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  • 1. The Global Venture Capital and Private Equity Country Attractiveness Index 2009/2010 annual Alexander Groh & Heinrich LiechtensteinSponsored by
  • 2. The Global Venture Capital and Private EquityCountry Attractiveness Index2009/2010 annualAlexander Groh & Heinrich Liechtenstein Sponsored by
  • 3. Contents Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Sponsors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 About the editors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Research team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9I. The Global VC/PE Country Attractiveness Index . . . . . . . . . . . . . . . . . . . . . 11 How to measure a country’s attractiveness for limited partners . . . . . . . . . . . . . . . . . . . . . . . 12 The 2009/2010 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Comparisons of regions and countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Tracking power of our index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Summary and outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30II. Legal systems, taxes and VC and PE activity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 After the storm: a global view on post-recession opportunities and challenges for the PE and VC industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Global Venture Capital and Private Equity Country Attractiveness Index - Legal Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36III. An insight into different VC and PE markets . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Africa: Governance, development and budding VC and PE activity . . . . . . . . . . . . . . . . . . . . 40 Asia: Does vibrant entrepreneurial activity and expected growth compensate some weaknesses? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Latin America: VC and PE in Latin America after the crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46IV. Regional and country profiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 How to read the country and regional profiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Regional profiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Country profiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70V. Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203 Computation of the index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 Statistical validation of the index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 Limitations of our index and FAQs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 Table with sources and explanations of the data series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216
  • 4. Forewordfrom the research teamIn this annual, we want to present the results of acomprehensive research project on how to measure theattractiveness of a country for investors in Venture Capital(VC) and Private Equity (PE) limited partnerships. The projectwas initiated at IESE Business School in Barcelona in 2006with a European pilot study. From the European study wegained experience and the confidence to extend the studyglobally. Since 2006 two professors, one doctoral student, andmany research assistants have worked on the project.We selected and collected more than 300 different data seriesfrom all kind of providers – some ranging back to 2000. Weattempted to include as many countries as possible inthe study, and handled approximately 200,000 individualdata records.We would not have been able to realize this without thegenerous financial and non financial contributions fromour sponsors, and we greatly appreciate the support of IESEBusiness School, their International Center for FinancialResearch (CIIF), Ernst &Young, and DLA Piper Weiss Tessbach.This is the first edition of the Venture Capital and PrivateEquity (VCPE) Country Attractiveness Index. This index willbe subject to critique and we invite constructive feedback tohelp us improve future editions of the index. Selected dataseries may be subject to change in future editions and newand more appropriate data series may be used as a substituteto existing data. The quality of data and the number ofcountries covered will increase. As a result, our index will bea dynamic product that always considers the most adequateand recent data. We believe this index is unique in providingthe VC and PE market segment with such a broad scope. Wehope investors will appreciate the information included in thisindex; politicians may utilize the index to make improvementsin their countries to attract international risk capital.We hope that you find our 2009/2010 Venture Capital andPrivate Equity Country Attractiveness Index of value. Website Please visit our website http://vcpeindex.iese.us/ where you will find more information, links to literature and several analytical tools for benchmarking purposes.
  • 5. Professor Josh Lerner Jacob H. Schiff Professor of Investment BankingForeword Harvard Business SchoolVirtually every high growth business needs Another important trend has been thecapital. Investors allocate assets to earn professionalization of the venture capitalsubstantial returns. One would imagine that industry itself. Venture capital and privatethe two facts above would bring venture equity organizations have matured. Theircapitalists and entrepreneurs together. investment policies, procedures, and systems have been refined over decades of experience,But, in fact, a significant gap separates the two and are becoming formalized and structured.groups. Entrepreneurs live in great uncertainty As a result of these two trends, it is no surpriseand assume significant risk in pursuing their that many nations are making greater efforts tobusiness, whether a young start up or a encouraging venture capital activity with an eyerestructuring division. Venture capitalists and to boosting innovation and entrepreneurship,private equity investors are a special breed, who and to counteracting the recessionary impactseek to help entrepreneurs triumph, but have of the global economic crisis on growth.fiduciary responsibilities to their own investors(whether pensions, sovereign wealth funds, With the emergence of venture capital andendowments, or families), which limit their private equity investment as a professionalability to absorb all the risk in new ventures. practice, understanding the way in whichWhile venture capital and private equity this industry works is critically important forhas become a well developed industry in the policymakers, practitioners, and would beUnited States and Western Europe, in many practitioners, whether they are (or aspire to be)other parts of the world, a gap in experience working for entrepreneurial ventures, ventureand expectations has slowed the adoption of capital and private equity firms, or largeventure capital and private equity funds, and institutional capital pools. I applaud Alexanderlimited the success of the pioneering funds. Groh and Heinrich Liechtenstein, who have taken the heroic step of trying to draw together all theBut in the past few years, the venture information needed to assess whether a marketcapital and private equity industry has been is ready for venture capital and private equity.globalizing at a dramatic pace. Funds areincreasingly being raised internationally and The country attractiveness index—which buildsinvested globally. More and more firms have on academic research into the determinantsestablished multinational operations. There is of these funds world wide—provides valuablean increasing appreciation by entrepreneurs information to investors and political leadersworld wide of the benefits that venture and about which markets are most suited forgrowth equity investors can bring. Company private investments. The index results bothmanagers are increasingly setting ambitious provide answers and raise questions—e.g., togoals and looking to these investors to provide what extent will the financial crisis upendthe capital, advice, and strategic partnerships the established order of the most attractivethey need to bring their plans to fruition. markets?—but represent an important step in systemizing our understanding of these issues. Enjoy the reading! The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 7
  • 6. Sponsors We are very grateful to our sponsors IESE Business School/CIIF, Ernst & Young, and DLA Piper Weiss-Tessbach for the financial support, their feedback throughout the project and their direct contributions to the index. IESE Business School – University of Navarra Business School and has established itself as a nu- is one of the world´s top 10 business schools and cleus of study within the School’s activities. has pioneered executive education in Europe since Sixteen years on, our chief objectives remain its foundation in 1958 in Barcelona. In 1964 IESE the same: introduced Europe’s first full-time MBA program. • Find answers to the questions that confront the IESE distinguishes itself in its general-management owners and managers of finance companies, approach, extensive use of case method, interna- and the finance director of all kind of compa- tional outreach, and emphasis on placing people at nies in the performance of their duties. the heart of managerial decision-making. With a • Develop new tools for financial management. truly global outlook, IESE currently runs executive- • Study in depth the changes that occur in the education programs on four continents. market and their effects on the financial dimen- The CIIF, International Center for Financial Re- sion of business activity. search, is an interdisciplinary center with an inter- All of these activities are programmed and carried national outlook and a focus on teaching and re- out with the support of our sponsoring companies. search in finance. It was created at the beginning Apart from providing vital financial assistance, our of 1992 to channel the financial research interest sponsors also help to define the Center’s research of a multidisciplinary group of professors at IESE projects, ensuring their practical relevance. Ernst & Young is a global leader in assurance, tax, Our private equity and venture capital practices transaction and advisory services. Worldwide, our therefore offer a holistic, tailored approach that en- 144,000 people are united by our shared values and compasses the needs of funds, their M&A process an unwavering commitment to quality. We make a and portfolio companies while addressing market, difference by helping our people, our clients and industry and regulatory concerns and opportunities. our wider communities achieve their potential. We hope that the Global VC/PE Country Attrac- Potential is a key word for equity capital ma- tiveness Index proves to be a valuable tool in hel- nagement. Deal success doesn’t end when the deal ping funds navigate through this uncertain time. closes. Acquirers know success and stakeholder For more information please visit www.ey.com value lie in portfolio companies’ continued growth under their watch and after their exits. including corporate, M&A, venture capital and DLA Piper Weiss Tessbach is part of DLA Piper, capital markets, banking and finance, litigation one of the largest global legal services prac- and regulatory, general commercial law, real es- tices, with over 3,500 lawyers in 67 offices in 29 tate, employment law, IT, telecoms and IP and ad- countries. From its offices in Asia, Europe, the vises its clients as a full-service firm in all relevant Middle East and the US, legal and business ad- areas of business law. visers provide a broad range of services to local, For further information, please visit: regional and international clients. The firm is hi- www.dlapiper.com. ghly acknowledged in its core areas of expertise8 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 7. About the editorsProf. Alexander Groh Prof. Heinrich Liechtenstein Research team Alexander GrohDr. Alexander Groh is Visiting Professor at Dr. Heinrich Liechtenstein is Professor of Visiting Professor,IESE Business School, Barcelona – Univer- Financial Management at IESE Business IESE Business School Barcelonasity of Navarra, Spain. His research activi- School, Barcelona – University of Navarra,ties focus on VC and PE, and include va- Spain. His areas of interest are entrepre- Heinrich Liechtensteinluation issues, performance measurement neurial finance, VC and PE, wealth ma- Assistant Professor,and socio-economic determinants for the nagement, and owners’ strategies. He is IESE Business School Barcelonadevelopment of national markets. He is active in several supervisory and advisoryAssociate Professor of Finance at GSCM – boards of family holdings and founda- Karsten LieserMontpellier Business School, France. Prior tions, as well as a private equity firm. Visiting PhD Student,to that, he was visiting INSEAD, Fontaine- Dr. Liechtenstein has experience in IESE Business School Barcelonableau, France, and was Assistant Professor wealth management and owners strate-of Corporate Finance and Entrepreneurial gies at Liechtenstein Global Trust, a family Miriam HesseFinance at Darmstadt University of Tech- holding, and as a consultant at The Boston Research Assistant,nology, Germany. He is involved in training Consulting Group. He has previously foun- IESE Business School Barcelonacourses for the European Venture Capital ded and sold two companies.and Private Equity Association (EVCA), and Dr. Liechtenstein was born in Leoben, Renata Semmelthe Indian Venture Capital and Private Austria, and received an MA in Business Research Assistant,Equity Association (IVCA), and has worked Administration from the University of IESE Business School Barcelonafor Quadriga Capital, a Frankfurt based Graz, an MBA from IESE Business School,Private Equity fund, since 1996. and a Doctoral Degree of Business and Sarp Vardarizi Dr. Alexander Groh was born in Frank- Economic Sciences from the University of Research Assistant,furt, Germany. He received a joint Master’s Vienna. IESE Business School BarcelonaDegree of Mechanical Engineering andBusiness Administration from Darmstadt Matthias WichUniversity of Technology, where he also Research Assistant,gained his Doctoral Degree in Finance. IESE Business School Barcelona Tobias Götz Research Assistant, IESE Business School Barcelona Markus Grabellus Research Assistant, IESE Business School Barcelona Markus Biesinger Research Assistant, IESE Business School Barcelona The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 9
  • 8. I.10 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 9. The Global VC/PE CountryAttractiveness IndexArticle written by Alexander Groh, agroh@iese.edu, and Heinrich Liechtenstein, hl@iese.edu,both, IESE Business School Barcelona. The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 11
  • 10. The Global VC/PE Country Attractiveness Index How to measure a country’s attractiveness for limited partners The purpose of our index is to in particular nations and will benchmark benchmark countries with respect to them. A politician has the opportunity their attractiveness for institutional to influence the conditions that attract investors who decide upon international (or deter) international risk capital: an allocations in VC and PE limited investor will respond to policy actions. partnerships. We therefore take an Therefore, attempts to increase risk institutional investor’s point of view for capital market activity in a particular the aggregation and analyses of socio- country should focus on the relationship economic data. We want to contribute between the parties that deserve capital to solving the investor’s problem: where and those who provide it. Risk capital is to allocate the capital. However, a a high liquid asset class with respect to politician may conclude that a vibrant international allocations. Funds will flow risk capital market supports innovation, quickly into regions and countries where entrepreneurship, economic growth, investors expect opportunities. Nations employment, and wealth. Both the (and regions) are in strong competition politician, who would like to increase risk for receiving allocations from limited capital market activity, and the investor, partners. who seeks adequate compensation for the investment risk, will observe strengths and weaknesses, risks and opportunities12 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 11. What are institutional investors’ Importance of Economic Activity the findings are equally valid for the laterselection criteria? Intuitively, the state of a country’s eco- stage. Jeng and Wells (2000) stress thatOur index addresses the concerns of insti- nomy should affect the VC/PE activity. IPO activity is the main force behind cy-tutional investors and looks at the criteria An economy’s size is an indicator of the clical swings because it reflects the poten-they base their international VC and PE quantity of corporations and deal flow op- tial return to the VC/PE funds. Kaplan andallocation decisions upon. Their allocation portunities in general. Economic growth Schoar (2005) confirm this. Analogous tocriteria will include, in the first instance, should lead to demand for finance. Gom- Black and Gilson (1998), Gompers and Ler-the expected economic opportunities of pers and Lerner (1998) focus on the VC ner (2000) point out that risk capital flou-a country or region from a macro pers- segment and point out that more attrac- rishes in countries with deep and liquidpective. However, they will also include a tive opportunities exist for entrepreneurs stock markets. Likewise, Schertler (2003)particular investment strategy of a fund if the economy is growing quickly. Wilken uses either the capitalization of stock mar-management team, the team’s compe- (1979) argues that a situation of econo- kets or the number of listed companies astence, their track record and other para- mic prosperity and development facilitates a measure for the liquidity of stock mar-meters. The latter criteria will be addressed entrepreneurship, as it provides a greater kets. She finds that the liquidity of stockas part of their fund due diligence before accumulation of capital for investments. markets has a significant positive impactlimited partners consider committing to a The ease of start-ups is expected to be re- on VC investments in its early stages.particular general partner. These criteria lated to societal wealth, not solely due to Alongside the disadvantages of bank-are beyond of the scope of our index be- the availability of start-up financing, but centered capital markets, Greene (1998)cause they depend on individual cases. Our also to higher income among potential emphasizes that low availability of debtindex points to the general opportunities customers in the domestic market. Ro- financing is an obstacle for start-ups inthat arise from the socio-economic state main and van Pottelsberghe de la Potterie many countries. Entrepreneurs need toof a country or region and as a result, we (2004) find that VC/PE activity is cyclical find backers - whether banks or VC/PEcontribute to the macro perspective of the and significantly related to gross domestic funds - who are willing to bear risk. Ce-fund due diligence. Our index provides va- product (GDP) growth. torelli and Gambera (2001) provide evi-luable information to investors as it is the dence that bank concentration promotesfirst time that the different factors that de- Importance of the Depth of a Capital the growth of those industrial sectors thattermine the attractiveness of a country for Market have a higher need for external finance bylimited partners have been summarized in Black and Gilson (1998) focus on the diffe- facilitating credit access to younger com-a composite measure. The decisive factors rences between bank-centered and stock panies in said industry sectors.that render a country attractive have been market-centered capital markets. Theyextensively discussed in literature about the argue that a well-developed stock mar- Importance of Taxationdeterminants of vibrant VC and PE markets. ket that permits venture capitalists to exit We assume that two types of taxes affectWe give a brief overview over this literature through an initial public offering (IPO) is VC and PE activity; those directly related toand group the articles into six sub-chap- crucial for the existence of a vibrant VC the asset class, such as taxes on dividendsters that already reveal the structure of our market. In general, bank-centered capital and capital gains, and those with an im-index. Each heading represents one of six markets show less ability to produce an ef- pact on corporations and entrepreneurship,key drivers that we regard as important, ficient VC infrastructure. They affirm that such as corporate tax rates. Gompers andappropriate and quantifiable to determine it is not merely the strong stock market Lerner (1998) stress that the capital gainsthe attractiveness of a country for limited that is missing in bank-centered capital tax rate influences VC/PE activity. In fact,partners. The key drivers name and define markets; it is also the secondary institu- they confirm Poterba’s finding (1989), whoa set of criteria we need to assess for our tions, including the bankers’ conservative builds a decision-model to become entre-sample countries.1 approach to lending and investing, and preneur. Bruce (2000 and 2002), and Cullen the social and financial incentives that and Gordon (2002) prove that taxes mat- reward entrepreneurs less richly (and pe- ter for business entry and exit. Djankov et1. Groh, Alexander, Liechtenstein, Heinrich and Lieser,Karsten (2009a) : The European Venture Capital and Private nalize failure more severely), that compro- al. (2008) show that corporate tax ratesEquity Country Attractiveness Indices, forthcoming in the mise entrepreneurial activity. While their strongly affect entrepreneurship. Bruce andJournal of Corporate Finance (Re-print). Available athttp://ssrn.com/author=330804. paper focuses on the early stage segment, Gurley (2005) explain that increases in the The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 13
