private Equity LN [USD mn] X Amount of private equity investments in a country per year. The Thomson One
Investments country is defined by fund location. Thomson Reuters uses the term
to describe the universe of all venture investing, buyout investing
and mezzanine investing.
Venture Capital LN [USD mn] X X The sum of venture capital and private equity investments in a Thomson One
and Private Equity country per year.
Investments
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 215
Appendices
References
Baughn CC, Neupert KE. Culture and national Cumming D, Johan S. Regulatory Gompers P, Lerner J. Money chasing deals?
conditions facilitating entrepreneurial start- harmonization and the development of The impact of funds inflows on the valuation
ups. Journal of International Entrepreneurship private equity markets. Journal of Banking of private equity investments. Journal of
2003; 1; 313-330. and Finance 2007; 31; 3218 – 3250. Financial Economics 2000; 55; 2; 281-325.
Black B, Gilson R. Venture Capital and Cumming D, Schmidt D, Walz U. Legality and Green PG 1998. Dimensions of perceived
the structure of capital markets: Banks venture capital governance around the world. entrepreneurial obstacles. In: Reynolds P
versus stock markets. Journal of Financial Journal of Business Venturing (forthcoming) (Ed), Frontiers of Entrepreneurship Research.
Economics 1998; 47; 3; 243-277. 2009. Center for Entrepreneurial Studies, Babson
College: Babson Park; 1998. p. 48-49.
Blanchard OJ. The medium run. Brookings Desai M, Gompers P, Lerner J. Institutions
Papers on Economic Activity 1997; 2; 89- and entrepreneurial firm dynamics: Evidence Groh AP, Liechtenstein H, Lieser K. The
158. from Europe. Havard NOM Research Paper European Venture Capital and Private Equity
03-59; 2006. Country Attractiveness Indices. Journal of
Bruce D. Effects of the United States’ tax
Corporate Finance (forthcoming) 2009a.
system on transition into self-employment. Djankov S, Ganser T, McLiesh C, Ramalho
Labor Economics 2000; 7; 5; 545–574. R, Shleifer A. The effect of corporate taxes Groh AP, Liechtenstein H. How attractive
on investment and entrepreneurship. NBER is Central Eastern Europe for risk capital
Bruce D. Taxes and entrepreneurial
Working Paper 13756; 2008. investors? Journal of International Money and
endurance: Evidence from the self-employed.
Finance 2009b; 28; 625–647.
National Tax Journal 2002; 55; 1; 5-24. Djankov S, La Porta R, Lopez-de-Silanes F,
Shleifer A. The regulation of entry. Quarterly Groh AP, Liechtenstein H. International
Bruce D, Gurley T. Taxes and entrepreneurial
Journal of Economics 2002; 117; 1; 1-37. allocation determinants of institutional
activity: An empirical investigation using
investments in venture capital and private
longitudinal tax return data. Small Business Djankov S, La Porta R, Lopez-de-Silanes
equity limited partnerships. IESE Business
Research Summary 2005; 252. F, Shleifer A. Courts. Quarterly Journal of
School Working Paper 726; 2009c.
Economics 2003; 118; 2; 453-517.
Cetorelli N, Gambera M. Banking market
Jeng LA, Wells PhC. The deteminants of
structure, financial dependence and growth: Djankov S, La Porta R, Lopez-de-Silanes F,
venture capital funding: evidence across
International evidence from industry data. Shleifer A. The law and economics of self-
countries. Journal of Corporate Finance
The Journal of Finance 2001; 56; 2; 617-648. dealing. NBER Working Paper 11883; 2005.
2000; 6; 3; 241-289.
Cullen JB, Gordon R H. Taxes and Glaeser EL, Johnson S, Shleifer A. Coase vs.
Johnson SH, McMillan J, Woodruff CM.
entrepreneurial activity: Theory and evidence the Coasians. Quarterly Journal of Economics
Property rights, finance and entrepreneurship.
for the U.S. NBER Working Paper 9015; 2002. 2001; 116; 853-899.
SSRN Working Paper 198409; 1999.
Cumming D, Fleming G, Schwienbacher A. Gompers P, Lerner J. What drives venture
Kaplan SN, Schoar A. Private equity
Legality and venture capital exits. Journal of fundraising? Brooking Papers on Economic
performance: Returns, persistence, and
Corporate Finance 2006; 12; 214 – 245. Activity, Microeconomics 1998; 149-192.
capital flows. Journal of Finance 2005; 60;
4; 1791-1823.
216 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
Knack S, Keefer P. Institutions and Megginson W. Toward a global model of
economic performance: Cross-country tests venture capital? Journal of Applied Corporate
using alternative institutional measures. Finance 2004; 16; 1; 89-107.
Economics and Politics 1995; 7; 3; 207-228.
Poterba J 1989. Venture Capital and capital
Kortum S, Lerner J. Assessing the gains taxation. In: Summers L (Ed), Tax policy
contribution of venture capital to innovation. and the economy. Cambridge; 1989. p. 47-
Rand Journal Economics 2000; 31; 4; 674- 67.
692.
Roe M. Political determinants of corporate
La Porta R, Lopez-de-Silanes F, Shleifer A, governance. Oxford; 2006.
Vishny R. Legal determinants of external
Romain A, van Pottelsberghe de la Potterie
finance. Journal of Finance 1997; 52; 3;
B. The determinants of venture capital:
1131-1150.
A panel analysis of 16 OECD countries.
La Porta R, Lopez-de-Silanes F, Shleifer Université Libre de Bruxelles Working Paper
A, Vishny R. Law and finance. Journal of WP-CEB 04/015; 2004.
Political Economy 1998; 106; 6; 1113-1155.
Schertler A. Driving forces of venture capital
La Porta R, Lopez-de-Silanes F, Shleifer A, investments in Europe: A dynamic panel data
Vishny R. Investor Protection and Corporate analysis. European Integration, Financial
Valuation. Journal of Finance 2002; 57; 3; Systems and Corporate Performance (EIFC)
1147-1170. Working Paper No. 03-27, United Nations
University; 2003.
Lazear EP. Job security provisions and
employment. Quarterly Journal of Economics Svensson J. Investment, property rights and
1990; 105; 699-726. political instability: Theory and evidence.
European Economic Review 1998; 42; 7;
Lee SM, Peterson SJ. Culture, entrepreneurial
1317-1341.
orientation and global competitiveness.
Journal of World Business 2000;35; 4; 401- Wilken PH. Entrepreneurship: A comparative
416. and historical study. Norwood; 1979.
The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 217
2009/2010 annual
The Global Venture Capital and Private Equity Country
Attractiveness Index
An online version that uses the most recent data and allows for country
comparisons can be found at http://vcpeindex.iese.us/.
Ernst & Young are delighted to be associated with the report and hope that the
information is unique in supporting PE and VC houses with equity investment
decisions and governments on what needs to be done to attract international
risk capital.
Sponsored by