Global investor confidence in the United States significantly increased for the third year in a row, driven by a combination of favorable capital markets, abundant investment opportunities in innovative companies and a strong investor climate, according to the 2014 Global Venture Capital Confidence Survey from Deloitte and the National Venture Capital Association. Moreover, global investor confidence also increased in the United Kingdom, Israel and Canada, but continued to decline in Brazil, China and India, according to the survey.
Conducted in May and June of 2014, the 10th annual survey, gauged confidence levels of more than 300 venture capital, private equity and growth equity investors in the Americas, Europe, Asia and Africa, assessing investor confidence on the global venture capital environment, market factors shaping industries, and investments in specific geographies and industry sectors. Confidence levels were measured on a scale of 1 to 5, with a score of 5 representing the most confidence.
"For the past three years the U.S. has seen a significant increase in investor confidence, continuing the trend which began to take hold in 2012," said Jim Atwell, national managing partner of the Emerging Growth Company practice, Deloitte & Touche LLP. "Improving capital market conditions lifted the pace of initial public offerings, fed by a strong lineup of new and innovative companies like we see on the list, along with increased investor confidence both in the ability to fundraise as well as to achieve favorable returns on investment."
Venture capital fundraising has been picking up steam in recent quarters with U.S. venture capital firms having raised $7.4 billion in new commitments from 78 funds during the second quarter of 2014, according to Thomson Reuters and the NVCA. A 24 percent increase compared to the number of funds raised during the first quarter, marks the strongest quarter for the number of funds raised since the fourth quarter of 2007.
Venture capitalists invested $29.5 billion in 3,382 companies in 2013, according to the NVCA Yearbook. Software was the leading sector, receiving 37.3 percent of total dollars followed by biotechnology, which was less than half the amount at 15.4 percent of total investment. Among first fundings, software led the way with 591 companies getting their initial venture capital rounds, more than 46 percent of all first fundings.
In line with this, the survey found that global investors continued to invest and expressed the greatest enthusiasm for information technology-related sectors that are less capital intensive, particularly technology, mobile and cloud computing. At the same time, sectors requiring more capital intensive spends including hardware and semiconductors were viewed as the least favorable sectors.
"Continued confidence from global investors in the U.S. is welcome news for American innovators building next generation companies," said Bobby Franklin, president and CEO of NVCA. "In order to maintain this enthusiasm in U.S. innovation, policymakers in Washington need to come together to enact policies that support the creation of sustainable, high-growth companies that create jobs and drive economic growth."
Global investor confidence grows in the U.S., Israel and Canada, but declines in Brazil, India and China
U.S. respondents' outlook on investing in U.S. opportunities again increased in 2014, scoring an average of 4.17 (up 41 basis points from 2013), according to the survey. At the same time U.S. confidence in the global capital markets grew, rising from 2.70 in 2013 to 2.99 in 2014.
Emerging markets again continued to decline among global investors. When asked about confidence in investing in a particular country, participants rated Brazil at 3.13, down 42 basis points from 2012, China at 3.27, down 18 basis points from 2012 and India at 3.08, down 16 basis points from 2012.
Cloud computing and mobile remain at the top of investor confidence for the second year in a row
For the second year in a row, U.S. venture capital investors named cloud computing (4.29) as the area they were most confident investing in followed very closely by mobile technology (4.28), enterprise software (4.00) and health care IT and services (3.87). Moreover, U.S. investors exhibited the least confidence in energy/clean technologies (2.47) and semiconductors (2.33).
Global venture capital investors showed the greatest confidence in cloud computing (4.11), mobile (4.02), and health care IT and services (3.94). This group showed the least confidence for investments in hardware (2.83) and semiconductors (2.76). The U.S. (4.28) and China (4.20) were most confident in mobile, while Brazil showed the highest confidence in cloud computing (4.31) and health care IT services (4.44). Robotics showed the biggest year-over-year increase up 43 basis points to 3.41
Overall confidence about the global economy increased 33 basis points from the prior year to a score of 3.20. A majority of investors — 55 percent — expressed a neutral sentiment about global economic prospects. Among U.S.-based participants, confidence in the global economy scored 2.96 (up 19 basis points from 2013).
U.S. confidence in domestic government continues to decline
Across the globe, the U.S. maintained its position as the best country to invest in, rating 4.03, trailed by Israel (3.71), Canada (3.48) and Germany (3.38). However, continuing the trend from last year's survey, U.S.-based respondents continue to doubt government's ability to enact policies that support domestic venture capital, private equity and growth equity investment in the coming year, with confidence in government policymaking dropping from a collective 2.17 in 2013 to the lowest among the countries surveyed (2.05) in this year's survey.
"A global environment where capital flows to companies from creation to growth to exit depends, in part, on government policies that encourage investment in new ideas and provide a clear pathway for innovations to go to market," said Scott Sandell, general partner of New Enterprise Associates and chairman of NVCA. "Decreased confidence in government drives capital away from economies, and if more isn't done to improve the U.S. policymaking process, we could lose our foothold as the preeminent destination for innovation investment. The venture capital community will continue to look toward global economies where governments are committed to fostering the growth of innovation."
Confidence of respondents from 11 other countries in their government's support ranged from very high to very low, averaging a 3, but all of them had higher confidence levels than the U.S. respondents. The highest confidence levels of investors in their home government's ability to help domestic venture capitalists via incentives, policy and legislation were for India (3.83), China (3.63) and Japan (3.58).
For more information and the full 2014 Global Venture Capital Confidence Survey please visit: www.deloitte.com/us/2014vcsurvey.
About Deloitte's Emerging Growth Company (EGC) Practice
Deloitte's emerging growth company practice works with innovative high-growth companies on their way to becoming the next generation of market leaders. Through our multidisciplinary approach focused on quality, our team of dedicated professionals understands the challenges that venture capital-backed companies face and offers a broad perspective on emerging issues, leading practices and industry trends. Our extensive IPO experience, across all industries, along with our experienced professionals, enables us to deliver insights that others may have missed. The practice is also home to Tech Venture Centers (TVC) in Waltham, MA and McLean, VA. The Centers are designed to create communities of leading service providers, addressing the needs of emerging, high-growth IPO bound companies and the venture capital community. For more information, please contact EGC@deloitte.com or visit www.deloitte.com/us/egc.
Venture capitalists are committed to funding America's most innovative entrepreneurs, working closely with them to transform breakthrough ideas into emerging growth companies that drive U.S. job creation and economic growth. As the voice of the U.S. venture capital community, the National Venture Capital Association empowers its members and the entrepreneurs they fund by advocating for policies that encourage innovation and reward long-term investment. As the venture community's preeminent trade association, NVCA serves as the definitive resource for venture capital data and unites its 400 plus members through a full range of professional services. For more information about the NVCA, please visit www.nvca.org.
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