  • 12. The Global VC/PE Country Attractiveness Index personal income tax raise the probability of ting standards have a significant impact Rigid labor market policies negatively becoming an entrepreneur. Hence, the dif- on the governance of investments in the affect the evolution of a VC/PE market. ference between personal income tax rates VC/PE industry. Desai et al. (2006) show, Lazear (1990) and Blanchard (1997) dis- and corporate tax rates tends to be an in- that fairness and property rights protec- cuss how protection of workers can reduce centive to create self-employment. tion largely determine the growth and employment and growth. Black and Gilson emergence of new enterprises. Cumming (1998) argue that labor market restric- Importance of Investor Protection and Johan (2007), meanwhile, highlight tions influence VC/PE activity, though not and Corporate Governance the perceived importance of regulatory to the same extent as the stock market. Legal structures and the protection of harmonization with respect to increasing Djankov et al. (2002) investigate the property rights also influence the at- institutional investor commitments to role of several societal burdens for start- tractiveness of a VC/PE market. La Porta the asset class. La Porta et al. (2002) find ups in different countries. They conclude et al. (1997 and 1998) confirm that the a lower cost of capital for companies in that the highest barriers and costs are legal environment strongly determines countries with better investor protection, associated with corruption, crime, a lar- the size and extent of a country’s capital and Lerner and Schoar (2005) confirm ger unofficial economy, and bureaucratic market and local companies’ ability to re- these findings. Johnson et al. (1999) show delay. ceive outside financing. They emphasize that weak property rights limit the rein- the difference between statutory law and vestment of profits in start-up compa- Importance of Entrepreneurial the quality of law enforcement in some nies. Finally and more broadly, Knack and Culture and Opportunities countries. Roe (2006) comprehensively Keefer (1995), Mauro (1995), and Svens- Access to viable investments is one of the discusses and compares the political deter- son (1998) demonstrate that property most important factors for the attracti- minants of corporate governance rules for rights significantly affect investments and veness of a regional VC market, especially the major economies and focuses on the economic growth. for early stage or start-up deals. The num- importance of strong minority sharehol- ber of potential investments relates to the der protection to develop a vibrant capital Importance of the Human and Social research output in an economy. Gompers market. Glaeser et al. (2001) and Djankov Environment and Lerner (1998) show that both indus- et al. (2003 and 2005) suggest that parties Black and Gilson (1998), Lee and Peterson trial and academic research and deve- in common-law countries have greater (2000), and Baughn and Neupert (2003) lopment (R&D) expenditure significantly ease in enforcing their rights from com- argue that national culture shapes both correlates with VC activity. Kortum and mercial contracts. Cumming et al. (2006) individual orientation and environmental Lerner (2000) highlight that the growth in find that the quality of a country’s legal conditions, which lead to different levels VC fundraising in the mid-1990s may be system is more closely connected to faci- of entrepreneurial activity in particular due to a surge of patents in the late 1980s litating VC/PE backed exits than the size countries. Megginson (2004) argues that, and 1990s. Schertler (2003) emphasizes of a country’s stock market. Cumming et in order to foster a growing risk capital that the number of both R&D employees al. (2009) extend this finding and show industry, research culture plays an impor- and patents, as an approximation of the that cross-country differences in lega- tant role, especially in universities or na- human capital endowment, has a positive lity, including legal origin and accoun- tional laboratories. and highly significant influence on VC ac-14 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 13. tivity. Furthermore, Romain and von Pot- For the index calculation, it would betelsberghe de la Potterie (2004) find that ideal to include all parameters. However,start-up activity interacts with the R&D some of the cited papers focus on parti-capital stock, with technological opportu- cular economies or regions, dependingnities, and the number of patents. Simi- on the data available, and their datasetslar to Djankov et al. (2002), Baughn and are difficult to compare. Therefore, we tryNeupert (2003) argue that bureaucracy in to find the best possible proxies for thethe form of excessive rules and procedural aforementioned drivers of VC/PE activity,requirements, multiple institutions from which are available for a large number ofwhich approvals are needed, and cumber- countries. From the foregoing review ofsome documentation requirements may prior research, we identified six main cri-severely constrain entrepreneurial activity. teria that ultimately determine the attrac-Lee and Peterson (2000) stress that the tiveness of an individual country for VC/time and money required to meet such PE investments: Economic Activity, Depthadministrative burdens may discourage of a Capital Market, Taxation, Investornew venture creations. Protection and Corporate Governance, Human and Social Environment, and En-Summary on the determinants of trepreneurial Culture and Opportunities.vibrant VC and PE markets We regard these criteria as “key drivers”,The research findings discussed emphasize confirm their choice via a survey amongthe difficulty of identifying the appro- institutional investors, reported in Grohpriate parameters for our index. There is and Liechtenstein (2009b) and (2009c),neither consensus about the most impor- and base the index structure upon them.tant parameters for VC/PE investment, Since none of the key drivers are di-nor any ranking. While some parameters rectly measurable, we regard them asare more comprehensively discussed, “constructs” and seek for data series thatand certainly of very high relevance, it adequately express their character.remains unclear how these interact. Forexample, it is debatable whether the VC/PE activity in a country with a high cor-porate governance level is more affectedby the liquidity of the national stockmarket or by labor regulations. While anIPO exit is, in principle, possible at manystock exchanges in the world, labor mar-ket frictions can hardly be evaded. The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 15
  • 14. The Global VC/PE Country Attractiveness Index The 2009/2010 Index Assessing six latent key drivers How we disaggregate the six key Overall, we use 22 level 2 constructs for The basic and important principle of our in- drivers our index, and hence, “1 Economic Acti- dex is to make use of “latent drivers”. These According to the principle to assess latent vity” receives a weight of 3/22, which is are criteria that are not directly observable, drivers of VC and PE attractiveness with 0.136, while the weight of “3 Taxation” is but driven by others which can be measu- observable data we disaggregate the six 2/22 - 0.091. The advantage of this wei- red. For example, while we do not get data key drivers in sub-categories. These catego- ghting scheme is that the key drivers that on the number of investment banks, law ries are either actual data series or further consist of more level 2 constructs gain firms, accountants, or consultants to assess sub-constructs, and we call them “level 2 more weight. That way, we also smooth the infrastructure of the deal supporting constructs”. For example, in Table 1, we find, outliers in individual data series.3 institutions for the majority of our sample the key driver “2 Depth of a Capital Mar- countries, we can gather more general in- ket” split into five sub-categories: “2.1 Size Separate VC and PE indices formation on the level of debt provided by and Liquidity of the Stock Market”, “2.2 IPO To account for differences with respect the banking sector, or estimates about the Market Activity”, “2.3 M&A Market Activi- to the two market segments, VC vs. PE, we soundness of banks, the sophistication of ty”, “2.4 Debt and Credit Market”, and “2.5 propose three alternative indices. The first the financial system and the ease of access Financial Market Sophistication”. The last combines both segments. The second fo- to loans. We assume that the better these sub-category is a data series provided by the cuses on early stage VC and the third on criteria are developed, the more deal sup- World Economic Forum (WEF), all the others later stage PE only. For the VC and PE in- porting institutions will likewise exist to are constructs by themselves. For example, dices we simply discard data series that are facilitate VC and PE activity. This principle we assess “2.1 Size and Liquidity of the Stock less important for either market segment: is maintained at all individual stages for the Market” with three different data series (and for the VC index, we regard the level 2 index construction. An unobservable crite- call them “level 3 data”): the “2.1.1 Market construct “2.4 Debt and Credit Market” as rion is assessed with several proxy parame- Capitalization of Listed Companies", the relatively unimportant, and hence discard it. ters. In principle, we measure the attrac- “2.1.2 Total Trading Volume”, and “2.1.3 Lis- When calculating the PE index, we discard tiveness of a country by six main criteria. ted Domestic Companies”. This approach has “3.1.2 Entrepreneurship Incentive”, “3.1.3 The choice of these criteria is based on our two major advantages: first, individual data Labor and Tax Contributions”, and “3.2 Ad- own experience, the above review of aca- series do not gain too much weight when ministrative Tax Burdens”, and further, “5.1 demic literature and a survey we undertook they are grouped; second, the overall results Education and Human Capital”, “6.1 Inno- among limited partners.2 can be traced to more granulated levels and vation and R&D”, “6.2 Ease of Starting and We call them the “six key drivers” : hence, facilitate interpretations. Running a Business” and “6.4 ICT Infrastruc- 1. Economic Activity ture” from the criteria. The weights for the 2. Depth of a Capital Market The weighting scheme individual index items in the separate VC 3. Taxation We spent a great amount of time with and PE indices are calculated analogue to 4. Investor Protection and Corporate statistical analyses and optimization ap- the above explained procedure. Governance proaches to determine the weights for the Table 1 presents the structures and the 5. Human and Social Environment data aggregation. Finally, we came to the weights of the individual data series and 6. Entrepreneurial Culture and conclusion not to apply a statistically so- constructs for the combined VCPE, the VC Opportunities. phisticated approach that deserves docu- and the PE index. In the appendices, we As discussed before, these six key dri- mentation and discussion, but to choose provide detailed information on the data vers are not directly observable. For this a simple, plausible, and robust weighting series used to aggregate the index, and all reason, we disaggregate them, and use se- scheme. We apply equal weights for all data sources. There, we also explain the veral proxies for their assessment. data series, when we aggregate them to exact data aggregation technique. the level 2 constructs. Then again, we use 3. Details about the possible statistical approaches to 2. The results of this survey are described in two academic equal weights for the level 2 constructs determine weights for the data series are provided in the working papers : Groh, Alexander and Liechtenstein, to aggregate the six key drivers. Finally, academic paper Groh, Alexander, Liechtenstein, Heinrich Heinrich (2009b) : International Allocation Determinants and Lieser, Karsten (2009a) : The European Venture of Institutional Investments in Venture Capital and Private the weight of the key drivers depends Capital and Private Equity Country Attractiveness Indices, Equity Limited Partnerships, IESE Business School Working on the number of level 2 constructs in- forthcoming in the Journal of Corporate Finance. Available Paper No. 726, and in Groh, Alexander and Liechtenstein, at http://ssrn.com/author=330804. Heinrich (2009c) : How Attractive is Central Eastern Europe cluded. For example, “1 Economic Acti- for Risk Capital Investors ? Journal of International Money vity” consists of three level 2 constructs, and Finance (28), 4, p. 625 – 647. Available at http://ssrn. com/author=330804. while “3 Taxation” consists of only two.16 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 15. Table 1: Structure of the VCPE Index, the separate VC, and PE Indices, and the weighting schemes VCPE VC PE VCPE VC PE Index Index Index Index Index Index1 Economic Activity 0.14 0.14 0.18 4.2.3 Intellectual Property Protection 0.33 0.33 0.331.1 Gross Domestic Product 0.33 0.33 0.33 4.3 Quality of Legal Enforcement 0.25 0.25 0.251.1.1 Total Economic Size 0.33 0.33 0.33 4.3.1 Judicial Independence 0.25 0.25 0.251.1.2 GDP per Capita 0.33 0.33 0.33 4.3.2 Impartial Courts 0.25 0.25 0.251.1.3 Real GDP year-on-year Growth 0.33 0.33 0.33 4.3.3 Integrity of the Legal System 0.25 0.25 0.251.2 Inflation 0.33 0.33 0.33 4.3.4 Rule of Law 0.25 0.25 0.251.3 Unemployment 0.33 0.33 0.33 4.4 Regulatory Quality 0.25 0.25 0.252 Depth of a Capital Market 0.23 0.19 0.29 5 Human and Social Environment 0.18 0.19 0.182.1 Size and Liquidity of the Stock Market 0.20 0.25 0.20 5.1 Education and Human Capital 0.25 0.252.1.1 Market Capitalization of Listed Companies 0.33 0.33 0.33 5.1.1 Quality of the Educational System 0.50 0.502.1.2 Total Trading Volume 0.33 0.33 0.33 5.1.2 Quality of Scientific Research Institutions 0.50 0.502.1.3 Listed Domestic Companies 0.33 0.33 0.33 5.2 Labor Market Rigidities 0.25 0.25 0.332.2 IPO Market Activity 0.20 0.25 0.20 5.2.1 Difficulty of Hiring Index 0.25 0.25 0.252.2.1 Market Volume 0.50 0.50 0.50 5.2.2 Rigidity of Hours Index 0.25 0.25 0.252.2.2 Number of IPOs 0.50 0.50 0.50 5.2.3 Difficulty of Firing Index 0.25 0.25 0.252.3 M&A Market Activity 0.20 0.25 0.20 5.2.4 Firing Costs 0.25 0.25 0.252.3.1 Market Volume 0.50 0.50 0.50 5.3 Bribing and Corruption 0.25 0.25 0.332.3.2 Number of Deals 0.50 0.50 0.50 5.3.1 Bribing and Corruption Index 0.33 0.33 0.332.4 Debt and Credit Market 0.20 0.20 5.3.2 Control of Corruption 0.33 0.33 0.332.4.1 Domestic Credit provided by Banking Sector 0.17 0.17 5.3.3 Extra Payments/Bribes 0.33 0.33 0.332.4.2 Ease of Access to Loans 0.17 0.17 5.4 Costs of Crime 0.25 0.25 0.332.4.3 Credit Information Index 0.17 0.17 5.4.1 Business Costs of Crime and Violence 0.50 0.50 0.502.4.4 Soundness of Banks 0.17 0.17 5.4.2 Costs of Organized Crime 0.50 0.50 0.502.4.5 Interest Rate Spread 0.17 0.17 6 Entrepreneurial Culture and Opportunities 0.18 0.19 0.062.4.6 Bank Non-performing Loans to Total Gross Loans 0.17 0.17 6.1 Innovation and R&D 0.25 0.252.5 Financial Market Sophistication 0.20 0.25 0.20 6.1.1 General Innovativeness Index 0.20 0.203 Taxation 0.09 0.10 0.06 6.1.2 Capacity for Innovation 0.20 0.203.1 Tax Incentives 0.50 0.50 1.00 6.1.3 Company Spending on R&D 0.20 0.203.1.1 Marginal Corporate Tax Rate 0.25 0.25 0.50 6.1.4 Utility Patents 0.20 0.203.1.2 Entrepreneurship Incentive 0.25 0.25 6.1.5 Scientific and Technical Journal Articles 0.20 0.203.1.3 Labor Tax and Contributions 0.25 0.25 6.2 Ease of Starting and Running a Business 0.25 0.253.1.4 Profit and Capital Gains Tax 0.25 0.25 0.50 6.2.1 Number of Procedures to start of Business 0.20 0.203.2 Administrative Tax Burdens 0.50 0.50 6.2.2 Time needed to start a Business 0.20 0.203.2.1 Number of Payments 0.50 0.50 6.2.3 Costs of Business Start-Up Procedures 0.20 0.203.2.2 Time spent on Tax Issues 0.50 0.50 6.2.4 Minimum Capital 0.20 0.204 Investor Protection and Corporate Governance 0.18 0.19 0.24 6.2.5 Administrative Requirements 0.20 0.204.1 Corporate Governance 0.25 0.25 0.25 6.3 Simplicity of Closing a Business 0.25 0.25 1.004.1.1 Disclosure Index 0.20 0.20 0.20 6.3.1 Time 0.33 0.33 0.334.1.2 Director Liability Index 0.20 0.20 0.20 6.3.2 Costs 0.33 0.33 0.334.1.3 Shareholder Suits Index 0.20 0.20 0.20 6.3.3 Recovery Rate 0.33 0.33 0.334.1.4 Legal Rights Index 0.20 0.20 0.20 6.4 ICT Infrastructure 0.25 0.254.1.5 Efficacy of Corporate Boards 0.20 0.20 0.20 6.4.1 Broadband Subscribers 0.25 0.254.2 Security of Property Rights 0.25 0.25 0.25 6.4.2 Fixed Line and Mobile Phone Subscribers 0.25 0.254.2.1 Legal Enforcement of Contracts 0.33 0.33 0.33 6.4.3 Internet Users 0.25 0.254.2.2 Property Rights 0.33 0.33 0.33 6.4.4 Secure Internet Servers 0.25 0.25 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 17
  • 16. The Global VC/PE Country Attractiveness Index The countries we cover The VCPE country attractiveness The selection of our sample countries is ranking purely driven by the availability of data. We gathered the data from Table 1 for the We would like to include many more na- 66 countries as far back to the past, and as tions but the lack of data is the constraint. recent as possible. We calculated the in- At present, the African continent is un- dex scores for 2009/2010 and realized, not der-represented with only four countries, surprisingly, that the United States is the but we hope to expand the number of most attractive country for VC and PE al- countries in future editions of the index. locations, with some remarkable distance We consider the following 66 nations and to its followers. Therefore, we use the US assign them to eight different geographic as the world benchmark: we rescale the regions. index score for the US to 100. This enables us to directly compare all other countries on a percentage scale. We explain the res- caling procedure in the appendix to this Africa: Kenya, Morocco, Nigeria, South Africa index, and first present the ranking of the 2009/2010 VCPE Country Attractiveness Asia: China, Hong Kong, India, Indonesia, Japan, Index. Malaysia, Philippines, Russian Federation, Exhibit 1 shows the ranking of the Republic of Korea, Singapore, Taiwan, 2009/2010 VCPE Country Attractiveness Thailand, Vietnam Index. We know that this exhibit opens room for discussion. Some readers might Australasia: Australia, New Zealand think that particular countries are ran- ked too high, others too low. However, we Eastern Europe: Bulgaria, Croatia, Czech Republic, Estonia, want to stress that the index ranking is the Hungary, Latvia, Lithuania, Poland, Romania, result of commonly available, aggregated Slovak Republic, Slovenia, Turkey, Ukraine socio-economic data. The results can be traced to the level of the individual data Latin America: Argentina, Brazil, Chile, Colombia, Mexico, series, and hence, can be confirmed. We Paraguay, Peru, Uruguay, Venezuela want to remark that the underlying data is historical, and does not include future Middle East: Egypt, Israel, Kuwait, Oman, Saudi Arabia, estimates. Therefore, we show the attrac- United Arab Emirates tiveness ranking as of today and want to leave it to investors and advisers to en- North America: USA, Canada rich the information we prepared with own knowledge, and expectations to draw Western Europe: Austria, Belgium, Denmark, Finland, France, their conclusions. Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom18 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 17. Exhibit 1: 2009/2010 VCPE Country Attractiveness Index 0 10 20 30 40 50 60 70 80 90 100 United States (1.) 100,0 Canada (2.) 85,8 United Kingdom (3.) 84,3 Australia (4.) 81,9 Hong Kong (5.) 79,5 Singapore (6.) 78,5 Japan (7.) 76,5 Switzerland (8.) 76,3 Netherlands (9.) 70,1 Germany (10.) 69,1 Sweden (11.) 69,0 Denmark (12.) 67,7 Republic of Korea (13.) 67,5 Norway (14.) 66,3 Finland (15.) 65,9 France (16.) 65,2 Belgium (17.) 61,1 New Zealand (18.) 60,0 Austria (19.) 58,6 Spain (20.) 58,3 Ireland (21.) 58,3 Israel (22.) 55,8 Taiwan (23.) 55,3 Luxembourg (24.) 54,6 Malaysia (25.) 54,4United Arab Emirates (26.) 51,7 Portugal (27.) 49,5 China (28.) 48,5 Italy (29.) 47,5 Saudi Arabia (30.) 46,4 Poland (31.) 45,8 Chile (32.) 45,8 Slovenia (33.) 45,6 Czech Republic (34.) 45,5 Estonia (35.) 44,5 Thailand (36.) 41,4 Hungary (37.) 41,1 India (38.) 40,9 Greece (39.) 40,7 Lithuania (40.) 40,4 Slovakia (41.) 40,3 Kuwait (42.) 40,1 South Africa (43.) 39,5 Turkey (44.) 39,1 Croatia (45.) 38,6 Oman (46.) 38,1 Romania (47.) 38,1 Russian Federation (48.) 38,0 Mexico (49.) 35,8 Latvia (50.) 35,6 Brazil (51.) 34,6 Uruguay (52.) 33,4 Peru (53.) 32,4 Indonesia (54.) 30,7 Bulgaria (55.) 30,6 Morocco (56.) 30,3 Egypt (57.) 30,1 Colombia (58.) 29,4 Argentina (59.) 29,1 Vietnam (60.) 27,1 Philippines (61.) 26,1 Nigeria (62.) 24,4 Ukraine (63.) 23,6 Kenya (64.) 19,3 Paraguay (65.) 14,9 Venezuela (66.) 8,9 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 19
