Why are so many VC/PE investors setting up offices in emerging markets?

In mature markets there are many PE firms – as many as 2000 VC/PE firms in the US alone according to Stern Fisher (www.sternfisher.com).  On the other hand, a large emerging market like India has only about 150 VC/PE firms with offices in the country. As the Indian economy grows and approaches that of the US’s economy in terms of size and complexity – a process that might take fifty years or more – there’s no reason why India could not have 2000 VC/PE firms. That means that we can expect the number of VC/PE firms in India alone to increase by 10 or 20 per year for many years to come. India is a long term opportunity for investors, so while there may be fluctuations in the short run, we have a long way to go before the Indian economy reaches the mature stage of its evolution. Of course, fundamentally it will be return on investment that will drive the continued growth of VC/PE in India.

Another factor that will drive the growth of VC/PE firms in emerging markets is the rise of local limited partners, who are the true source of capital – VC/PE firms are mere intermediaries. Today, much of the VC/PE capital invested in emerging markets comes from the US, Europe and Japan. However, as emerging market LPs – insurance companies, banks, foundations, endowments, family offices and pension funds – become more sophisticated, they will seek to allocate some percentage of their assets in wider variety of investments, including VC/PE. These alternative investments provide additional diversification and can improve the risk –return position of the LP’s overall portfolio.  Having an active emerging market LP community will also ensure that the rise of VC/PE in emerging markets will grow continuously, as the local VC/PE firms will then be less dependent on transient perceptions of emerging markets as an investment destination; foreign perceptions of emerging markets fluctuate much more widely than the economies of  emerging markets.

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2 Responses to “Why are so many VC/PE investors setting up offices in emerging markets?”

  1. ysome.com says:

    Why are so many VC/PE investors setting up offices in emerging markets? | SternFisher.com…

    In mature markets there are many PE firms – as many as 2000 VC/PE firms in the US alone according to Stern Fisher (www.sternfisher.com). On the other hand, a large emerging market like India has only about 150 VC/PE firms with offices in the country. A…

  2. Why are so many VC/PE investors setting up offices in emerging markets? | SternFisher.com…

    In mature markets there are many PE firms – as many as 2000 VC/PE firms in the US alone according to Stern Fisher (www.sternfisher.com)….

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