China continued to outperform India as a magnet for US venture capital investments in 2008. This was particularly interesting in a year that saw the venture investors feel the pinch from declining values of their portfolios. It was also a year when a company based in Pakistan became the first to receive US venture funding.
In India, the VC investment in the year 2008 amounted to $740 million across 125 deals, while it was $876 million from 144 deals during 2007. A major portion of the decline came in the last quarter of 2008 when world economy started feeling the bite of the credit crunch that precipitated the economic crisis on Wall Street.
Arun Natarajan, CEO, Venture Intelligence told SiliconIndia, "Everything got affected in the October-December quarter. VCs are much better off because the money is already available as many closed funding before the middle of 2008."
According to Srini Vudayagiri, Managing Director, Lightspeed Ventures, the venture capital space in India is dominated by non-India funds that have strong linkages to U.S., Europe and even raise funds there. That could explain the tight liquidity situation. Also, in the current environment, VCs will thrust on value addition in existing portfolio companies rather than fresh investments.
The continuing political turmoil and uncertainty made it difficult to attract serious VC investments in Pakistan. Pakistan's problem was captured well by the CIO magazine recently in the following words: "Pakistan has a serious brand problem. In the West, the mere mention of Pakistan incites images of violence, extremism, explosions, suppressed women and backwards thinking. Time Magazine called Pakistan the most dangerous place on Earth. It takes extraordinary effort and enlightened customers to realize that the actual reality on the ground is quite different." The reality is not all doom and gloom in Pakistan. For the first time in the nation's history, former President Musharraf applied tremendous focus and major funding increases for higher education in Pakistan. According to Sciencewatch, which tracks trends and performance in basic research, citations of Pakistani publications are rising sharply in multiple fields, including computer science, engineering, mathematics, material science and plant and animal sciences. Over two dozen Pakistani scientists are actively working on the Large Hadron Collider; the grandest experiment in the history of Physics. Pakistan now ranks among the top outsourcing destinations, based on its growing talent pool of college graduates. As evident from the overall results in the last decade, there has been a dramatic increase in the numbers of universities and highly-educated faculty and university graduates in Pakistan.
In spite of Pakistan's image problem, Naseeb Networks, a Pakistani online recruitment, social networking, and classifieds company, received an undisclosed amount of venture investment from two Silicon Valley VC firms, ePlanet Ventures and Draper Fisher Jurvetson in 2008. Earlier in December, 2006, PixSense received $5.4 million in equity funding, led by ATA Ventures and Innovacom. While there is a history of US venture investments in Silicon Valley technology companies founded by Pakistani founders, none of these VCs have previously funded companies such as Naseeb and PixSense which have significant R&D centers and operations in Pakistan. Last year, European VCs have shown interest in funding Pakistani startups. Vopium, a Pakistani company offering a platform for almost free calls and SMS to any part of the world, reportedly received 4.2m euros in funding from European VCs.
Even as China's economy was battered by the global slowdown, venture capital investments in the Asian country last year hit their highest levels ever at more than $4 billion, 30 percent higher than 2007, according to a new report.
If not for the global economic crisis, that growth could have been 20 percent higher, said Gavin Ni, founder and chief executive of Beijing-based research company Zero2IPO Group, who visited Silicon Valley this week.
In the United States last year, nearly $29 billion in VC funds were funneled into 2,550 deals, an 8 percent drop from 2007, according to Dow Jones VentureSource.
In China, a record $7.3 billion was raised for VC funds in 2008, 33 percent higher than the year before. It seems that China's appeal to investors is not likely to fade anytime soon, in spite of the tough investment environment. The nation of 1.3 billion people has some 624 million cell phone users — the most in the world — and 300 million Internet users, also the world's largest.
"China will definitely be one of the top two or three centers of venture capital in the world," Gavin Ni told the San Jose Mercury News this week. "Even in this down economy, the China market is dynamic."
The information technology sector received the biggest share of the investments, or 36 percent, in 2008. Traditional companies, such as retail, picked up 22 percent of VC funds, while services companies garnered 18 percent. Clean tech received 9 percent, and biotech and health care companies picked up 7 percent.
At the OPEN Forum 2008 in Silicon Valley, Mike Moritz, Senior Partner at Sequoia Capital, said that Sequoia is currently not looking to go into another geography but it may consider other geographies such as Pakistan if their portfolio companies chose to open offices there. What took Sequoia to China, India and Israel were the founders of Silicon Valley companies who made a decision to locate R&D facilities in these geographies.
Speaking in a panel discussion at OPEN Forum 2008 recently organized by the Organization of Pakistani Entrepreneurs in Silicon Valley, Faraz Hoodbhoy, the CTO of PixSense, argued that Pakistani expatriates in Silicon Valley are the harshest critics of Pakistan. They are not immediately likely to ask US VCs to invest in Pakistan. However, Hoodbhoy's company PixSense has taken this path. PixSense currently has a sizable presence in Pakistan and prides itself in what Pakistani engineers have done for it to make it successful on very low budget.
Given the uncertainty of economic recovery in the United States and continuing instability in Pakistan, it will probably be a while before US-based VCs follow in the footsteps of Draper Fisher, ePlanet, ATA Ventures and Innovacom into funding a significant number of Pakistan-based startups.