  • 18. The Global VC/PE Country Attractiveness Index Rankings according to the separate For the PE index, we discard all constructs VC and PE indices that are related to innovations, and foun- Exhibit 2 combines the prior results and ding or running a business in early stages. the ranking according to the separate VC We realize that Brazil, India, China, France, and PE indices. The red squares mark the Spain and Malaysia gain many ranks with VCPE index ranks. The white squares desi- respect to their attractiveness for PE in- gnate the VC index, and the grey squares vestments. The rationale is simple: the the PE index ranks. The VC index country aforementioned countries show relative ranking does not change greatly. The ran- liquid and developed capital markets. As king remains because we only discard the the measure for the depth of a capital level 2 construct to assess the “Debt and market gains a higher weight in the PE Credit Market” from the VC index. Howe- index, these countries rank on superior le- ver, we receive a stronger ranking varia- vels, consequently. tion if we focus on the PE segment only.20 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 19. Exhibit 2: Rankings of the three different indices United States (1.) Canada (2.) United Kingdom (3.) Australia (4.) Hong Kong (5.) Singapore (6.) Japan (7.) Switzerland (8.) Netherlands (9.) Germany (10.) Sweden (11.) Denmark (12.) Republic of Korea (13.) Norway (14.) Finland (15.) France (16.) Belgium (17.) New Zealand (18.) Austria (19.) Spain (20.) Ireland (21.) Israel (22.) Taiwan (23.) Luxembourg (24.) Malaysia (25.)United Arab Emirates (26.) Portugal (27.) China (28.) Italy (29.) Saudi Arabia (30.) Poland (31.) Chile (32.) Slovenia (33.) Czech Republic (34.) Estonia (35.) Thailand (36.) Hungary (37.) India (38.) Greece (39.) Lithuania (40.) Slovakia (41.) Kuwait (42.) South Africa (43.) Turkey (44.) Croatia (45.) Oman (46.) Romania (47.) Russian Federation (48.) Mexico (49.) Latvia (50.) Brazil (51.) Uruguay (52.) Peru (53.) Indonesia (54.) Bulgaria (55.) Morocco (56.) Egypt (57.) Colombia (58.) Argentina (59.) Vietnam (60.) Philippines (61.) Nigeria (62.) Ukraine (63.) Kenya (64.) Paraguay (65.) Venezuela (66.) PE 2009/10 VC 2009/10 VCPE 2009/10 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 21
  • 20. The Global VC/PE Country Attractiveness Index Comparisons of regions and countries The general pattern: What renders enforcement possibilities with respect to More details the US so attractive? investor protection and corporate gover- We can brake-down our analysis to the le- Next, we break down the index scores to nance. This pattern becomes even more vel 2 constructs and provide more details the level of the six key driving forces, and obvious in the analyses presented in the to support the general pattern we detect. further down to the level 2 constructs to appendix, where we benchmark every in- Exhibit 4 points to the remarkable dis- enhance the discussion about the ranking. dividual country with the US: there are tance between the scores of the US, Slo- We find a typical pattern with respect to many economically strong nations with venia and Venezuela with respect to the the dominating attractiveness of the US vibrant entrepreneurial cultures and op- level 2 constructs that assess the capital for VC and PE allocations. We can de- portunities, with excellent human capi- market, investor protection and corporate monstrate this pattern by comparing the tal and social environment. However, the governance. first ranked with the medial ranked, and finally decisive criteria are the financial the final ranked country, the US, Slovenia, markets, and investor protection and cor- and Venezuela. Exhibit 3 presents the key porate governance. That finding points to driver scores of Slovenia and Venezuela the discussion about the competition of relative to the scores of the US (which legal systems, and the relation between scores 100 for each key driver). law and finance: all strong countries show Exhibit 3 reveals that the US ranks high scores for the Investor Protection ahead of Slovenia and Venezuela with res- and Corporate Governance key drivers. pect to all key drivers but Taxation. Emer- This likewise spurs the development of a ging economies often attract investors national capital market, which is required with tax incentives. The criteria that really for the establishment of VC and PE deal make the difference are the depth of the supporting institutions. US capital market and its legislation and22 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 21. Exhibit 3: Six key driving forces. Comparison of the US, Slovenia and Venezuela 1. Economic Activity 125 100 6. Entrepreneurial 75 2. Depth of a Culture & Opportunities 50 Capital Market 25 5. Human & 3. Taxation Social Environment United States 4. Investor Protection & Slovenia Corporate Governance VenezuelaExhibit 4: Level 2 constructs - Comparison of the US, Slovenia and Venezuela 1.1 Gross Domestic Product 1.2 Inflation 1.3 Unemployment2.1 Size and Liquidity of the Stock Market 2.2 IPO Market Activity 2.3 M&A Market Activity 2.4 Debt & Credit Market 2.5 Financial Market Sophistication 3.1 Tax Incentives 3.2 Administrative Tax Burdens 4.1 Corporate Governance 4.2 Security of Property Rights 4.3 Quality of Legal Enforcement 4.4 Regulatory Quality 5.1 Education & Human Capital 5.2 Labor Market Rigidities 5.3 Bribing & Corruption 5.4 Costs of Crime 6.1 Innovation & R&D 6.2 Ease of Starting & Running a Business 6.3 Simplicity of Closing a Business United States Slovenia 6.4 ICT Infrastructure Venezuela 0 20 40 60 80 100 120 140 160 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 23
  • 22. The Global VC/PE Country Attractiveness Index Regional comparison included sample countries only. Hence, Beside the analyses for the individual especially for Africa, where we cover only countries, we can benchmark geographic four countries, the results should be inter- regions against each other. We are aware preted with caution. that we should interpret regional compa- Exhibit 5 presents the regional ranking. risons with special care and want to hi- Again, the score of the US is rescaled to 100. ghlight that many of our sample countries It is in line with the contemporary use of the already represent somehow geographic terms emerging regions and developed mar- regions. The point is that within large kets. Braking-down the index scores to the countries, such as the US, Russia, China, six key driving forces reveals the same pat- India, or Brazil the internal socio-econo- tern as described before. First, we compare mic differences might be larger than those the four leading regions North America, between e.g., some European countries. Australasia, Western Europe, and Asia. Therefore, the scores of these large Exhibit 6 highlights that only the countries represent averages. We know common-law Australasian countries can that California attracts more VC and PE compete with North America with res- than Montana, but we cannot control for pect to investor protection and corporate small clusters, and the US still receives one governance. It also shows that, compared single average country score. Hence, we to the North America, all other regional also keep our approach to calculate the capital markets can be considered minis- index scores for the different geographic cule. A closer look to the emerging regions regions rather simple: we calculate either confirms this. GDP-weighted, population-weighted, or Exhibit 7 compares the emerging re- arithmetic averages of the different data gions Middle East, Eastern Europe, Latin series, and aggregate the regional scores America, and Africa. It reveals weaknesses with these values. We use GDP-weighted especially with respect to entrepreneurial averages for the data series that are rela- cultures and opportunities. Attempts to ted to the size of the economy, we use po- attract investors simply by tax incentives pulation weighted averages for those that will probably not be fruitful as long as are related to people and we use arith- the obstacle of missing deal opportuni- metic averages for the rest. We highlight ties remains. that, of course, these averages base on the24 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 23. Exhibit 5: Ranking of geographic regions North America 97 Australasia 76Western Europe 67 World 55 Asia 54 Middle East 46 Eastern Europe 42 Latin America 35 Africa 33 0 20 40 60 80 100Exhibit 6: Key driver scores of geographic regions Exhibit 7: Key driver scores of geographic regions 1. Economic Activity 1. Economic Activity 125 125 100 1006. Entrepreneurial 6. Entrepreneurial 75 75 2. Depth of a 2. Depth of a Culture & Culture & Capital Market Capital Market Opportunities 50 Opportunities 50 25 25 5. Human & 3. Taxation 5. Human & 3. TaxationSocial Environment Social Environment North America (I.) Middle East (V.) 4. Investor Protection & 4. Investor Protection & Eastern Europe (VI.) Australasia (II.) Corporate Governance Corporate Governance Latin America (VII.) Western Europe (III.) Asia (IV.) Africa (VIII.) The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 25
  • 24. The Global VC/PE Country Attractiveness Index Historic comparison – improvements Exhibit 8 underscores what we are used of VCPE investment conditions to learning from daily news about China, We can calculate back the index to the and India. Additionally, Poland impro- past, as far as 2005/2006. Thereby, we ved its attractiveness for limited partners should note that some of the data series quite substantially during the last four used (e.g., the General Innovation Index years. For details, we refer to the indivi- [GII]) do not date back to 2005. However, dual country analyses in the appendix of we assume that indicators like this one this index. On the left axis of Exhibit 8, we did not change to a large extent over the find the countries’ current ranks and the period of interest, and hence, keep them bars document the rank changes between constant. The calculation of the 2005/2006 the 2005/2006 and the 2009/2010 index index allows interesting insights, and re- versions. Kuwait, Latvia, and Oman are veals the development and rank changes the countries that decreased remarkably of particular countries. in their rankings. Kuwait lost many ranks because of a tax reform with increasing corporate tax rates and deteriorating conditions regarding the protection of in- vestors and corporate governance. Latvia and Oman were both exposed to worse- ning economic conditions with high in- flation during the observed period. Howe- ver, it should be stressed that the index scores are always calculated relative to the other countries. That means that all the countries that lost ranking positions did not necessarily deteriorate their in- vestment conditions in absolute terms. They might just have been outperformed by others in the international competition for capital resources.26 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 25. Exhibit 8: Rank changes between index version 2005/2006 and 2009/2010 -15 -10 -5 0 5 10 15 United States (1.) Canada (2.) United Kingdom (3.) Australia (4.) Hong Kong (5.) Singapore (6.) Japan (7.) Switzerland (8.) Netherlands (9.) Germany (10.) Sweden (11.) Denmark (12.) Republic of Korea (13.) Norway (14.) Finland (15.) France (16.) Belgium (17.) New Zealand (18.) Austria (19.) Spain (20.) Ireland (21.) Israel (22.) Taiwan (23.) Luxembourg (24.) Malaysia (25.) United Arab Emirates (26.) Portugal (27.) China (28.) Italy (29.) Saudi Arabia (30.) Poland (31.) Chile (32.) Slovenia (33.) Czech Republic (34.) Estonia (35.) Thailand (36.) Hungary (37.) India (38.) Greece (39.) Lithuania (40.) Slovakia (41.) Kuwait (42.) South Africa (43.) Turkey (44.) Croatia (45.) Oman (46.) Romania (47.) Russian Federation (48.) Mexico (49.) Latvia (50.) Brazil (51.) Uruguay (52.) Peru (53.) Indonesia (54.) Bulgaria (55.) Morocco (56.) Egypt (57.) Colombia (58.) Argentina (59.) Vietnam (60.) Philippines (61.) Nigeria (62.) Ukraine (63.) Kenya (64.) Paraguay (65.) Venezuela (66.) The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 27
  • 26. The Global VC/PE Country Attractiveness Index Tracking power of our index The idea of our index is to assess the at- the actual VC and PE activity in the va- The statistical measure for such a com- tractiveness of a country to receive VC/ rious countries. We use data from Thom- parison is the Pearson Correlation Coeffi- PE allocations from institutional investors son Financial on VC and PE activity. Our cient. It ranges between 0 and 1, where 0 based on socio-economic parameters that activity measure is the natural logarithm signals “no” and 1 “perfect tracking”. The we regard relevant. The composite measure of an average of all VC and PE invest- coefficient for our index is 0.8104, signa- can deviate from the actual risk capital ments made by the general partners in a ling that the index excellently(!) tracks market activity, and deviations between certain country over the last three years. a country’s capacity to actually “absorb” our attractiveness score and actual acti- We use the natural logarithm to account the committed capital. If we compare the vity might either point to under- or over- for the large activity divergence (e.g., ac- results of our VC index with VC activity, funding of particular countries, or to the tivity in the US vs. Venezuela), and we use analogue to the above defined activity fact that our chosen criteria are not rele- an average over three years to smooth measure, the correlation is 0.8100. The vant for VC and PE investors. Experience fluctuations. Especially for some emer- correlation of our PE index with actual reveals that investors are often influenced ging countries, annual activity fluctuates PE activity is 0.7807. Both results are still by herding behavior and follow trends to strongly from peak levels to zero in sub- confirmative. However, the slightly de- invest in certain countries or regions. The sequent years. We chose the criterion lo- crease of the tracking power regarding the countries might not have the “infrastruc- cation of the general partners - and not two separate indices is partly due to inho- ture” to absorb the investments, leading of the investments - for the following mogeneous definitions of the two market to over-funding. The “infrastructure” is reason: some financial centers serve as segments in different parts of the world. exactly what we aim to measure: can we hubs and channel VC and PE investments In other words, in some cases, VC transac- expect sufficient deal opportunities resul- abroad. Investors allocate their capital in tions in emerging countries might rather ting from the entrepreneurial culture in a these hubs because they rely on the effi- be called infrastructure investments, or country, from its economic soundness, or ciency of the financial community there. project financing (but not VC transac- from innovations? Are potential transac- This is exactly what we measure with our tions) in more developed economies. tions sufficiently supported by the finan- index. In fact, we focus on the demand for cial community? Are the stock and M&A VC and PE in a particular economy, and Does the global financial crisis have markets sufficiently liquid to facilitate likewise on the state of the professional an impact on the robustness of our divestments? Are investors’ concerns le- financial community to support the supply index? gally taken care of? We do not claim that side. Therefore, investments, according to We have seen the biggest crisis since the our index provides the correct answers the location of the general partners, cor- great depression and the question remains to these questions. But, we claim that respond best with the idea of our index. whether this has an impact on the robus- our index is very helpful in this respect. Additionally, we use investments - and not tness of our index. The data for the last Therefore, we expect deviations between raised funds - because our index targets quarter of the year 2008 (where quar- our attractiveness measure and actual VC the “absorption-capacity” (either caused terly data is available) and later captures and PE activity in the particular countries. by direct local demand or by channeling the major consequences of the financial However, these deviations should not be funds abroad) of the particular econo- crisis. We realize that the impact on eco- great on average. If they are great we mies. Funds raised might deviate from this nomic activity and the depth of the ca- would doubt the reliability of our index. capacity due to herding behavior of inves- pital market is large for many countries, Hence, we compare our index scores with tors or negligence. especially for those that had high ran-28 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 27. kings with respect to these two key drivers we expect several emerging countries tobefore the financial crisis. IPO and M&A strongly improve their position over theactivity has come down significantly. The course of 2009/2010. However, we have tosize and liquidity of the stock markets wait for the following edition, to providemelted down. The access to loans deterio- evidence for our expectations.rated and interest rates increased to peaklevels. It became clear that the fraction How our index differs fromof non-performing loans is probably the other, more general indices onhighest seen in banking history, and the competitivenesssoundness of banks might be doubted in Some institutions provide competitivenessseveral countries. These are all data series indices or assess the general conditionswe use for our index construction, and we for making business in various countries.believe that the financial crisis will have These indices have a broader scope and doa strong impact on all of them. However, not focus on the particularities of the VCthe data series are not yet updated for all and PE capital market segment. Therefore,countries, and hence, we are not able to their rankings usually differ from ours anddraw conclusions for the quality of our their tracking power to explain VC andindex at that time. PE activity is lower. For example, the Glo- We assume that these effects will move bal Competitiveness Index from the WEFseveral emerging countries to higher ranks tracks VC and PE activity with 0.69, whilefor one simple reason. The rationale is the the IMD World Competitiveness Indextypical pattern we discussed above: the correlates with 0.57 only. This reveals thathigh ranked countries are particularly our index is the more precise indicatorstrong with respect to their capital mar- for VC and PE country attractiveness. Thekets. They will be affected most by the fi- reason for the superior tracking power ofnancial crisis because they lose dispropor- our index is simply that it is tailor-made,tionally their competitive advantage by according to the particular determinantsthe deteriorated capital market conditions. for vibrant VC and PE markets. There is noSeveral emerging countries with sound other indicator tracking the actual VC andgrowth opportunities, but negligible ca- PE activity over the 66 countries, and overpital markets will benefit (in terms of in- time as good as our index.dex scores) from the crisis. It is said thattheir economic growth will be affected toa minor extend, only. The crisis will har-dly impact their scores with respect to theother key drivers such as Taxation, Inves-tor Protection and Corporate Governance,the Human and Social Environment, ortheir Entrepreneurial Culture. Therefore, The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 29
  • 28. The Global VC/PE Country Attractiveness Index Summary and outlook We provide a composite measure that We find a general pattern if we com- bor markets, bribery, and corruption, there determines the attractiveness of 66 pare the country characteristics. There is a will be no demand for VC and PE. If there countries to receive capital allocations lot of dispersion with respect to the six key is no demand, there is no opportunity to from investors in the VC and PE asset drivers. Especially, the emerging countries establish a vibrant VC and PE market. class. The composite measure is based on attract investors with tax incentives. Many We invite you to observe and thorou- six main criteria: Economic Activity, the countries show strong Entrepreneurial ghly analyze our results. If you are an Depth of Capital Markets, Taxation, Inves- Culture and Opportunities. There is great investor, please enrich the provided in- tor Protection and Corporate Governance, dispersion in Economic Activity, and in the formation with your own expertise and the Human and Social Environment, and Human and Social Environment. However, knowledge about the key driving forces Entrepreneurial Culture and Opportu- the two key criteria, Investor Protection and market conditions in the particular nities. The definition of these criteria is and Corporate Governance, and Depth countries to make your allocation deci- based on an extensive review of academic of Capital Markets, make the difference. sions. If you are a politician, please use our literature, and on a survey we conducted The common law countries dominate the analyses as demonstration how investors among institutional investors prior to others regarding these criteria. We can evaluate and benchmark your country. If our study. The six criteria are not directly conclude that strong investor protection you are a researcher, and this is equally observable, so we use proxy variables to leads to liquid and efficient capital mar- valid for the whole constituency, please assess them for each country. As a result, kets, and these evoke the required profes- do not hesitate to criticize our approach. we receive a country ranking, and pro- sional community to secure deal flow and We will continue with annual updates of vide detailed analyses on the strengths exit opportunities for VC and PE funds. our index. Thereby, we aim to cover more and weaknesses of the particular nations This ultimately affects a country’s attrac- and more countries, include new data se- and information on the historic develop- tiveness for institutional investments in ries (discard others), and we will optimize ment of the criteria. Our index tracks real the VC and PE asset class. the data selection and index structure. VC and PE activity better than any other However, this discussion reflects the Hence, we very much appreciate any cri- existing indicator. However, it shall not capital supply side only. We should also tique and comments. be interpreted as a crystal ball for invest- take into account that, as revealed in our ment advisers. We highlight our intention analyses, many countries lack several im- to challenge discussion and to propose a portant attractiveness criteria. Without a valuable informational tool, but not an sufficient entrepreneurial culture and en- arbitrage instrument. trepreneurial opportunities, with rigid la-30 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 29. II.32 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 30. Legal systems, taxesand VC and PE activity The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 33
