bloggingbuyouts

There is an interesting article out of the International Herald Tribune that is discussing the competitive environment in Asia that has essentially pitted private equity investment money against venture capital investment money.

As economies in South Asia have rapidly expanded over the last decade, U.S. investors have jumped at the opportunities to capitalize on the growth. However, venture capitalists and private equity investors alike have learned that they have to approach investments more cautiously than they do in the United States. Until the markets in South Asia mature, U.S. investors will likely continue to tread carefully when investing in early-stage growth opportunities.

This article notes that investors are putting their money into companies that have already tested the waters, avoiding early-stage investments that are subject to higher risks and regulatory issues. The size differential here is also surprising when you read into it. Initial funding for a deal in China and India runs much higher, up to $50 million, compared to $2 to $12 million in the United States, because the companies are often already in business, requiring more first-round capital. As a result, the distinction between private equity and venture capitalists is narrowing as they compete for the same mid-stage or later-stage deals in India and China.

In the U.S., the policies are much more clearly defined. Venture Capital firms (and angels) are the ones approached here for seed, start-up, and early stages of financing for emerging companies. Private Equity firms buy established businesses that either can be turned around and run more efficiently or they buy companies essentially for the cash flow streams.