Related Links:
VC Investments in India
VC Investments in China
VC Investments in Pakistan
Threre are more reasons to migrate to Canada
1 year ago
4 comments:
Take a look at WiMax infrastructure in Pakistan -
http://techlahore.wordpress.com/2008/12/14/pakistan-has-worlds-largest-wimax-network-will-america-catch-up-wonders-tmcnet/
"Jo ho gar jazba-e-taameer zinda,
To phir kis cheez ke ham mein kami hai"
The Russian Kommersant has it right when it says: "India has had little success with military equipment production, and has had problems producing Russian Su-30MKI fighter jets and T-90S tanks, English Hawk training jets and French Scorpene submarines."
And here's how blogger Vijainder Thakur sees India's loose meaning of "indigenous" Smerch and other imports:
The Russians will come here set up the plant for us and supply the critical manufacturing machinery. Indian labor and technical management will run the plant which will simply assemble the system. Critical components and the solid propellant rocket motor fuel will still come from Perm Powder Mill. However, bureaucrats in New Delhi and the nation as a whole will be happy. The Smerch system will be proudly paraded on Rajpath every republic day as an indigenous weapon system.
A decade or so down the line, Smerch will get outdated and India will negotiate a new deal with Russia for the license production of a new multiple rocket system for the Indian Army.
China will by then have developed its own follow up system besides having used the solid propellant motors to develop other weapon systems and assist its space research program.
Here are a few excerpts from a piece by Prof William Easterly published in Foreign Policy Magazine:
"We found that there was a remarkably strong association between countries with the most advanced technology in 1500 and countries with the highest per capita income today. Europe already had steel, printed books, and oceangoing ships then, while large parts of Africa did not yet have writing or the wheel. Britain had all 24 of our sample technologies in 1500. The Democratic Republic of the Congo, Papua New Guinea, and Tonga had none of them. But technology also travels. North America, Australia, and New Zealand had among the world's most backward technology in 1500; today, they are among the wealthiest regions on Earth, reflecting the principle that it's the people who matter, not the places. As migration has transformed parts of the world that were nearly empty in the Middle Ages, technology has migrated with them. "
"OF COURSE, IN SOCIAL SCIENCE, no generalization is universal. The most important counterexample is China, which in 1500 had plow cultivation, printing, paper, books, firearms, the compass, iron, and steel, and yet failed to emulate Europe's Industrial Revolution in the centuries that followed. Scholars have argued that autocratic Chinese emperors killed off technological progress for domestic political reasons. For example, one Ming emperor banned long-distance oceanic exploration for fear of foreign influence threatening his power, after Chinese ships had already reached East Africa in 1422."
"This gives us a hint as to how political formation affects development: Fragmented Europe did not have any one autocrat who could kill off technological innovation, and the constant threats of living in a hostile neighborhood spurred the advancement of military technology. And because borders were relatively open around 1500, the reality that citizens could leave for more advanced places -- the forerunner of today's "brain drain" -- kept alive the spirit of innovation. "
"Most importantly, what the history of technology tells us is that the blank-slate theory is a myth. Top-down development programs simply don't work. In fact, the principal beneficiaries of Western largesse today -- African autocrats and dysfunctional regimes -- are themselves the main obstacles to development. If there's anything that "must be done" to spur future development, it's to create the conditions necessary to empower the ordinary individuals who will create new and unforeseen technologies out of old ones. There's a Thomas Edison born every minute. We just have to help them turn the lights on."
Can China rekindle its innovation spirit? Here's a piece on it published by OECD Observer:
The great 20th century sinologist, Joseph Needham, once drew up a list of 24 technical innovations brought from China to the West. They ranged from gunpowder and the wheelbarrow to printing, cast iron, the magnetic compass and the chain suspension bridge. By 1600 the torch of innovation had passed to the West.
Could it now be returning? In 2003 China became the third nation to put a man into space, and has busily launched satellites since. On the ground, communications companies such as Huawei and ZTE now compete head-on with the likes of Ericsson and Nokia.
Against this background, it is no wonder that China is one of the world’s largest investors in research and development. Spending on R&D has climbed by 19% per year since 1995 to reach US$30 billion in 2005, putting China sixth in world ranking. That is at current exchange rates; if these were adjusted for purchasing power parity between different countries, then China would rank third!
However, according to a new report examining Chinese innovation, some of this progress flatters to deceive: R&D spending is still low as a share of GDP per capita and far lower than the OECD average. Consider also the number of researchers in China, which while second in the world only to the US, is still very low for China compared to OECD countries, given the size of the country’s labour force. Chinese researchers may have contributed 6.5% of research articles to scientific publications in 2004, up from just 2% a decade earlier, and are second after the US in nanotechnology research publishing, for instance, but their innovation system still shoots below potential.
Safeguarding intellectual property rights is the soft belly here. China is well in line with international regulations as a signatory of TRIPS (the Agreement on Trade-Related Aspects of Intellectual Property Rights), but despite clearer and tighter regulation, infringement still dogs the system. The difficulty is enforcement. This discourages domestic investors as much as investors from abroad. Worse, IPR infringement poses health and safety risks for consumers, and damages the reputation of Chinese firms. The government, as well as the Chinese Patent Office, is toughening up on IPR, though fixing the system will take time and effort.
For many historians and scientists, what makes Chinese civilisation so brilliant is that it had “another way” of doing science. According to Joseph Needham, Chinese innovators simply did not translate their knowledge into mathematics. This left them remote from ensuing scientific dialogue. Whether or not this is true, the global economy has now changed and so has China. In the end, the Chinese are set to reinforce the country’s innovative capabilities both by trying out their own approach and looking to advanced OECD countries for inspiration. If the underlying systemic shortfalls are also corrected, then China may soon be in a position not only to push to the heart of scientific discussion, but to lead the world to new frontiers of knowledge as well.
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