  • 31. Legal systems, taxes and VC and PE activity After the storm: a global view on post-recession opportunities and challenges for the PE and VC industry While the Global PE/VC Country Attractiveness Index reveals contrasting levels of opportunity, Ernst & Young takes a strategic view on the changing conditions, challenges and opportunities around the world. After a period of remarkable growth in latory and tax regimes in which these riod of ownership and then selling well. the amount of money raised and inves- funds operate. But the dynamic environ- There are many elements to picking the ted by VC and PE funds in the period ment also brings with it opportunities right deals, of course, but a proper un- up to 2007, the past two years have for the funds to make impressive returns derstanding of the geographies in which brought a number of major challenges for their investors through backing the businesses operate is clearly a key part to the industry – supporting existing right businesses through the upturn. of the assessment. investee companies, the backlog of The VC and PE industry has a history of exits, new deal pricing, debt finance evolving to meet the challenges and op- Signs of a positive future constraints, fundraising, and the regu- portunities it faces, and is doing so again PE funds have a significant amount of in the context of the recent turbulence. capital available to invest, and the PE ownership model can play a key role in Talent comes to the fore helping businesses and the wider econo- Article written by : In investing, as in many industries, a my recover from the downturn. In the • Simon Perry boom period can allow average perfor- current environment, PE can be a solu- Partner, Ernst & Young LLP, London mers to look very good, whilst challen- tion for large corporates who may divest sperry@uk.ey.com ging times are more likely to differenti- divisions where they can put the capital • Alexander Reiter ate between the best performers and the to better use elsewhere, for companies Partner, Ernst & Young GmbH, Munich rest. Many PE and VC funds made excel- which need to time and investment to alexander.reiter@de.ey.com lent returns in the boom years, aided by restructure. It can also be appropriate • Gil Forer plentiful cheap debt for the LBO deals for companies with the potential to Partner, Ernst & Young LLP, New York and rising underlying markets in gene- grow through investment, or through gil.forer@ey.com ral. Many PE funds have spent much of the minority investments and strategic the past 18 months or so working with partnerships we have seen evolving in This publication contains information in summary portfolio companies whose leveraged recent times. There is recognition that a form and is therefore intended for general guidance only. It is not intended to be a substitute balance sheets have been strained by the lot of people made very strong returns in for detailed research or the exercise of professional economic downturn. With debt capacity the upturn from the last recession, but judgment. Neither the authors nor Ernst & significantly reduced and new debt more at the same time there is a real sense of Young member firms can accept responsibility for loss to any person relying on this article. expensive and equity markets less re- caution not to jump too early. liable as a driver of sustainable increases In the VC sector, on a longer times- in valuations, the challenge for funds is cale, the innovation pipeline is quite ro- to prove to existing and potential LP in- bust, there is no shortage of capital and vestors that they can outperform on the capital markets show signs of recovery. fundamentals – in both the PE and VC The indicators of recovery are, however, segments this at its most basic level is still just “signs”. about picking the right businesses and In both the PE and VC segments, the management teams, investing at the dramatic slowdown in exits remains a right time and price, working with the key challenge, as the PE and VC business businesses to create value during the pe- models only work if the funds can return34 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 32. money to their investors. We have seen Italy – which could continue to creepsome VC-backed IPOs starting to come across Europe. Venture capital has alsothrough again, and there is much spe- been pressured by the changing rules forculation around the return of IPOs for the carry-forward of losses – in the cur-large PE portfolio companies, but no- rent environment, many companies areone really knows the pace of recovery or making losses, but if the tax treatmentwhat volume we are going to see. The of how those losses are carried forwardreopening of exit routes for PE and VC changes then the investment may be-funds will be a major enabler of future come unattractive. But for all of this,fundraising and investing activity. the tax implications on PE and VC are Geography will continue to be a key largely secondary to the overall qualityfactor in future buoyancy, as the Glo- of investment and the likelihood of abal VC/PE Country Attractiveness Index good fundamental return.shows it has in the past, although it isnot always possible to generalize about Picking the winnerswhich types of areas will prosper. Many As LPs consider where to allocate theirpeople talk about China as a whole as capital, and PE and VC funds look tobeing strong, for example, but in the US make the right investments themselves,the VC ecosystem of Silicon Valley is the the investing landscape will inevitablystandard against which every other area change. There will undoubtedly beis benchmarked. comparative winners and losers, and the Global PE/VC Country AttractivenessA changing tax topography Index could prove to be a valuable toolThe tax treatment of venture capital and in helping funds navigate through thisprivate equity is also changing rapidly. uncertain time.With governments easing fiscal pursestrings but tightening anti-avoidance inways pertinent to both VC and PE, in-vestors need clear and up-to-date adviceon what to do. In July, for example, theObama administration proposed legisla-tion that affects foreign investment inUS funds – from next year, funds mighthave to consider how they restructureto attract foreign investment. Anotherbig issue is the limitation of interestdeductions – first applied by Germanyand subsequently seen in Denmark and The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 35
  • 33. Legal systems, taxes and VC and PE activity Global Venture Capital and Private Equity Country Attractiveness Index - Legal Conclusions From the perspective of a lawyer involved in private equity transactions and fund formation, the results of the Global Venture Capital and Private Equity Country Attractiveness Index invite certain conclusions. The following will highlight these general conclusions. Legal systems tions and protecting investor equity. PE lawyers to give unqualified opinions on There is a traditional distinction between investors have until very recently relied such structures. legal systems of Anglo-Saxon countries, on leverage and debt push down struc- The second, arguably more perti- whose legal system built on a common tures to increase their return multiples. nent reason may be that common law law, and so-called civil law countries In most jurisdictions following the conti- countries whose economies are based on whose legal system is in the most part nental European law tradition such struc- strong capital markets traditionally give built on statutory law. Results of the in- tures are either prohibited or discouraged very strong protection to minority share- dex seem to suggest that countries whose under strict capital maintenance and/ holder rights and offer a greater transpa- legal systems are based on common law or creditor protection rules. As a conse- rency to such shareholders. Therefore, gi- are clearly the more attractive countries quence, structuring and executing such ven the need for flexibility in structuring for VC and PE. The top six spots in all in- transactions in jurisdictions following and strong investor protection rights, it is dices are taken by countries deeply roo- the continental European law tradition is not surprising that countries which have ted in the common law tradition. cumbersome and introduces an additio- common law systems are at the top of the A bird’s-eye view across jurisdictions nal element of risk because investors and index. suggests that the increased attracti- financing banks will not be able to rely on In our view the German, Scandina- veness of countries following the Anglo- unqualified legal opinions. vian and Netherland civil law systems Saxon common law system vis-à-vis the VC transactions usually require ratchets offer slightly stronger investor protection civil law systems are twofold. and other anti dilution mechanisms to rights and flexibility with regard to struc- PE and VC requires a certain degree of bridge the valuation gap between inves- turing than the more Roman law based flexibility with regard to capital creation tors and management/founders. Investors countries following the French, Italian and capital maintenance rules, in parti- will under preset circumstances require and Spanish tradition. This may be part cular with regard to structuring transac- the issuance of additional free shares (e.g., of the reason why countries following when certain milestones are not met or in the German, Scandinavian and Nether- the event of "down rounds"). The flexibility land legal regimes are in terms of attrac- in terms of timing when executing such tiveness in the second tier of the index. Article written by : mechanism will in most civil law jurisdic- The third obvious reason is that com- • Phillip Dubsky tions not be possible because the creation mon law jurisdictions have traditionally Partner of new shares requires shareholder appro- relied more on capital markets as a source DLA Piper Weiss-Tessbach, Vienna val with qualified majorities the adherence of financing while jurisdictions following phillip.dubsky@dlapiper.com to certain notice periods. Moreover, most the continental European approach have jurisdictions will not allow the creation of resorted to lender financing. As a result, shares without a minimum issue price. common law jurisdictions have deve- Common law countries generally show loped capital markets systems which of- greater flexibility with regard to capital fer strong investor protection rights and creation. Most common law jurisdictions forcefully prohibit insider dealings. The allow issuance of no-par-value-shares common law history of transparency and or shares with negligible par-value. In investor protection has resulted in sophis- addition, rules on capital maintenance ticated and mature capital markets. Such will under certain circumstances allow markets in turn offer both the sources debt-push-down structures and enable (i.e., targets) for PE as well as an impor-36 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 34. tant exit route. In summary, the common Specific regulation targeted towards so high that in practice most funds tendlaw countries were until now more suc- private equity to not use the specifically targeted struc-cessful in creating a PE and VC friendly The VCPI shows a certain trend: countries, ture but resort to more traditional or/andenvironment with an experienced indus- which have enacted specific incentives offshore fund structures. This may help totry of market participants and advisers. for VC and PE, tend to be more attractive explain the comparatively low rank Aus- than countries which have not enacted tria takes among industrialised nations.Investor protection - strength of such rules. Other jurisdictions such as Germanyjudicial system – corruption The UK, for example, offers generous have very recently enacted legislationThe index clearly shows that countries tax-incentives to investments in certain which generally abolishes most tax ad-with a strong judicial system and little or funds that target small unquoted high- vantages of certain types of PE funds byno perceived corruption take the top 20 tech companies, companies in disadvan- introducing a flat rate withholding tax ofplaces in terms of attractiveness. taged areas or start-ups. Under certain 25% percent for distributions. Countries such as Nigeria, Venezuela circumstances private individuals can ob-or the Ukraine where judicial systems tain tax relief on investments in unquoted Summaryare generally said to be not very reliable companies and offset losses against in- In summary it appears fair to concludeand a certain degree of corruption is per- come tax should there be no capital gains that jurisdictions with flexible and trans-ceived by market participants rank at the against which to offset them. parent legal systems with an emphasis onbottom of the index. While economic and Another good example is Israel whose investor protection offer a fertile bree-tax incentives are helpful ingredients bri- economy relies heavily on the high tech- ding ground for PE and VC investments.bery and uncertainty of enforcement of nology sector. Israel offers generous Specific legislation targeted towardscontractual commitments remain strong tax breaks for founders of start up bu- improving PE will only improve such en-deterrents for building a vibrant VC and sinesses as well as VC funds. This is one vironment if tax incentives are not en-PE community. An example for this trend of the reasons why Israel has one of the cumbered by hurdles which contraveneis Bulgaria which European Union mem- most vibrant VC scenes outside the Uni- established commercial market practice.bership notwithstanding remains trou- ted States. Therefore, notwithstandingbled with regard to enforcement and its precarious geopolitical situation, Is-transparency and thus ranks in the bot- rael remains comparatively attractive fortom tier of the index. VC and PE financings and is ranked top A good example for the positive deve- among its peer group.lopment of a country is, in our view, Slove- Another example for a regional winnernia. Slovenia has since its accession to the (Latin America) is Chile where tax profitsEuropean Union introduced the VC Act of made by angel or seed capital investors2007 and has made particular strong ef- in risk-capital funds are exempted formforts to reform its judicial system and fight capital gains.corruption. As a result, it ranks first among In some instances, however, specifi-the former communist countries. cally targeted but cumbersome regula- Therefore, one can conclude that an tions may not have the desired effect.experienced and non-corruptible judiciary One example is Austria, where notwiths-are the bed-rock for a country to be at- tanding certain legislative efforts, thetractive for VC and PE investments. hurdles to qualify for tax exemptions are The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 37
  • 35. III.38 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 36. An insight intodifferent VCand PE markets The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 39
  • 37. An insight into different VC and PE markets Africa: Governance, development and budding VC and PE activity Introduction although well behind Asia (58%), held up livering attractive returns to sophisticated According to a 2008 Organization for well compared to other emerging regions investors. Consequently, as the previously Economic Co-operation and Develop- (Latin America: 8%; Middle East/North cited OECD report put it, PE investments ment (OECD) report, PE is “the African Africa: 8%; and CEE/Russia: 10%).”5 in “consumer-related and communica- investment story to watch.”4 The Inter- Significantly too, local sourcing of ca- tions sectors ... have an arguably stronger national Monetary Fund (IMF) estimates pital has also been on the increase, with a impact on Africans’ daily lives ... and stand that between 2000 and 2007, private quarter of the funds raised for the conti- out as a dynamic and diversified counter- capital flows into sub-Saharan African nent coming from South Africa e.g., Pa- point to classic sources of foreign invest- countries increased almost fivefold, from modzi, a South African private equity firm, ment in Africa.”7 US$11bn to US$53bn, with Nigeria and launched a US$1.3 billion fund in 2007, South Africa accounting for about 47% Africa’s largest. Overall, a lot of the re- Structural problems continue to limit of these figures. Within this, the amount cent activity is coming from sub-Saharan VC and PE growth of private equity raised, jumped by 200% Africa, with South African funds managing Nonetheless, although African funds might between 2004 and 2006, to reach US$2.3 80% of total sub-Saharan VC/PE capital, post higher returns than in many other billion in 2006. followed by Nigerian funds with 10%.6 markets, VC/PE investors in Africa have to According to the OECD, “This brought Much of this growth is driven by the contend with a number of socio-political sub-Saharan Africa’s share of emerging efforts of an increasing number of African problems which still continue to act as a market private equity funds to 7%, which governments to encourage foreign par- dampener on growth. Fragile or/and often ticipation in newly liberalized industries unrepresentative democratic institutions 4. Dickinson, T. 2008. Private Equity: An Eye for Investment such as telecommunications and banking. are still more the rule, than the exception. under African Skies? OECD Development Centre Policy In addition, increasing government em- In many countries, freedom of the press, Insights 60: 1-2. phasis on investments in infrastructure, the rule of law and government transpa- along with a growth in the popularity of rency remain weak, and corruption is often public-private partnerships (PPPs), were extensive in the public sector. Article written by Tunji Adegbesan also determining factors for the consi- Although the effects of the global re- Lagos Business School derable chunk of funds that ended up in cession, in the main, are not as severe as Lagos, Nigeria infrastructure-related projects. As African in most parts of the West, Africa has not tAdegbesan@lbs.edu.ng governments turn to the private sector been spared either. The OECD expects for help in funding urgently needed in- Africa’s growth for 2009 to fall to 2.8%, frastructure investments (via PPPs), firms after growing above 5% for four conse- and funds with prior experience (mostly cutive years. Nevertheless, a return to located in South Africa and Nigeria), are 4.8% growth is expected for 2010. In the rolling out and replicating their business meantime, economies like Nigeria, which models across other countries. are heavily reliant on commodity exports, Thus, VC, and especially PE, are acqui- will be harder hit in 2009/2010. In addition, ring a reputation for driving development, persistent high prices of internationally alongside considerable profit, in African traded food (e.g., grains and vegetable oils) countries. Investments in social and eco- and moderately rising inflation, will affect nomic infrastructure in the areas of finan- consumers, especially the urban poor. cial services, transportation and informa- As a result, in the short to medium term, tion and communication technologies are most of the promising deals will continue enhancing African development while de- to revolve around infrastructure, both so- cial and economic, as well as around basic 5. Ibid. 6. Ibid. 7. Ibid.40 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 38. needs, such as power and communication. is emblematic of the rising opportunities some of the advances made toward grea-For as long as consumer purchasing power in Africa’s telecommunications and other ter democracy and better governance. Yet,remains low, there will be limited absorp- infrastructure-related sectors. Similarly, compared to 10 years ago, wiser macroe-tive capacity for major funds outside the Vodafone recently acquired full control conomic policies and recent multilateralrelatively wealthier African countries. of Vodacom Group Ltd, South Africa’s lea- debt-relief will stand African economies ding wireless operator. In November 2008, in good stead. In addition, growing tiesAfrica retains a very strong medium- it bought an additional 15% of Vodacom with Latin America and Asian emergingand long-term potential from Telkom South Africa Ltd., for US$2.82 economies as development and trade par-Nevertheless, there is a virtual consensus billion, raising its stake to 65%. The pur- tners reduce the continent’s vulnerabilitythat Africa’s long-term prospects remain chase valued Vodacom, which has 39.6 mil- to the global recession.attractive. Very often, steady positive and lion customers in five African countries, ateconomically significant progress goes about US$19.3 billion. Meanwhile, Bharti Governance and investmentunnoticed by news channels more attuned Airtel Ltd., India’s largest mobile-phone In the long term therefore, Africa’s pros-to spectacular (usually negative) news. operator, and Johannesburg-based MTN pects are hinged on balancing macroeco- For example, although democracy ad- Group Ltd., Africa’s largest operator, are in nomic fundamentals and structural reformsmittedly remains weak in many African talks to buy stakes in each other to create a (infrastructure development, institutionalcountries, weak democracies are still a step company with annual sales of US$20 billion improvements and poverty-reduction pro-forward from military dictatorships. As the and 200 million subscribers, making it the grams); sustainable fiscal policies; transpa-Economist Intelligence Unit points out, third largest in the world. Almost 400 mil- rent governance; socio-political cohesion;“Over the next five years there will be na- lion Africans now have mobile phones, and a business-conducive environment; remo-tional, multiparty elections in nearly every Africa was the first region in the world to val of hurdles to ICT infrastructure deve-country in sub-Saharan Africa.”8 Less than offer free, mobile roaming services across lopment; improved regulation and regional20 years ago, Africa’s 54 countries were several countries. economic development.embroiled in about 10 major wars (none of Other recent deals have seen US$382 Paul Collier, Professor of Economics atwhich remain today), and the majority did million raised in November 2008 for Nige- Oxford University, in a recent interviewnot have functioning democracies. Today, ria’s first PPP, (and the first PPP toll road with Finance and Development said aid tothe African country that does not profess in West-Africa), the Lekki-Epe Expressway Africa hasn’t worked because the focus hasa democratic system (even if inefficiently in Lagos; as well as the 2007 investment of been almost exclusively on macro issues:implemented) is very much the exception. US$130 million in Diamond Bank (a West "It’s largely a microeconomic agenda and In fact, in a few countries, the last 10 African bank) by Actis. so the macro depends upon the micro.”9years have also seen the appearance of a In these markets, the innovative use To Collier, “The micro agenda that seemscrop of younger, savvier political leaders of information and communication tech- to work there involves freeing up firms towho have begun to usher in economic nologies e.g., to scale up levels of bank- be able to enter quickly and exit quickly.development, attracting fresh investment users, building on the ubiquity of mobile Using the database from the World Bank’sand creating the conditions for local en- phones, is vital for breaking barriers to Doing Business surveys, this is what wetrepreneurship to thrive. Such stable pro- market development. For example, in Ke- find. Where countries have easy entry andgress, even from poor initial conditions, nya, where only 26% of the population exit for firms, the consequence of a fallingcreates attractive virgin soil in which VC/ has a bank account, mobile-payment ser- commodity price is much smaller for GDP.”PE investors can find risk diversification, vices have attracted over five million users Multilateral organizations, economistsalong with attractive returns. in less than two years. and analysts say Africa needs a prolonged The US$3.4 billion PE-backed buyout of Nevertheless, good governance and phase of investment – in physical infras-Mo Ibrahim’s Celtel in 2006, for instance, the reduction of corruption remain as im- tructure through public and private ca- portant as ever, since the deterioration of8. “Africa votes”, The Economist Intelligence Unit ViewsWire, the economic situation could jeopardize 9. “Still the Bottom Billion”, Finance & Development, 46(2):July 1st 2009. June 2009. The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 41
