International Venture Capital
The increase in international venture capital can be attributed directly to the rapid globalization of the world market place. The increased risk for greater profit formula is even more in play in international venture capital.
International venture capital is simply funding for business start ups and expansion outside the conventional lending arena and across national borders. The force behind the increase in international venture capital is the process of globalization. Globalization of the world market place is more than merely international trading. Trade has existed between far flung geographical areas since the dawn of time. The difference today is the shrinking of the globe due to improved and fast transportation, but even more so by increased connectivity due to improved electronic technology.
The old way of international trade involved the arrival of the traders via caravan or ship at the market place of the buyer nation. The other side was the dispatching of your own traders to the distant land. What was different was there was little international interest in anything more than the finished product. The production and economic business of the producing nation stayed mostly local in scope. Today, with communications, travel, and internet technology, the foreign investor is able to get into that local economy and seek investment opportunities on both ends of the trade route.
It is fairly common, still, for international venture capital investors to work with local venture capital firms in co-sponsoring deals. This allows the local company to provide the majority of the due diligence studies of potential investments while the international company provides large percentages of the capital. The international venture capitalist is, however, more and more becoming an expert in the economy of the target area and becoming more willing to assume the entire risk.
And risk there is in abundance in the international venture capital arena. The risks encountered in international venture capital include political instability, resentment of outside interests, and lack of understanding of local government policies. Conferences and international forums are becoming common to encourage the international venture capital market and provide information about the potential of various target areas.
It is the high risk versus high return formula that really fuels the international venture capital market. Suddenly, the entire world becomes a target for investment opportunity and market diversity. Also, the idea of the global market opens up so many networking opportunities for investment consolidation. The idea of value added investments plays an important role as more sophisticated nations can bring management knowledge and expertise to an emerging region along with essential capital resources. Many areas are rich in prospects and resources, but lacking in the management skills to properly exploit them.