New Index Ranks Country Attractiveness for VC & PE Investments
For the first time, a broad international index has been created that measures countries’ attractiveness to investors in Venture Capital (VC) and Private Equity (PE) limited partnerships. A total of 66 countries spanning six continents were included in the survey.
The Global Venture Capital and Private Equity Country Attractiveness Index was developed by IESE Business School’s International Center for Finance Research in collaboration with EY. "This is the first time that VC/PE country attractiveness has been assessed to such an extent and we believe the index is a more accurate reflection of actual investment on the ground to that of similar reports in the same field.", says Marc Guns, Partner EY. "Countries that fared well in the ranking were those that have excelled in enhancing "competition, openness and professionalism" within their borders"
The top 5 countries topping the list were:
- United States
- United Kingdom
- Hong Kong
The aim of the index is to contribute to investors’ challenge of deciding where to allocate VC and PE. It also aims to help policymakers as they seek to influence economic conditions and strengthen the vitality of their own regions.
"As LPs consider where to allocate their capital, and PE and VC funds look to make the right investments themselves, the investing landscape will continue to evolve. The Global VCPE Country Attractiveness Index will prove to be a valuable tool in helping funds navigate through this uncertain time," said Marc Guns.
Strong improvement from Emerging Markets
The United States came out first in the ranking, and was therefore used as the world benchmark. The study reveals that China, Poland and India have taken major strides over the last five years in boosting their appeal to VC and PE investors. Among those countries that have slid in investor attractiveness, in comparison with other countries, in recent years are Kuwait, Latvia and Oman.
Reasons behind different countries’ success in the ranking vary. China’s high ranking stems in great part from political economic decisions, while Poland’s increased attractiveness can be traced to its accession to the EU, as well as the expansion of capital markets through the establishment and development of the Warsaw Stock Exchange. The U.S. continues to be the leading magnet for VC and PE investment due in part to the country’s common law legal system, which provides both flexibility and protection for VC and PE transactions.
"The entrepreneurial spirit and culture of U.S. society also remains a critical factor. "This mentality leads to greater innovation, employment and, in the end, prosperity," Marc said.
One notable pattern emerges in the survey: countries scoring higher for investor protection and corporate governance all earned high marks, since these criteria lead to liquid and efficient capital markets. These markets, in turn, foster a dynamic environment that facilitates deal-making flow and exit opportunities.
About the Index
A total of 66 countries spanning six continents were included in the survey.The index is based on six key criteria that investors cite as most important to them: economic activity; the depth of capital markets; taxation; investor protection and corporate governance; the human and social environment; and entrepreneurial culture and opportunities.