  • 39. An insight into different VC and PE markets pital – to catch-up with the rest of the Africa as a continent maintained the 8th world. According to Collier, “To catch up, position in the 2009/2010 VCPE ranking. As to converge with other economies, (invest- expected, South Africa performs best of ment in Africa) needs to be over 30%. So the four considered African countries. Fac- they must move from under 20% to over tors such as investors’ protection, taxation 30%. That’s a big change.” and capital markets, similar to what’s ob- Governance also makes a huge change. tainable in half of the countries surveyed, The World Bank’s 2009 World Governance buoyed South Africa’s position. Indicators (WGI) lends weight to this. The South Africa ranked 43rd overall, and report remarks that “improved gover- 5th among its direct peers. In descending nance strengthens development, and not order, Israel, UAE, Saudi Arabia, Kuwait, the other way around. When governance South Africa, Oman, Morocco, Egypt, is improved by one standard deviation, in- Nigeria and Kenya are the countries wi- fant mortality declines by two-thirds and thin this group. Between 2005/2006 and incomes rise about three-fold in the long 2009/2010, South Africa slightly impro- run.” The rule of law provides stability. ved the ranking of the sub-indices capital Stable laws mean businesses can predict, market, and investors’ protection. Of the to some extent, future risks on potential four African countries, Morocco’s capital outcomes. Risks are also minimized when market sub-index moved up the most by there are legal institutions that curtail nine places. Overall Nigeria was ranked corruption, enforce property rights and 62nd, slightly above Kenya (64). In Kenya, enforce contracts. two factors, taxation and investor protec- tion, declined strongly. African results in the Global VCPE Looking forward therefore, although it Index is nothing new to remark that Africa re- In summary, Africa remains a continent mains, unfortunately, the least-developed with extraordinary potentials and chal- continent, the massive upside potential lenges. The recent past has seen rapid that this situation implies, represents a development in Africa’s investment po- very attractive potential for VC and PE tential, but slower development in go- funds, which are able to pick countries vernance, although there has undeniably and sectors carefully in the short to me- been progress on this front as well. These dium term; as well as for those investors broad brushstrokes therefore present a who are able to build significant local context within which to understand the knowledge in the medium to long term. results of the VC/PE index. This index pro- vides a glimpse of the opportunities, or lack thereof, facing the featured African countries.42 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 40. Asia: Does vibrant entrepreneurial activity andexpected growth compensate some weaknesses?General points cision-making for VC and PE investments for corruption. Civil servants are very wellThe overall ranking of Asia as a region in the region. The qualitative factors are paid, with salaries that are at least com-seems quite appropriate. It ranks 4th, af- considered in the discussions below. parable with the private sector. Taxes areter North America, Australasia, and Wes- relatively low, especially, at the indirect taxtern Europe. Surprisingly, Hong Kong (5) The top Asian countries level. Income tax rates for both corpora-and Singapore (6) beat Japan (7) in terms Hong Kong took top spot in Asia, ranking tions and individuals are among the lowestof overall attractiveness. 5th overall in attractiveness. It managed in the region and compliance is excellent. Malaysia (25), Taiwan (23), China (28) to obtain this ranking on the basis of high In the case of Japan, it outperformsand Thailand (36) were in the mid-range, scores for all the categories, on a consistent Singapore only in the areas of Economicwith their raw overall scores clustering basis. Its category ranking was 3rd in Inves- Activity and Depth of Capital Markets. Inaround the sample average. Indonesia tor Protection and Corporate Governance, terms of economic activity, the size of its(54), the Philippines (61), and Vietnam 5th in Capital Market, and 9th in Taxation. economy, being only 2nd to the United(60) were in the bottom 20% of scores In fact, Singapore ranks higher with respect States, makes a lot of difference. Its in-and rankings. It is surprising, though, that to Investor Protection and Taxation. Howe- flation rate for the past two decades hasthese countries are ranked so much worse, ver, Hong Kong’s worst position is rank 19 been very low, and in fact, it fell into a de-than for example, South Africa. for Economic Activity. It is a small territory, flationary mode from 1994-2004. Howe- Anyway, as we will see below, these though bigger than Singapore. ver, Japan has only experienced low levelrankings may not fully reflect the oppor- Singapore beats Japan and Korea on economic growth in recent years. In termstunities in the different Asian markets, the basis of its attractiveness in the fol- of the capital markets, again the size andbut are an interesting basis for actual de- lowing areas: (1) Investor Protection and diversity of listed firms give it a big edge Corporate Governance, (2) Human and So- over Singapore. Its banking sector is able cial Environment, and (3) Taxation. It is a to provide credit to domestic firms and regional financial center with transparent, the availability of credit information is well-defined and well-applied laws and re- excellent.Article written by Victor Abola gulations. There are no foreign exchange South Korea plays a close third to Ja-The University of Asia and the Pacific controls, and capital and dividends, royal- pan, which it outperforms only in the areaPasig City, Philippines ties etc., can be transferred abroad without of Taxation. Marginal corporate tax ratesvabola@uap.edu.ph question. Since stock market listings are not are lower than in Japan and more favo- restricted to Singapore companies, a num- rable profit tax and capital gains laws go- ber of firms from other Asian countries are vern. It edges Singapore in capital market also listed at its stock exchange. The latters standing, since it has a larger and more rules on listings and disclosures are quite diverse listing of companies in the stock stringent and at par with world standards. market. The large size of the economy pro- Corporations, especially listed firms, play by vides it with greater opportunities in M&A the rules and correspondingly have good than Singapore. It should be remembered governance structures and enforcement. that South Korea undertook a very serious Thus, firms here will tend to be more trans- corporate and banking restructuring after parent than in Japan or South Korea. For it was battered by the Asian financial cri- the second point, it has very high standard sis in 1997-98. Its industry has moved to of education, which includes professors and a high level of technology and is fiercely researchers from all over the world. English competitive in the world market. It is now is the official language. Labor regulations threatening Japan in areas the latter used are fair for both employers and employees. to dominate, such as in LCD technology, But most of all, it has very little tolerance cell phones, shipbuilding, cars, etc. It does The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 43
  • 41. An insight into different VC and PE markets stand fairly close to Singapore in terms world-class brands, and sophisticated ronment. Thailand has a low VAT rate of economic activity, since it has recove- design capability. Besides that, it has a of only 7% compared to Chinas 17%. red very rapidly and effectively from the wide basis of small-to-medium support However, it still offers tax incentives to Asian financial crisis, building up its fo- enterprises, which have enabled the foreign investors, like Malaysia. Finally, reign exchange reserves to absolute levels country to withstand the Asian financial it has minimal labor taxes compared to well above US$200 billion, or next only to crisis since these were less dependent on China. In terms of investor protection Taiwan in the region. It also has managed external financing. Economic activity is and corporate governance, Thailand has to keep the inflation rate relatively low. higher than Malaysia given Taiwans sta- better regulations on the liability of di- tus as an advanced country and slightly rectors and affords better security of Asian countries in the middle bigger population. It follows Malaysia in property rights than China, as already ex- Taiwan (23), Malaysia (25), China (28), and two areas: taxation and capital market plained above. Thailand performs better Thailand (36) may be considered to be in development. than China in providing a good human the middle range in terms of overall at- China performs better than Malaysia and social environment. This is evident tractiveness. and Taiwan in two areas: (1) Depth of a in the ease of firing of labor and lower Malaysia easily beats China in three Capital Market, and (2) Economic Activity. incidence of corruption, especially with areas: (1) Taxation, (2) Investor Protec- The size and diversity of its economy is the presence of a more independent and tion and Corporate Governance, and reflected in its capital market. This is mir- reliable judiciary. (3) Human and Social Environment. The rored in magnitude and liquidity of listed margins are largest in the latter two ca- shares, in opportunities for mergers and Bottom three countries tegories. In terms of taxation, Malaysias acquisitions. It edges Malaysia and Taiwan The last three Asian countries are closely advantage lies in lower corporate and VAT in the area of economic activity again by bunched together: Indonesia (54), Viet- rates. Chinas VAT rate of 17% is one of virtue of the size of the economy (now nam (60) and the Philippines (61). In terms the highest in the region. Malaysia also the third largest in the world), and its very of raw score, Indonesia grabs the top spot offers better investor protection than rapid growth in the last three decades. in three areas: (1) Economic Activity, (2) China because it functions with a well-es- Annual growth has averaged close to 10% Depth of a Capital Market, and (3) Hu- tablished rule-of-law and good corporate during this period, even with accelera- man and Social Environment. Surprisin- governance practices. It has a long tra- tion in the second half of this period. It gly, Vietnam tops the other two countries dition of legal excellence, inherited from is one of the few countries that are ex- in (1) Taxation, and (2) Entrepreneurial the British, and a fairly reliable judiciary. pected to post a positive growth in 2009 Culture and Opportunities. The Philippines Corporate governance is definitely better as a result of the size of its domestic mar- managed to get highest scores only in the than in China since it has stricter disclo- ket (1.3 billion population), high savings area of Investor Protection and Corporate sure requirements, sanctions on directors, rate, and rapidly expanding middle class. Governance. It should be noted that In- etc. In terms of the human and social en- Its main drawbacks are the weak judicial donesia, Vietnam and the Philippines, in vironment, Malaysia manages a small, but system and difficulty in maintaining the terms of raw score, are clustered with the highly effective educational system. Labor rule of law. Weakness of other institu- lower-tiered Latin American countries like laws are clear, and employment and firing tions, like the media and academia, is also Argentina, Brazil, Colombia and Peru. are not problematic. Finally, it can boast pronounced because of the great control Indonesia has the largest economy and of little corruption in the government. still being exercised by the government (a the highest per capita income among the Therefore, it is more transparent and ac- monopoly of the Communist Party, even three countries. Even though Vietnam had countable than China. though this may only be nominal). the fasted growth in recent years, Indone- Taiwan is slightly ahead of Malaysia. A bit distant third among these middle sia and the Philippines growth record are It does better than Malaysia in two ca- countries is Thailand. Actually, it outper- above average. Because of an inflation tegories: (1) Entrepreneurial Culture and forms China in half of the six categories rate above 20% in 2008, Vietnam lags Opportunities, and (2) Economic Activity. of interest, such as (1) Taxation, (2) In- way behind the other two economies. Ac- Entrepreneurial opportunities are at the vestor Protection and Corporate Gover- tually, the Philippines stick very close to forefront of computer technology with nance, and (3) Human and Social Envi- Indonesia in economic activities. Indone-44 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 42. sias large economic size makes it also the formally communist regime, but unders- depressed export sector, and the improvingfrontrunner in the capital market, again tandable, since it is trying to imitate the consumer sector are clear areas where VCby a slight margin over the Philippines. success of China. It also had a higher ICT and PE can be quite promising, consideringThis means greater stock market turnover, infrastructure rating over the other two a long history of overleveraging. All theseliquidity, and diversity of firms represen- countries. would tend to negate a somewhat less fa-ted in the market. This means more IPOs For the last tier, the rankings may be vorable situation of its investor protectionand M&A opportunities as well. almost maintained even with qualitative and corporate governance. In terms of human and social environ- considerations factored in. Actually, In- Finally, Indonesia gains attraction. Itsment, the quality of the educational sys- donesia has become an increasingly at- continued relatively strong growth sincetem and of scientific research spelled the tractive investment area, considering the it began more serious reforms after thedifference between Indonesia and Viet- political and judicial stability that it has Asian financial crisis is providing amplenam. The Philippines lags badly behind the recently shown, and its large need for ex- opportunities in this largest populationother two in this area. It should be noted ternal finance. We think Vietnam comes in the Association of Southeast Asianthat together with China, Indonesia and a far third from Indonesia and the Philip- Nations (ASEAN). Improved political sta-the Philippines are expected to have posi- pines in view of export vulnerability and bility and the judicial system are provingtive growth in 2009. weaknesses in capital market development to be responsive to an economy that was The Philippines rank behind Indonesia and in investor protection. thought to be particularly vulnerable tobecause of its economic activity, capi- Chinas emergence as an economic supertal market, and taxation. The size of the Summary power in the region. All these would tendPhilippine economy was a little less than China, particularly in its consumer sec- to offset negative assessments on investorhalf of Indonesia in 2008 and growth tor, is certainly a very interesting country protection and corporate governance.was slightly slower at 4.1%, compared for VC and PE allocations. The breadthto Indonesias 6.0% growth. But the Phi- of market opportunities due to its rapidlippines performed much better in terms economic growth, the depth of talent andof inflation in 2008, clocking at 9.3%, the capital markets, overcome the nega-while Indonesia had above 12.0% and tive factor of poor investor protection.Vietnam was way above 20%. The Phi- The latter is often addressed by having alippines scored most among the three reliable domestic partner and a manage-countries with respect to investor protec- ment team that is attuned to the demandstion and corporate governance. Security of government.of property rights and regulatory capacity By virtue of their “being part of Grea-were the strong points noted. The courts ter China”, as well as their specific stronguphold the right to private property so points discussed above, we think thatmuch that expropriations for infrastruc- Hong Kong and Taiwan are particular at-ture projects get delayed. tractive too. These territories both offer Although it captured the top spot in excellent jump-off points for the Chinatwo areas, Vietnam lagged much behind market. Singularly, however, they havein the other areas where Indonesia and sufficiently high levels of income and so-the Philippines were fairly closed. It phistication in the capital markets thatranks high in taxation mainly because render them especially attractive.of the generosity of tax incentives and South Korea is technologically verylower tax rates. In terms of entrepreneu- much advanced, supported by a large, hi-rial opportunity, it bested the other two ghly qualified labor pool. It has a relativelycountries with a ratio of 2:1. This relies large economy, and a powerful export sec-much on the ease of starting and run- tor. The capital market has improved dra-ning a business. This is surprising, for a matically in the last decade. Its currently The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 45
