Venture capital looks to find its global footing

By Eric Auchard

SAN FRANCISCO (Reuters) - Faced with mounting pressures of doing business in Silicon Valley, the venture capital industry is going global, albeit in stops and starts that reflect the risks of doing business in foreign lands.

Gone are the days when local venture capitalists could say with a straight face: "I don't invest outside my (telephone) area code," or "I don't invest in companies that I have to drive more than 45 miles to visit."

"Technology is a much more mature industry than it was as recently as the 1990s," said Bob Grady, chairman of the National Venture Capital Association.

Spending on computers and software is growing around 10 percent a year, only three times the rate of growth of U.S. gross domestic product and far short of the 100-percent-plus growth rates VCs enjoyed in the go-go days of decades past.

China and India are the focus of most such investment abroad. Silicon Valley VCs are setting up offices in Shanghai and Bangalore, hiring local deal-makers and creating regionally focused funds.

Claude Leglise embodies the push to find Silicon Valley-like returns in Asia. French in origin, Leglise spent 25 years with Intel Capital, the chip maker's venture capital arm.

San Francisco-based, he now is managing director of WI Harper, where he focuses on investments in China-based companies, or in U.S. companies that need to expand into Asia.

"It is impossible to do good investments by remote control," Leglise said in a telephone interview from Beijing. "You have to be on the ground. Clearly you need to adopt the VC model to local cultures and regulatory environments."

Europeans, long laggards in the venture capital game, are active partners in many Silicon Valley-style deals, as a risk- taking culture takes hold that has had recent successes in Scandinavia, Britain and France.

Ben Gales, a venture capitalist with Cambridge, England-based 3i, sees many competitive start-ups taking shape in Europe these days, but he is also sure to involve U.S. partners early to ensure his investments can reach global markets fast.

BAILING OUT

The VC industry has been slow to follow the logic of the high-tech businesses it invests in, many of which are designed to go global from the earliest days as a start-up.

Many bright ideas these days in Silicon Valley typically come with a plan to outsource software development to India or hardware manufacture to North Asia as soon as possible.

"Today our young companies from the time they have 15 employees are forced to become 100 percent global," said Grady, the managing director of the venture capital arm of private equity firm Carlyle Group.

In its basic outline, Storm Ventures is just another Silicon Valley venture capital firm built on local successes.  Continued...