  • 43. An insight into different VC and PE markets Latin America: VC and PE in Latin America after the crisis PE funds may become a fabulous tool for class in Latin America is only a fraction of • The country’s strong appeal arises promoting economic and business deve- what it was in the developed countries, from the size of its domestic market, lopment in the emerging Latin American we would be dealing with a phenomenon the strength of the industrial sector markets, once the financial crisis starts to of considerable magnitude. and the expected high growth rates recede. among several Brazilian industries. Considering the lack of much previous Prospects for Latin America • Moreover, the tax law in Brazil in- VC and PE activity in Latin America, the Although the value of investments in cludes significant tax incentives for asset class can still be considered a “new emerging markets has been hit hard by this type of investment. species” in the region. However, taking the global financial crisis, we should keep Chile has been for some years a major into account the growth levels the asset in mind that the sources of the crisis were target for foreign direct investment. This class experienced in developed markets, definitely not the emerging countries. development could be similar for the flow the growth potential for VC and PE in La- These markets did not suffer any severe into VC and PE funds. tin America seems enormous. credit crises. Mortgages – which trigge- • The Chilean economy has a strong Worldwide, the total volume raised red the crisis – were not and will not be a foundation built on commodity pro- by VC and PE funds amounts more than cause of concern in the region. duction, particularly copper. US$3.5 trillion.10 The funds raised in Latin Some Latin American economies • The country’s political leaders have America are a very small part of this total. might be better prepared to recover from won the trust of the investment com- However, if the future growth of the asset the crisis than several of the more deve- munity through the consistent eco- loped economies. They are, in principle, nomic policy followed by different 10. 2009 Preqin Global Private Equity Review, p. 34. in better economic shape. The level of democratic governments. consumer debt among the Latin Ameri- • One example that highlights success- can middle classes is much less than that ful efforts of Chilean policy makers of developed countries and the banking has been the creation of a stabiliza- Article written by Gabriel Noussan system can be regarded stronger and tion fund during the years of strong IAE Business School more stable. A number of Latin Ameri- growth. This fund allows the present Buenos Aires, Argentina can countries have followed orthodox government now to soften the impact GNoussan@iae.edu.ar macroeconomic policies, and some have of the financial crisis. even generated stabilization funds to • The country has a dynamic, modern support their economies. entrepreneurial class with a strong Experts consider that the Latin Ame- focus on growth and exports. Within rican countries that seem to offer best the region, a large number of leading conditions for a strong growth in VC and Chilean companies have embarked PE activity are Brazil and Chile. upon a significant expansion pro- Brazil is one of the emerging countries cess with investments in neighboring with the greatest appeal for the invest- countries. ment community. Another two countries can be added to • As one of the renowned BRIC (Brazil, the former two: Mexico, obviously, be- Russia, India, and China) countries, cause of its strong ties to the US, and Brazil has become an attractive tar- Peru, because of its strong recent growth. get for VC and PE allocations be- Similarly, Colombia and Uruguay showed cause of the confidence created by sound economic growth in the last few the continuously good economic years. management of different democratic However, for various reasons, the governments. analysts and the investment community46 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 44. are still not convinced about the deve- respect to the small number of listed do- rent political and economic inclinations.lopment of the economies of Argentina, mestic companies, the IPO opportunities, On the other hand, Chile, a country withParaguay, Ecuador, Bolivia and Venezuela. as well as the low dynamic of the M&A orthodox economic policies and manage- market. ment, is at the top of the Latin American“The Global Venture Capital Recapitulating, the index shows the ranking, with some sub-index rankings asand Private Equity Country importance of the level of economic ac- good as those of Germany for example.Attractiveness Index” tivity for the development of VC and PE The results of the Global Venture Ca-This index provides a good snapshot in Latin America. An analysis of the data pital and Private Equity Attractivenessof the status of this type of asset class provided by the index on the region’s per- Index confirm what experts have beenaround the world, especially for emerging ceived weaknesses enables us to unders- asking for a long time. The index pointsregions such as Latin America. By obser- tand which key factors need to improve to the particular determinants for growthving the relative position of individual to achieve greater growth of the asset of VC and PE activities. We are especiallyLatin American countries and the region class in Latin America. talking about the urgent need for strongcompared to the world, it is possible to First, in developed countries, the PE’s capital markets in the region. Depth ofinfer the opportunities arising from likely business model was originally based on capital markets provide one of the mainfuture developments. extensive leverage. However, the current exit routes to investors in VC and PE The index groups multiple factors crisis will lead to a change in the bu- funds – initial public offerings. This exitin six dimensions. Latin America shows siness model, even in the more developed route, so common in the more developedstrengths in only two of the six dimen- countries, as, at least for some time ac- markets, is virtually non-existent in Latinsions analyzed: Economic Activity and cess to credit will not be as generalized America. Consequently, financial inves-Taxation. Within economic activity, the as it was before the credit market crash. tors mostly sell their holdings to strategicsub-factor with greatest importance is Consequently, it will not be possible to buyers.the annual growth rates of the GDP. finance investments using a leveraged The index also shows investors’ fragi- It is precisely in this aspect, where the buy-out (LBO) type model. Instead it will lity in certain countries from the regionmain opportunities valued by investors in be necessary to rely on capital from in- with respect to the protection of theirLatin America apparently lie: the region’s vestors who seek growth. rights. The protection of investors’ rightsenormous capacity for investments in bu- In emerging countries in general, and is a clear weakness that, unfortunately, issinesses that showed growth in developed Latin America in particular, PE activities widespread in almost all Latin Americancountries but which are not yet existent were unable to apply the original model countries and inevitably has an impact onor only at infant stages in the region. due to the lack of local debt finance. the perception of the region as a whole. With respect to the impact of taxes on In fact, the PE funds showed incipient Within this construct, the item that givesthe attractiveness of VC and PE in Latin growth in the countries with the least most fragility to the investors’ perceptionAmerica, it becomes evident that tax in- lending facilities. Within the Depth of a of security is the protection of intellec-centives contribute comprehensively to Capital Market construct, the factor Debt tual property. Although almost all ofthe region’s appreciation. and Credit Markets shows an interesting the countries in the region score poorly On the other hand, the other four discriminating power between the va- in these aspects, it is interesting to seedimensions where the region shows rious Latin American countries. This is not how precisely the report differentiatesweaknesses are: the Depth of Capital only consistent with the aforementioned, between countries, with, for example, Ve-Markets, Entrepreneurial Culture and Op- but also with the perception of these as- nezuela at the bottom of the ranking andportunities, Investor Protection and Cor- pects in the investment community. For Chile at the top.porate Governance, and the Human and example, Argentina, which was the “Cin- To close my remarks, I want to hi-Social Environment. Among these, the di- derella” of Latin America in the 1990’s, ghlight that it is interesting to reflectmension in which the region is most fra- now takes a poor ranking position. This on the characteristics of Latin Americagile is the Depth of Capital Markets with is perfectly in line with Argentina’s cur- compared to the world average, using The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 47
  • 45. An insight into different VC and PE markets the index results. The spider chart shows 1. Economic Activity significant gaps in the perception of the 125 six key driving dimensions for VC and PE 100 markets between the region and the ave- 6. Entrepreneurial 75 rage of all the countries included in the Culture & Opportunities 2. Depth of a study. 50 Capital Market We can conclude that, in general, the 25 results obtained by the index are consis- tent with each country’s economic fun- damentals and realities. Consequently, the prepared information provides a va- luable tool to enable governments imple- 5. Human & 3. Taxation menting policies that favor investment Social Environment and economic development, and inves- tors receive important support for their 4. Investor Protection & Latin America (VII.) allocation decisions. Corporate Governance World48 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 46. IV.50 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 47. Regional andcountry profiles The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 51
  • 48. Regional and country profiles How to read the country and regional profiles The first page of the performance overview shows basic facts, a strengths, weakenesses, opportunities and threats (SWOT) analysis provided by country leaders from Ernst & Young, the VCPE-Ranking, the key factor performance, the performance of the separate VC and PE Indices, as well as a comparison within the regional peer group. 1 Basic Facts and Opportunities and Challenges 3 Separate VC and PE indices and comparison within Basic Facts comprises main indicators such as GDP, Population, peer group and their growth rates, and the country’s position regarding its The upper chart shows the country’s ranking position for the IPO, M&A, and VC and PE market activity expressed in quartiles. combined VCPE and for the separate Venture Capital and Private The section “Opportunities and Challenges” provides the reader Equity Country Attractiveness Indices over time. Below, we pre- with a SWOT analysis with respect to the country’s VC/PE invest- sent the country relative to its peers. The peer group is determi- ment conditions. These analyses are provided by local experts ned by nine countries from its region. If we cover less than nine from Ernst & Young. countries from that region we add countries from other regions to the peer group. The set of peers is not always the same for a 2 VCPE-Ranking and Key Factor Performance region. It is the selection of eight other countries in alphabetical The “VCPE-Ranking” table exhibits the index values and the ranking order, and the country in question. positions of the country for the overall index, and for each key driver separately, for the 2005/2006 and for the 2009/2010 VCPE 4 The Global Venture Capital and Private Equity Country Attractiveness Index. Next to the current rank, the change Country Attractiveness Index in detail of a ranking position is indicated by green arrows for positive, red The second page of information for the individual countries pre- arrows for negative and yellow arrows for no movements. The sents the ranks achieved for each of the level 2 constructs. Once quartiles indicate the country’s position among all the countries in again, the arrows mark ranking changes, and the crosses indicate the sample. The spider chart on the right shows the performance the country’s position measured in quartiles, with respect to all of each key driver compared to the region’s average where the other countries from the sample. country is located. We should note that the overall VCPE Ranking is not the ave- rage rank from all the key drivers. First, the key drivers have dif- ferent weights, and second, the ranking is always the result of a benchmark process: the rank of a country depends on the ranks of the other sample countries. A simple example helps to explain this issue: imagine there are four countries to benchmark with the following key driver ranks: Country Key drivers/ranks A B C D Economic Activity 2 1 3 4 Depth of a Capital Market 2 1 3 4 Taxation 2 3 1 4 Investor Protection and Corporate Governance 2 3 1 4 Human and Social Environment 2 3 4 1 Entrepreneurial Culture and Opportunities 2 3 4 1 Overall rank 1 2 3 4 Even if country A ranks on the second position with all the key driver scores its final rank is number one.52 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 49. Regional and country profiles Africa Basic Facts VCPE-Ranking Details 2005/06 2009/10 Quar le1 VCPE Ranking Rank Value Rank 8 33,2 8 4th 1st 2 4 y 1. Economic Activity 2005/06 Rank 2009/10 Value Rank Quartile 4th 1st Econom c Ac 8 53,9 8 8 31,5 8 1.1 Gross Domestic Product Depth of Cap. Market 6 10,9 6 8 65,7 8 1.2 Inflation Taxa on 7 103,6 7 8 75,7 8 1.3 Unemployment In . Prot. & Corp. Go . 7 53,6 7 Hum. & Soc. En . 8 48,5 7 2 Depth of Capital Market 2. Depth of Capital Market Quar le 4th 1st Entrepr. Culture & Opp. 8 22,2 8 2005/06 2009/10 Quartile GDP 613 [bn USD] IPO Volume Rank Value Rank 4th 1st Popul on 271 [mn] M&A Volume GDP Growth VC 2.1 Size and Liquidity of the Stock Market 6 19,1 6 02 08 Pop. Growth 02 08 PE Key Factors Performance 8 1,4 8 2.2 IPO Market Activity Econom c 2.3 M&A Market Activity 7 1,6 8 Ac t 125 2.4 Debt & Credit Market 7 67,2 7 SWOT Analysis 100 2.5 Financial Market Sophistication 5 54,4 6 Entrepr. Culture 75 Depth of Cap. Strengths & Opp. 50 Market • Continued economic growth across the continent 25 Depth of Capital Market 3 Taxation 3. Taxation • Increased stability and favorable policies shifted perceptions of 0 2005/06 2009/10 Quartile Rank Value Rank 4th 1st the region 3.1 Tax Incentives 7 122,7 6 • Before the financial crisis, investor confidence in Africa was Hum. & Soc. Taxa on increasing, as was Africas understanding of the VC/PE offering En ronment 3.2 Administrative Tax Burdens 6 87,4 7 Weaknesses Afr ca In . Prot. & 4 Investor Protection and Corporate Governance • Large geographical region characterized by significant differences Corp. Go . Worl 4. Investor Protection & Corporate Governance United States = 100 Points 2005/06 2009/10 Quartile in culture, language, legal and regulatory systems across the Rank Value Rank 4th 1st continent Separate VC and PE Indices 4.1 Corporate Governance 4 71,5 5 • Small number of pan-African funds competing with larger number of regional specialists 4.2 Security of Property Rights 7 46,4 7 0 • Transaction activity is driven by a few countries, mainly South Africa and Nigeria • VC/PE is dependent on foreign investors who often prefer other 1 2 3 4.3 4.4 Quality of Legal Enforcement Regulatory Quality 7 8 52,4 47,5 7 8 3 emerging markets Index Rank • Preference of debt and public equity markets over VC/PE funding 4 5 Human & Social Environment 5. Human and Social Environment 5 2005/06 2009/10 Quartile Opportunities 6 Rank Value Rank 4th 1st • Historical underinvestment in infrastructure and resources, and 5.1 Education & Human Capital 7 48,9 7 7 growing adoption of PPPs by African governments 5.2 Labor Market Rigidities 5 64,5 5 8 • Under-banked population with rising incomes, improved access to 8 31,3 8 9 5.3 Bribing & Corruption credit and increasing spending tendencies 2005/06 2006/07 2007/08 2008/09 2009/10 5.4 Costs of Crime 8 56,2 8 Threats VC PE VCPE • A protracted global recovery could limit growth across the continent and restrict financing and fund raising initiatives Comparison within Peer Group 6 Entrepreneurial Culture and Opportunities 6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile • Political risk, lack of transparency and immature regulatory and Rank Value Rank 4th 1st legal systems are likely to continue to act as barriers to VC/PE 2005/06 2009/10 Quar le 6.1 Innovation & R&D 7 10,5 7 activity Rank Value Rank 4th 1st North Amer ca 1 96,9 1 6.2 Ease of Starting & Running a Business 6 73,4 7 Outlook 6.3 Simplicity of Closing a Business 5 58,2 7 Austr a 2 76,4 2 • Recovery from recession in Africa may lag global recovery 8 5,4 8 Western Europe 3 67,5 3 6.4 ICT Infrastructure • PE investment activity expected to increase again in 2010 As a 4 53,5 4 Graham Stokoe, Associate Director, Ernst & Young South Africa M e East 5 45,9 5 Eastern Europe 6 41,9 6 n Amer ca 7 34,9 7 Afr ca 8 33,2 8 54 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 55 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 53
  • 50. Regional and country profiles Africa Basic Facts VCPE-Ranking 2005/06 2009/10 Quar le Rank Value Rank 4th 1st VCPE Ranking 8 33,2 8 Econom c Ac 8 53,9 8 Depth of Cap. Market 6 10,9 6 Taxa on 7 103,6 7 In . Prot. & Corp. Go . 7 53,6 7 Hum. & Soc. En . 8 48,5 7 Quar le 4th 1st Entrepr. Culture & Opp. 8 22,2 8 GDP 613 [bn USD] IPO Volume Popul on 271 [mn] M&A Volume GDP Growth 02 08 VC Pop. Growth 02 08 PE Key Factors Performance Econom c Ac t 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. Strengths & Opp. 50 Market • Continued economic growth across the continent 25 • Increased stability and favorable policies shifted perceptions of 0 the region • Before the financial crisis, investor confidence in Africa was Hum. & Soc. Taxa on increasing, as was Africas understanding of the VC/PE offering En ronment Weaknesses Afr ca • Large geographical region characterized by significant differences In . Prot. & Worl Corp. Go . United States = 100 Points in culture, language, legal and regulatory systems across the continent • Small number of pan-African funds competing with larger Separate VC and PE Indices number of regional specialists 0 • Transaction activity is driven by a few countries, mainly South 1 Africa and Nigeria 2 • VC/PE is dependent on foreign investors who often prefer other 3 emerging markets Index Rank 4 • Preference of debt and public equity markets over VC/PE funding 5 Opportunities 6 • Historical underinvestment in infrastructure and resources, and 7 growing adoption of PPPs by African governments 8 • Under-banked population with rising incomes, improved access to 9 credit and increasing spending tendencies 2005/06 2006/07 2007/08 2008/09 2009/10 Threats VC PE VCPE • A protracted global recovery could limit growth across the continent and restrict financing and fund raising initiatives Comparison within Peer Group • Political risk, lack of transparency and immature regulatory and legal systems are likely to continue to act as barriers to VC/PE 2005/06 2009/10 Quar le activity Rank Value Rank 4th 1st North Amer ca 1 96,9 1 Outlook Austr a 2 76,4 2 • Recovery from recession in Africa may lag global recovery • PE investment activity expected to increase again in 2010 Western Europe 3 67,5 3 As a 4 53,5 4 Graham Stokoe, Associate Director, Ernst & Young South Africa M e East 5 45,9 5 Eastern Europe 6 41,9 6 n Amer ca 7 34,9 7 Afr ca 8 33,2 854 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 51. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 8 31,5 81.2 Inflation 8 65,7 81.3 Unemployment 8 75,7 82 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 6 19,1 62.2 IPO Market Activity 8 1,4 82.3 M&A Market Activity 7 1,6 82.4 Debt & Credit Market 7 67,2 72.5 Financial Market Sophistication 5 54,4 6Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 7 122,7 63.2 Administrative Tax Burdens 6 87,4 74 Investor Protection and Corporate Governance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 4 71,5 54.2 Security of Property Rights 7 46,4 74.3 Quality of Legal Enforcement 7 52,4 74.4 Regulatory Quality 8 47,5 85 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 7 48,9 75.2 Labor Market Rigidities 5 64,5 55.3 Bribing & Corruption 8 31,3 85.4 Costs of Crime 8 56,2 86 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 7 10,5 76.2 Ease of Starting & Running a Business 6 73,4 76.3 Simplicity of Closing a Business 5 58,2 76.4 ICT Infrastructure 8 5,4 8 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 55 55
  • 52. Regional and country profiles Asia Basic Facts VCPE-Ranking 2005/06 2009/10 Quar le Rank Value Rank 4th 1st VCPE Ranking 4 53,5 4 Econom c Ac t 5 73,9 4 Depth of Cap. Market 4 27,3 3 Taxa on 5 116,5 4 In . Prot. & Corp. Go . 4 68,1 4 Hum. & Soc. En . 5 74,0 5 Quar le 4th 1st Entrepr. Culture & Opp. 4 37,4 5 GDP 14941 [bn USD] IPO Volume Popula on 3379 [mn] M&A Volume GDP Growth 02 08 VC Ac t Pop. Growth 02 08 PE Ac t Key Factors Performance Econom c Ac t 125 100 SWOT Analysis Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths • Very large and powerful economic region 25 • Market leading technologies in many sectors, cost leadership in others 0 • Comparative advantages in terms of labor costs and productivity • Abundance of natural resources, well-educated workforce and Hum. & Soc. Taxa on En ronment skilled labors Weaknesses As a In . Prot. & Worl • Persistent administrative inefficiencies Corp. Go . United States = 100 Points • VC/PE investors are seen critically regarding their commitment to the companies’ interests • Relatively weak corporate governance compared to Western standards Separate VC and PE Indices • Export-driven economies 0 • Cultural challenges in achieving control of private enterprises 1 Opportunities • Succession issues in family owned businesses foster VC/PE Index Rank 2 investment • Several fragmented industries with potential for consolidation 3 • Relatively large, young and growing middle-income population in emerging urban centers 4 Threats • Increasingly negative sentiment towards the asset class if VC/ 5 2005/06 2006/07 2007/08 2008/09 2009/10 PE investors are not regarded appropriately supporting investee VC PE VCPE companies in the current economic climate • Inadequate power and transport infrastructure in selected areas • Cultural, ethnical, religious, or even terroristic turmoil in certain regions Comparison within Peer Group Outlook 2005/06 2009/10 Quar le • Progress towards greater transparency and global economic integration Rank Value Rank 4th 1st • Many companies will find it increasingly hard to obtain access North Amer ca 1 96,9 1 to additional capital and will need to deploy their capital more Australas a 2 76,4 2 effectively Western Europe 3 67,5 3 • Many companies will be forced to divest non-core businesses As a 4 53,5 4 • Continuing strong global position in high-tech sector M le East 5 45,9 5 • Continuing relaxation of restrictions of capital flows Eastern Europe 6 41,9 6 a n Amer ca 7 34,9 7 Afr ca 8 33,2 856 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 53. Details1 Economic Activity1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 7 48,2 71.2 Inflation 5 85,0 41.3 Unemployment 3 98,7 32 Depth of Capital Market 2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 2 49,8 22.2 IPO Market Activity 3 8,6 22.3 M&A Market Activity 4 7,6 32.4 Debt & Credit Market 4 81,8 42.5 Financial Market Sophistication 4 57,0 43 TaxationCapital MarketDepth of3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 3 146,4 53.2 Administrative Tax Burdens 5 92,8 54 Investor Protection & Corporate Governance4. Investor Protection and Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 5 73,1 34.2 Security of Property Rights 4 62,1 44.3 Quality of Legal Enforcement 5 75,9 54.4 Regulatory Quality 5 62,5 55 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 4 71,2 45.2 Labor Market Rigidities 4 68,0 45.3 Bribing & Corruption 5 57,1 55.4 Costs of Crime 5 108,7 66 Entrepreneurial Culture & Opportunities6. Entrepreneurial Culture and Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 4 25,0 46.2 Ease of Starting & Running a Business 5 75,8 66.3 Simplicity of Closing a Business 4 70,4 46.4 ICT Infrastructure 6 14,7 6 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 57
  • 54. Regional and country profiles Australasia Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 2 76,4 2 Economic Activity 2 95,5 2 Depth of Cap. Market 2 29,7 2 Taxation 8 104,1 6 Inv. Prot. & Corp. Gov. 1 107,4 1 Hum. & Soc. Env. 1 114,5 1 Quartile Entrepr. Culture & Opp. 2 85,8 2 4th 1st GDP 1106 [bn USD] IPO Volume Population 25 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Innovation-driven economies with pioneering scientific research 0 institutions and world class R&D facilities • Strong economy and sound banking/capital/financial market Hum. & Soc. systems Environment Taxation • Democratic and stable political, regulatory and legal environment Australasia Weaknesses Inv. Prot. & World • Low tax incentives Corp. Gov. United States = 100 Points • Performance of VC/PE investee companies facing tough market conditions Separate VC and PE Indices • Slow recovery from the recessionary environment predicted 0 Opportunities • Strong M&A market with international targets and sound prospects for exits 1 • Strong stock market culture, providing good IPO opportunities Index Rank Threats • High interest rate environment making current debt raisings 2 difficult Outlook • Investment funds are likely to restrict allocation to PE, but the 3 industry will continue to attract capital from other sources 2005/06 2006/07 2007/08 2008/09 2009/10 including sovereign wealth funds and high net worth individuals VC PE VCPE • Business models and margins continue to be under pressure • Increasing pressure from LPs to exit less successful investee Comparison within Peer Group companies • Financing and acquisition opportunities are expected to increase 2005/06 2009/10 Quartile Rank Value Rank 4th 1st North America 1 96,9 1 Australasia 2 76,4 2 Western Europe 3 67,5 3 Asia 4 53,5 4 Middle East 5 45,9 5 Eastern Europe 6 41,9 6 Latin America 7 34,9 7 Africa 8 33,2 858 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 55. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 2 84,9 21.2 Inflation 3 98,2 31.3 Unemployment 1 104,5 12 Depth of Capital Market 2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 5 34,9 42.2 IPO Market Activity 2 6,3 32.3 M&A Market Activity 2 10,6 22.4 Debt & Credit Market 2 107,4 22.5 Financial Market Sophistication 2 92,3 23 TaxationCapital MarketDepth of3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 8 106,1 73.2 Administrative Tax Burdens 1 102,0 14 Investor Protection & Corporate Governance4. Investor Protection and Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 1 102,7 14.2 Security of Property Rights 1 101,4 14.3 Quality of Legal Enforcement 1 121,2 14.4 Regulatory Quality 1 105,6 15 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 2 99,0 25.2 Labor Market Rigidities 2 96,8 15.3 Bribing & Corruption 1 132,0 15.4 Costs of Crime 1 135,9 26 Entrepreneurial Culture & Opportunities6. Entrepreneurial Culture and Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 3 54,8 36.2 Ease of Starting & Running a Business 2 104,6 26.3 Simplicity of Closing a Business 2 103,4 26.4 ICT Infrastructure 2 91,4 2 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 59
  • 56. Regional and country profiles Eastern Europe Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 6 41,9 6 Economic Activity 6 72,6 6 Depth of Cap. Market 7 9,6 8 Taxation 2 123,6 2 Inv. Prot. & Corp. Gov. 6 64,8 6 Hum. & Soc. Env. 6 69,0 6 Quartile 4th 1st Entrepr. Culture & Opp. 5 39,8 4 GDP 2466 [bn USD] IPO Volume Population 228 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • High tax incentives among most of the Eastern European 0 countries • Strong stock market in Poland Hum. & Soc. Taxation Weaknesses Environment • The financial crisis affected strongly the generally weak capital Eastern Europe market structure World Inv. Prot. & • Lack of experience in connection with structuring and completing Corp. Gov. United States = 100 Points complex transactions • Lack of management teams for MBO situations Separate VC and PE Indices Opportunities 0 • Catching-up entrepreneurial culture and opportunities for venture 1 capital investors • Privatization projects are still going on 2 • Reform of legal systems provides increasing security and Index Rank 3 attractive environment for VC/PE. 4 Threats 5 • Financial crisis may make funding difficult for local GPs • Increasingly unstable regulatory and enforcement environment if 6 financial crisis continues for more than two years 7 Outlook 2005/06 2006/07 2007/08 2008/09 2009/10 • Increasing VC/PE focus on privatizations VC PE VCPE • Continuing regime of tax incentives • Increasing experience in leverage transactions should these Comparison within Peer Group reappear post crisis 2005/06 2009/10 Quartile Dr. Dubsky, Partner, DLA-Piper, Austria Rank Value Rank 4th 1st North America 1 96,9 1 Australasia 2 76,4 2 Western Europe 3 67,5 3 Asia 4 53,5 4 Middle East 5 45,9 5 Eastern Europe 6 41,9 6 Latin America 7 34,9 7 Africa 8 33,2 860 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 57. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 5 51,7 61.2 Inflation 6 78,7 51.3 Unemployment 7 94,0 72 Depth of Capital Market 2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 7 11,1 72.2 IPO Market Activity 7 1,5 72.3 M&A Market Activity 6 1,6 72.4 Debt & Credit Market 6 72,1 62.5 Financial Market Sophistication 7 42,3 83 TaxationCapital MarketDepth of3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 2 174,4 23.2 Administrative Tax Burdens 7 87,7 64 Investor Protection & Corporate Governance4. Investor Protection and Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 6 65,3 64.2 Security of Property Rights 6 55,8 64.3 Quality of Legal Enforcement 6 65,1 64.4 Regulatory Quality 4 74,4 45 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 5 58,8 55.2 Labor Market Rigidities 7 61,3 75.3 Bribing & Corruption 6 56,3 65.4 Costs of Crime 6 111,9 56 Entrepreneurial Culture & Opportunities6. Entrepreneurial Culture and Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 6 16,4 66.2 Ease of Starting & Running a Business 4 88,4 56.3 Simplicity of Closing a Business 6 59,6 66.4 ICT Infrastructure 4 29,0 4 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 61
  • 58. Regional and country profiles Latin America Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 7 34,9 7 Economic Activity 7 73,6 5 Depth of Cap. Market 8 10,0 7 Taxation 6 112,6 5 Inv. Prot. & Corp. Gov. 8 45,8 8 Hum. & Soc. Env. 7 48,2 8 Quartile 4th 1st Entrepr. Culture & Opp. 7 29,1 7 GDP 3846 [bn USD] IPO Volume Population 471 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • The Latin American region has seen a strong increase of economic 0 activity even during the financial crisis • Strong tax incentives contribute comprehensively to the region’s appreciation Hum. & Soc. Taxation Environment Weaknesses Latin America • The dimensions in which the region is most fragile are the capital World Inv. Prot. & markets with respect to the small number of listed domestic Corp. Gov. United States = 100 Points companies, IPO opportunities, and the low dynamic of the M&A markets Separate VC and PE Indices • Lacking entrepreneurial culture hinders the developed of new 0 companies 1 Opportunities 2 • Some countries have followed Brazil’s lead in cultivating domestic sources of institutional capital for private equity firms and a 3 Index Rank number of new funds have been raised with commitments from 4 domestic pension funds 5 • Improvements with respect to law and enforcement bring more 6 security to investors 7 Threats 8 • Investor protection and corporate governance structures are still 2005/06 2006/07 2007/08 2008/09 2009/10 an import issue revealing room for development VC PE VCPE • Many countries are perceived to have high levels of corruption Outlook Comparison within Peer Group • While many economies grow strongly, some others remain under populist governments 2005/06 2009/10 Quartile Rank Value Rank 4th 1st • Lack of basic infrastructure hinders the development on one side, one the other, this provides investment opportunities North America 1 96,9 1 Australasia 2 76,4 2 Western Europe 3 67,5 3 Asia 4 53,5 4 Middle East 5 45,9 5 Eastern Europe 6 41,9 6 Latin America 7 34,9 7 Africa 8 33,2 862 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 59. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 6 53,8 51.2 Inflation 7 77,7 61.3 Unemployment 5 95,5 52 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 8 8,9 82.2 IPO Market Activity 6 1,6 62.3 M&A Market Activity 5 2,4 52.4 Debt & Credit Market 8 64,3 82.5 Financial Market Sophistication 8 43,7 7Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 4 149,6 33.2 Administrative Tax Burdens 8 84,7 84 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 8 54,9 84.2 Security of Property Rights 8 39,4 84.3 Quality of Legal Enforcement 8 41,1 84.4 Regulatory Quality 7 49,4 75 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 8 35,3 85.2 Labor Market Rigidities 8 58,2 85.3 Bribing & Corruption 7 41,1 75.4 Costs of Crime 7 63,7 76 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 8 10,1 86.2 Ease of Starting & Running a Business 8 69,0 86.3 Simplicity of Closing a Business 7 59,8 56.4 ICT Infrastructure 5 17,2 5 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 63
  • 60. Regional and country profiles Middle East Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 5 45,9 5 Economic Activity 4 72,2 7 Depth of Cap. Market 5 13,8 5 Taxation 1 133,3 1 Inv. Prot. & Corp. Gov. 5 66,6 5 Hum. & Soc. Env. 4 76,4 4 Quartile 4th 1st Entrepr. Culture & Opp. 6 35,5 6 GDP 1270 [bn USD] IPO Volume Population 119 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 150 125 SWOT Analysis 100 Entrepr. Culture Depth of Cap. & Opp. 75 Market Strengths 50 25 • Sufficiently diversified cash rich economies 0 • Relatively robust economic growth • Steady growing population with "real demand" Hum. & Soc. Taxation • Government’s commitment to continuous growth Environment Middle East Weaknesses Inv. Prot. & World • Weak corporate governance as most businesses are still controlled by Corp. Gov. families United States = 100 Points • Underdeveloped legal framework to support VC/PE activity • Highly dependent on volatile oil prices Separate VC and PE Indices 0 Opportunities 1 • Ideal time to focus on distressed companies with good business models 2 Index Rank • Focus on businesses wishing to transform from family business to 3 corporate structure • Availability of assets at attractive valuations 4 Threats 5 • Economic growth to slow down due to decrease in global tourism 6 industry 2005/06 2006/07 2007/08 2008/09 2009/10 • Managing expectations of existing shareholders/family members a VC PE VCPE key challenge • Size and liquidity of stock markets may affect exits Comparison within Peer Group • Decrease in availability of private funds as a result of the crisis • Lack of liquidity impacting setting up new funds 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Outlook North America 1 96,9 1 • Global economic downturn to slow down activity in the short term Australasia 2 76,4 2 • Potential for acquiring assets at attractive valuations Western Europe 3 67,5 3 • Transformations from family run businesses to corporate structures Asia 4 53,5 4 • IPO markets to re-open as a result of a gradual recovery Middle East 5 45,9 5 Phil Gandier, Partner, Ernst & Young Middle East Eastern Europe 6 41,9 6 Latin America 7 34,9 7 Africa 8 33,2 864 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 61. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 4 55,4 41.2 Inflation 4 71,8 71.3 Unemployment 6 94,7 62 Depth of Capital Market 2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 4 23,7 52.2 IPO Market Activity 5 3,0 52.3 M&A Market Activity 8 1,6 62.4 Debt & Credit Market 5 78,1 52.5 Financial Market Sophistication 6 55,7 53 TaxationCapital MarketDepth of3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 1 183,3 13.2 Administrative Tax Burdens 4 96,8 44 Investor Protection & Corporate Governance4. Investor Protection and Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 7 63,3 74.2 Security of Property Rights 5 58,0 54.3 Quality of Legal Enforcement 4 86,5 44.4 Regulatory Quality 6 61,8 65 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 6 55,4 65.2 Labor Market Rigidities 3 68,6 35.3 Bribing & Corruption 4 63,9 45.4 Costs of Crime 3 140,7 16 Entrepreneurial Culture & Opportunities6. Entrepreneurial Culture and Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 5 21,6 56.2 Ease of Starting & Running a Business 7 97,1 36.3 Simplicity of Closing a Business 8 53,1 86.4 ICT Infrastructure 7 14,2 7 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 65
  • 62. Regional and country profiles North America Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 1 96,9 1 Economic Activity 1 100,3 1 Depth of Cap. Market 1 82,0 1 Taxation 4 100,8 8 Inv. Prot. & Corp. Gov. 2 101,1 2 Hum. & Soc. Env. 2 106,3 2 Quartile 4th 1st Entrepr. Culture & Opp. 1 99,9 1 GDP 15984 [bn USD] IPO Volume Population 342 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. Market Strengths 50 • Strong innovation and entrepreneurship culture 25 • Strong US VC/PE market and financial community 0 Weaknesses Hum. & Soc. • Financial services have a very large stake of the overall economic Environment Taxation output, making the region especially vulnerable to the financial North America crisis Inv. Prot. & World Opportunities Corp. Gov. United States = 100 Points • Innovations and fast growth segments such as cleantech, cloud computing, wireless and security Separate VC and PE Indices Threats 0 • Succession planning in some funds • Impact of lack of exits on the ability to raise new or follow on funds Outlook Index Rank • Strong industry with new investment and growth opportunities 1 • The number of players will continue to shrink: less funds will be able to raise follow-on funds 2 2005/06 2006/07 2007/08 2008/09 2009/10 VC PE VCPE Comparison within Peer Group 2005/06 2009/10 Quartile Rank Value Rank 4th 1st North America 1 96,9 1 Australasia 2 76,4 2 Western Europe 3 67,5 3 Asia 4 53,5 4 Middle East 5 45,9 5 Eastern Europe 6 41,9 6 Latin America 7 34,9 7 Africa 8 33,2 866 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 63. Details1 Economic Activity1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 1 98,5 11.2 Inflation 2 102,5 11.3 Unemployment 2 99,9 22. Depth of Capital Market2 Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 1 87,2 12.2 IPO Market Activity 1 62,9 12.3 M&A Market Activity 1 61,0 12.4 Debt & Credit Market 1 107,6 12.5 Financial Market Sophistication 1 103,1 1Depth of Capital Market3. Taxation3 Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 6 100,8 83.2 Administrative Tax Burdens 2 100,9 24. Investor Protection andCorporate Governance4 Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 2 99,5 24.2 Security of Property Rights 2 92,7 24.3 Quality of Legal Enforcement 3 111,6 24.4 Regulatory Quality 2 101,3 25. Human and Social Environment5 Human & Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 1 104,2 15.2 Labor Market Rigidities 1 95,7 25.3 Bribing & Corruption 3 112,2 25.4 Costs of Crime 4 114,3 46. EntrepreneurialCulture andOpportunities6 Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 1 89,4 16.2 Ease of Starting & Running a Business 1 105,1 16.3 Simplicity of Closing a Business 1 106,2 16.4 ICT Infrastructure 1 99,6 1 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 67
  • 64. Regional and country profiles Western Europe Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 3 67,5 3 Economic Activity 3 93,8 3 Depth of Cap. Market 3 23,3 4 Taxation 3 121,1 3 Inv. Prot. & Corp. Gov. 3 90,5 3 Hum. & Soc. Env. 3 93,3 3 Quartile 4th 1st Entrepr. Culture & Opp. 3 80,2 3 GDP 17763 [bn USD] IPO Volume Population 403 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Large sample of companies and still smaller private capital share 0 than in the USA, which reveals some catch up potential Weaknesses Hum. & Soc. Taxation • There is an ongoing discussion about a new regulatory framework, Environment which causes uncertainty and might burden investors with Western Europe additional costs and efforts World Inv. Prot. & Corp. Gov. Opportunities United States = 100 Points • Europe might recover from the crisis earlier and better than expected, leaving investors with two “buyers’ years” (2010/2011) Separate VC and PE Indices similar to 2002/2003 0 Threats • Regulation together with reputation damages from 2007/2008 1 investments and a deeper crisis than expected might cause a real Index Rank shakeout in the industry and damage the VC/PE market for a longer period 2 Outlook • It is more likely that we will see something like the 2002/2003 3 activity very soon and Western Europe maturing similar to US market 15 years ago. Coupled with all the infrastructure and 4 expertise, deals will get sourced and done efficiently 2005/06 2006/07 2007/08 2008/09 2009/10 VC PE VCPE Florian Huber, Senior Manager, Ernst & Young Germany Comparison within Peer Group 2005/06 2009/10 Quartile Rank Value Rank 4th 1st North America 1 96,9 1 Australasia 2 76,4 2 Western Europe 3 67,5 3 Asia 4 53,5 4 Middle East 5 45,9 5 Eastern Europe 6 41,9 6 Latin America 7 34,9 7 Africa 8 33,2 868 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 65. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 3 84,4 31.2 Inflation 1 101,4 21.3 Unemployment 4 96,5 42 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 3 36,6 32.2 IPO Market Activity 4 3,1 42.3 M&A Market Activity 3 7,2 42.4 Debt & Credit Market 3 93,9 32.5 Financial Market Sophistication 3 89,6 3Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 5 146,8 43.2 Administrative Tax Burdens 3 100,0 34 Investor Protection and Corporate Governance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 3 72,0 44.2 Security of Property Rights 3 87,4 34.3 Quality of Legal Enforcement 2 109,8 34.4 Regulatory Quality 3 97,0 35 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 3 86,5 35.2 Labor Market Rigidities 6 62,3 65.3 Bribing & Corruption 2 106,9 35.4 Costs of Crime 2 131,6 36 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 2 59,4 26.2 Ease of Starting & Running a Business 3 93,8 46.3 Simplicity of Closing a Business 3 95,2 36.4 ICT Infrastructure 3 78,0 3 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 69
  • 66. Regional and country profiles Argentina Capital: Buenos Aires ++ Official Language: Spanish ++ Currency: Argentine Peso Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 59 29,1 59 Economic Activity 51 74,3 42 Depth of Cap. Market 60 6,5 59 Taxation 54 113,7 37 Inv. Prot. & Corp. Gov. 61 30,4 64 Hum. & Soc. Env. 62 44,9 53 Quartile 4th 1st Entrepr. Culture & Opp. 48 29,6 51 GDP 303 [bn USD] IPO Volume Population 40 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Tax advantages on dividends and share transfers 0 Weaknesses • Many regulatory hurdles to overcome to develop a stronger Hum. & Soc. Taxation industry Environment • Legal framework for fund formation and operation presents Argentina difficulties, particularly for foreign funds Latin America Inv. Prot. & • Corporate governance standards and enforcement remains Corp. Gov. United States = 100 Points lengthy and cumbersome Opportunities Separate VC and PE Indices • Strength of entrepreneurial dynamism and quality of Argentina’s 52 accounting standards 53 Threats 54 • With the pension system re-nationalisation, institutional 55 Index Rank investment is now effectively barred from the PE/VC industry 56 • High perception of corruption 57 58 Outlook 59 • The country is underperforming relative to its size and level of 60 development 61 • Improvement in the VC/PE business environment does not appear 62 to be a major near-term priority 2005/06 2006/07 2007/08 2008/09 2009/10 VC PE VCPE Comparison within Peer Group 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Chile 27 45,8 32 Mexico 51 35,8 49 Brazil 56 34,6 51 Uruguay 50 33,4 52 Peru 54 32,4 53 Colombia 55 29,4 58 Argentina 59 29,1 59 Paraguay 66 14,9 65 Venezuela 65 8,9 6670 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 67. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 32 52,9 401.2 Inflation 60 82,5 451.3 Unemployment 52 93,9 502 Depth of Capital Market 2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 50 5,6 582.2 IPO Market Activity 52 2,5 252.3 M&A Market Activity 47 1,9 382.4 Debt & Credit Market 65 31,3 632.5 Financial Market Sophistication 58 13,5 623 TaxationCapital MarketDepth of3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 51 136,5 373.2 Administrative Tax Burdens 61 94,7 434 Investor Protection & Corporate Governance4. Investor Protection and Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 46 44,5 554.2 Security of Property Rights 59 26,0 614.3 Quality of Legal Enforcement 62 27,2 634.4 Regulatory Quality 63 27,2 655 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 60 43,5 545.2 Labor Market Rigidities 64 56,7 385.3 Bribing & Corruption 58 22,4 575.4 Costs of Crime 55 73,3 556 Entrepreneurial Culture & Opportunities6. Entrepreneurial Culture and Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 52 11,1 526.2 Ease of Starting & Running a Business 55 52,7 606.3 Simplicity of Closing a Business 41 61,8 426.4 ICT Infrastructure 44 21,1 44 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 71
  • 68. Regional and country profiles Australia Capital: Canberra ++ Official Language: English ++ Currency: Australian Dollar Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 6 81,9 4 Economic Activity 15 96,7 7 Depth of Cap. Market 5 42,9 4 Taxation 39 106,9 41 Inv. Prot. & Corp. Gov. 10 99,0 11 Hum. & Soc. Env. 6 112,3 5 Quartile 4th 1st Entrepr. Culture & Opp. 13 86,1 13 GDP 980 [bn USD] IPO Volume Population 21 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Strong economy and sound banking/capital/financial market 0 systems • Democratic and stable political, regulatory and legal environment • Government support for foreign investors Hum. & Soc. Taxation Environment • Significant number of VC/PE investments currently under Australia management Inv. Prot. & Australasia Weaknesses Corp. Gov. United States = 100 Points • Competition from both local and overseas investors • Tax rates are comparatively high Separate VC and PE Indices • Performance of VC/PE investee companies facing tough market conditions 2 • Slow recovery from the recessionary environment predicted 3 Opportunities • Strong M&A market with international targets and sound Index Rank 4 prospects for exits • VC/PE investors have a significant amount of dry powder to make 5 new investments • Strong stock market listed culture, providing good opportunities 6 for IPO Threats 7 2005/06 2006/07 2007/08 2008/09 2009/10 • High interest rate environment making current debt raisings VC PE VCPE difficult • Liquidity issues continue to restrict the level and availability of leverage Comparison within Peer Group • P2P’s and PIPES are proving more difficult in finding support 2005/06 2009/10 Quartile from boards/shareholders Rank Value Rank 4th 1st • Refinance of existing senior debt packages in the next two years Australia 6 81,9 4 Outlook Hong Kong 4 79,5 5 • Business models and margins continue to be under pressure Singapore 5 78,5 6 • Increasing pressure from LPs to exit less successful investee Japan 7 76,5 7 companies Republic of Korea 15 67,5 13 • Financing and acquisition opportunities are expected to increase New Zealand 18 60,0 18 Bryan Zekulich, Partner, Ernst & Young Australia Taiwan 25 55,3 23 Malaysia 23 54,4 25 China 42 48,5 2872 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 69. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 13 89,2 71.2 Inflation 31 97,1 261.3 Unemployment 19 104,3 192 Depth of Capital Market 2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 10 60,2 92.2 IPO Market Activity 5 11,4 62.3 M&A Market Activity 4 19,4 52.4 Debt & Credit Market 11 108,6 22.5 Financial Market Sophistication 5 100,0 83 TaxationCapital Market Depth of 3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 48 113,2 543.2 Administrative Tax Burdens 15 100,9 144 Investor Protection & Corporate Governance 4. Investor Protection and Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 15 78,1 174.2 Security of Property Rights 5 95,8 124.3 Quality of Legal Enforcement 8 120,4 94.4 Regulatory Quality 8 106,5 65 Human & Social Environment 5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 8 100,3 95.2 Labor Market Rigidities 11 99,2 25.3 Bribing & Corruption 8 126,0 85.4 Costs of Crime 16 127,0 256 Entrepreneurial Culture & Opportunities6. Entrepreneurial Culture and Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 18 57,8 186.2 Ease of Starting & Running a Business 11 101,8 136.3 Simplicity of Closing a Business 13 102,9 136.4 ICT Infrastructure 15 90,9 12 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 73
  • 70. Regional and country profiles Austria Capital: Vienna ++ Official Language: German (official nationwide); Slovene, Croatian, Hungarian (each official in one region) ++ Currency: Euro Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 20 58,6 19 Economic Activity 17 96,3 8 Depth of Cap. Market 31 11,8 37 Taxation 38 114,7 36 Inv. Prot. & Corp. Gov. 15 93,0 16 Hum. & Soc. Env. 11 103,9 9 Quartile 4th 1st Entrepr. Culture & Opp. 17 76,1 19 GDP 411 [bn USD] IPO Volume Population 8 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. Market Strengths 50 • Still a niche market which is not as crowded as Germany, while 25 offering a similar, but smaller sample of companies and industries 0 Weaknesses Hum. & Soc. • Almost a “closed shop”, which takes a lot of effort to enter for a Environment Taxation little deal flow and transactions of smaller size Austria Opportunities Inv. Prot. & Western Europe • Austria has a lot of hidden champions and family owned Corp. Gov. United States = 100 Points companies with succession problems Separate VC and PE Indices Threats • Regulation together with reputation damages from 2007/2008 15 investments and a deeper crisis than expected might cause a real 16 shakeout in the industry and might damage the VC/PE Market on 17 a longer term 18 Index Rank 19 Outlook 20 • Will stay a niche, but might be used as base for Eastern European 21 acquisitions as Austria offers good resources with respect to the 22 necessary language skills and the cultural understanding. 23 24 Florian Huber, Senior Manager, Ernst & Young Germany 25 2005/06 2006/07 2007/08 2008/09 2009/10 VC PE VCPE Comparison within Peer Group 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Norway 11 66,3 14 Finland 12 65,9 15 France 17 65,2 16 Belgium 19 61,1 17 Austria 20 58,6 19 Ireland 16 58,3 21 Luxembourg 24 54,6 24 Portugal 28 49,5 27 Greece 44 40,7 3974 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 71. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 15 82,6 121.2 Inflation 20 102,2 81.3 Unemployment 23 105,8 132 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 42 11,2 452.2 IPO Market Activity 27 1,2 502.3 M&A Market Activity 35 2,0 372.4 Debt & Credit Market 14 96,1 142.5 Financial Market Sophistication 16 90,7 18Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 45 137,3 363.2 Administrative Tax Burdens 32 95,9 384 Investor Protection and Corporate Governance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 32 59,2 404.2 Security of Property Rights 7 99,2 84.3 Quality of Legal Enforcement 6 124,7 54.4 Regulatory Quality 11 102,1 135 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 13 87,9 175.2 Labor Market Rigidities 32 74,3 255.3 Bribing & Corruption 9 119,0 115.4 Costs of Crime 5 150,0 86 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 17 58,7 176.2 Ease of Starting & Running a Business 22 88,6 366.3 Simplicity of Closing a Business 22 88,2 206.4 ICT Infrastructure 17 73,2 18 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 75
  • 72. Regional and country profiles Belgium Capital: Brussels ++ Official Language: Dutch, French, German ++ Currency: Euro Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 19 61,1 17 Economic Activity 26 91,1 16 Depth of Cap. Market 20 15,2 27 Taxation 61 102,8 47 Inv. Prot. & Corp. Gov. 16 92,0 17 Hum. & Soc. Env. 13 101,8 11 Quartile 4th 1st Entrepr. Culture & Opp. 15 79,4 16 GDP 501 [bn USD] IPO Volume Population 11 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 100 SWOT Analysis Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Attractive taxation for investors with limited taxation on capital 0 gains and on patent income • Strong education system resulting in highly skilled workforce and Hum. & Soc. important R&D activity Environment Taxation Weaknesses Belgium • Due to the limited size of the deals, takeover opportunities are still Inv. Prot. & Western Europe fundable from a bank perspective Corp. Gov. United States = 100 Points • Prominent role of government backed VCs Opportunities Separate VC and PE Indices • Most SMEs are still in private hands 15 • More and more private SMEs are open to external investors Threats 16 • Available funds within PE sector, predominantly used for add-on 17 investments Index Rank • Stock exchange: liquidity on small caps is very limited 18 Outlook 19 • Increasing number of strategic deals • The new tax/legal framework favors R&D investments (tax 20 incentives for researchers, patent income deduction, notional 21 interest deduction), importantly decreasing the corporate effective 2005/06 2006/07 2007/08 2008/09 2009/10 tax rate VC PE VCPE Marc Guns, Partner, Ernst & Young Belgium Comparison within Peer Group 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Germany 9 69,1 10 Denmark 10 67,7 12 Finland 12 65,9 15 France 17 65,2 16 Belgium 19 61,1 17 Austria 20 58,6 19 Ireland 16 58,3 21 Italy 32 47,5 29 Greece 44 40,7 3976 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 73. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 24 80,4 141.2 Inflation 29 97,5 251.3 Unemployment 42 96,5 402 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 30 16,6 342.2 IPO Market Activity 22 1,5 372.3 M&A Market Activity 18 4,1 212.4 Debt & Credit Market 19 85,1 222.5 Financial Market Sophistication 16 90,7 18Depth of Capital Market3. Taxation3 Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 65 105,4 603.2 Administrative Tax Burdens 14 100,3 174. Investor Protectionand CorporateGovernance4 Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 13 86,4 134.2 Security of Property Rights 15 84,4 194.3 Quality of Legal Enforcement 20 101,4 194.4 Regulatory Quality 20 96,7 175. Human & Social Environment5 Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 3 106,1 65.2 Labor Market Rigidities 24 75,0 215.3 Bribing & Corruption 18 99,7 195.4 Costs of Crime 18 135,4 196. Entrepreneurial Culture and Opportunities6 Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 15 59,9 156.2 Ease of Starting & Running a Business 30 93,6 296.3 Simplicity of Closing a Business 6 110,8 66.4 ICT Infrastructure 18 64,2 21 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 77
  • 74. Regional and country profiles Brazil Capital: Brasília ++ Official Language: Portuguese ++ Currency: Brazilian Real Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 56 34,6 51 Economic Activity 48 79,9 34 Depth of Cap. Market 29 19,3 18 Taxation 66 39,2 65 Inv. Prot. & Corp. Gov. 52 45,4 54 Hum. & Soc. Env. 54 42,0 56 Quartile Entrepr. Culture & Opp. 65 22,7 57 4th 1st GDP 1537 [bn USD] IPO Volume Population 194 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Strong government support programs for start-ups, technology 0 ventures and SMEs • Number of companies listed on the Brazilian stock exchange increased remarkably in the past years Hum. & Soc. Taxation Environment • An initial framework for VC activity, focused on smaller firms and Brazil start-ups, was provided by FIEs Inv. Prot. & Latin America Weaknesses Corp. Gov. United States = 100 Points • Fighting the perception of corruption remains a serious challenge • The process of registering and enforcing patents and other Separate VC and PE Indices intellectual property remains slow and cumbersome 30 Opportunities • Favourable legislation on fund formation and operation, 35 permissive regulations on institutional investors and strong 40 entrepreneurship Index Rank Threats 45 • Corruption is pervasive throughout the public sector and there 50 have only been a few sanctions against those involved in illegal campaign financing activities 55 Outlook 60 • Brazil leads the region in the development of a local PE/VC 2005/06 2006/07 2007/08 2008/09 2009/10 industry VC PE VCPE Comparison within Peer Group 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Chile 27 45,8 32 Mexico 51 35,8 49 Brazil 56 34,6 51 Uruguay 50 33,4 52 Peru 54 32,4 53 Colombia 55 29,4 58 Argentina 59 29,1 59 Paraguay 66 14,9 65 Venezuela 65 8,9 6678 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 75. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 44 58,3 311.2 Inflation 54 93,1 321.3 Unemployment 48 93,9 502 Depth of Capital Market 2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 35 22,1 262.2 IPO Market Activity 24 4,0 182.3 M&A Market Activity 24 8,2 142.4 Debt & Credit Market 59 39,8 612.5 Financial Market Sophistication 18 93,8 133 TaxationCapital MarketDepth of3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 21 148,3 293.2 Administrative Tax Burdens 66 10,4 654 Investor Protection & Corporate Governance4. Investor Protection and Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 55 46,0 534.2 Security of Property Rights 47 45,3 484.3 Quality of Legal Enforcement 59 37,4 594.4 Regulatory Quality 50 54,6 495 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 58 45,8 485.2 Labor Market Rigidities 48 31,5 605.3 Bribing & Corruption 49 37,8 505.4 Costs of Crime 58 57,1 576 Entrepreneurial Culture & Opportunities6. Entrepreneurial Culture and Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 36 16,0 396.2 Ease of Starting & Running a Business 66 20,7 656.3 Simplicity of Closing a Business 66 44,5 556.4 ICT Infrastructure 45 17,9 46 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 79
  • 76. Regional and country profiles Bulgaria Capital: Sofia ++ Official Language: Bulgarian ++ Currency: Bulgarian Lev Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 48 30,6 55 Economic Activity 54 63,6 53 Depth of Cap. Market 56 4,4 64 Taxation 13 138,1 8 Inv. Prot. & Corp. Gov. 47 46,2 53 Hum. & Soc. Env. 50 49,4 49 Quartile 4th 1st Entrepr. Culture & Opp. 41 38,5 37 GDP 51 [bn USD] IPO Volume Population 8 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 150 125 SWOT Analysis 100 Entrepr. Culture Depth of Cap. & Opp. 75 Market Strengths 50 • Growing market 25 0 • Increasing number of investment opportunities • Return has been higher than in mature markets Hum. & Soc. Taxation Weaknesses Environment • Deal size is relatively small Bulgaria • Quality of target information below standard Inv. Prot. & Eastern Europe Corp. Gov. Opportunities United States = 100 Points • Market expects higher than average growth • Current low penetration of the service sector: existence of growth Separate VC and PE Indices opportunities 40 Threats • Continuing impact of crisis 45 • Small market Index Rank • Slow recovery of foreign markets 50 Outlook • Following the crisis, the VC/PE market in Bulgaria could be expected to become active with a six-month delay compared to 55 developed markets. Opportunities will arise from smaller size deals 60 Diana Nikolaeva, Partner, Ernst & Young Bulgaria 2005/06 2006/07 2007/08 2008/09 2009/10 VC PE VCPE Comparison within Peer Group 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Poland 41 45,8 31 Czech Republic 33 45,5 34 Estonia 30 44,5 35 Hungary 34 41,1 37 Lithuania 37 40,4 40 Croatia 47 38,6 45 Romania 52 38,1 47 Latvia 39 35,6 50 Bulgaria 48 30,6 5580 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 77. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 56 36,5 531.2 Inflation 50 70,2 571.3 Unemployment 51 100,3 262 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 47 12,3 422.2 IPO Market Activity 49 1,1 512.3 M&A Market Activity 46 1,4 512.4 Debt & Credit Market 40 74,0 372.5 Financial Market Sophistication 64 1,2 66Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 9 215,5 23.2 Administrative Tax Burdens 49 88,5 524 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 38 51,3 474.2 Security of Property Rights 57 31,7 594.3 Quality of Legal Enforcement 53 38,5 584.4 Regulatory Quality 38 72,8 365 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 56 44,4 525.2 Labor Market Rigidities 27 74,6 235.3 Bribing & Corruption 44 32,1 555.4 Costs of Crime 57 56,0 596 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 55 11,9 486.2 Ease of Starting & Running a Business 40 94,8 256.3 Simplicity of Closing a Business 38 62,9 396.4 ICT Infrastructure 39 30,8 36 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 81
  • 78. Regional and country profiles Canada Capital: Ottawa ++ Official Language: English, French ++ Currency: Canadian Dollar Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 2 85,8 2 Economic Activity 13 95,3 10 Depth of Cap. Market 3 49,8 3 Taxation 17 100,2 52 Inv. Prot. & Corp. Gov. 11 100,8 9 Hum. & Soc. Env. 5 111,9 6 Quartile 4th 1st Entrepr. Culture & Opp. 5 94,7 7 GDP 1491 [bn USD] IPO Volume Population 33 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Many similarities with the US 0 • Canada benefits from the “facilities” and the deal supporting institutions of the US • Government support to spur the asset class (tax credits, indirect Hum. & Soc. Taxation Environment investments) Canada Weaknesses North America Inv. Prot. & • Canada’s original VC/PE industry is still young, and little developed Corp. Gov. United States = 100 Points • Generated returns remain disappointing, so far Opportunities Separate VC and PE Indices • Political desire to turn the resource-based economy into a 0 knowledge-based economy • Massive public investments into R&D 1 Threats Index Rank • Reduction of public support of R&D and VC/PE industry 2 Outlook • The activities of the Canadian government to spur innovation and growth should yield to a much stronger VC/PE market 3 4 2005/06 2006/07 2007/08 2008/09 2009/10 VC PE VCPE Comparison within Peer Group 2005/06 2009/10 Quartile Rank Value Rank 4th 1st United States 1 100,0 1 Canada 2 85,8 2 United Kingdom 3 84,3 3 Switzerland 8 76,3 8 Netherlands 14 70,1 9 Germany 9 69,1 10 Sweden 13 69,0 11 Denmark 10 67,7 12 Norway 11 66,3 1482 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 79. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 10 83,2 111.2 Inflation 25 105,1 21.3 Unemployment 27 99,1 332 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 6 70,7 52.2 IPO Market Activity 2 18,4 32.3 M&A Market Activity 5 19,9 42.4 Debt & Credit Market 2 111,2 12.5 Financial Market Sophistication 5 106,2 3Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 23 98,6 623.2 Administrative Tax Burdens 9 101,7 114 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 10 97,7 84.2 Security of Property Rights 19 83,8 214.3 Quality of Legal Enforcement 9 122,7 74.4 Regulatory Quality 12 102,7 115 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 5 107,5 45.2 Labor Market Rigidities 4 91,3 75.3 Bribing & Corruption 14 124,3 95.4 Costs of Crime 26 128,5 236 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 12 68,6 126.2 Ease of Starting & Running a Business 4 109,7 56.3 Simplicity of Closing a Business 4 112,4 46.4 ICT Infrastructure 4 95,0 10 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 83
  • 80. Regional and country profiles Chile Capital: Santiago ++ Official Language: Spanish ++ Currency: Chilean Peso Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 27 45,8 32 Economic Activity 32 72,7 44 Depth of Cap. Market 32 12,6 34 Taxation 18 112,8 39 Inv. Prot. & Corp. Gov. 24 80,2 22 Hum. & Soc. Env. 27 77,0 27 Quartile 4th 1st Entrepr. Culture & Opp. 36 35,2 42 GDP 190 [bn USD] IPO Volume Population 17 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Law establishes corporate governance norms like the formation of 0 audit committees and strengthens management responsibility for ensuring fair market prices for transactions • Lower incidences of perceived corruption in the region Hum. & Soc. Taxation Environment • There is considerable entrepreneurial dynamism Chile Weaknesses Latin America Inv. Prot. & • Low levels of market capitalization and high costs of meeting Corp. Gov. United States = 100 Points listing requirements mean that IPO exits are not accessible to the vast majority of SMEs Separate VC and PE Indices • Value-added tax on fund administrator commissions for foreign participants in funds 25 • Foreign investors from a majority of countries still face double- 26 taxation 27 28 Opportunities Index Rank 29 • Law stimulates PE/VC activity through a new form of corporate 30 organization, the share-issuing limited-liability company, which 31 provides a more flexible instrument to receive venture capital 32 33 Threats 34 • The cost of protecting trademarks and patents is high, and the 35 country remains on the US Special 301 Watch List for intellectual 2005/06 2006/07 2007/08 2008/09 2009/10 property violations. VC PE VCPE Comparison within Peer Group 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Chile 27 45,8 32 Mexico 51 35,8 49 Brazil 56 34,6 51 Uruguay 50 33,4 52 Peru 54 32,4 53 Colombia 55 29,4 58 Argentina 59 29,1 59 Paraguay 66 14,9 65 Venezuela 65 8,9 6684 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 81. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 34 49,9 441.2 Inflation 36 81,8 461.3 Unemployment 28 94,2 492 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 31 17,1 332.2 IPO Market Activity 44 1,0 572.3 M&A Market Activity 44 2,0 352.4 Debt & Credit Market 22 94,8 162.5 Financial Market Sophistication 21 90,7 18Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 22 130,7 433.2 Administrative Tax Burdens 20 97,3 314 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 30 66,6 284.2 Security of Property Rights 27 66,6 274.3 Quality of Legal Enforcement 25 93,2 214.4 Regulatory Quality 17 100,0 165 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 54 42,8 575.2 Labor Market Rigidities 16 74,6 225.3 Bribing & Corruption 20 95,5 205.4 Costs of Crime 34 115,4 346 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 39 15,2 416.2 Ease of Starting & Running a Business 23 90,7 336.3 Simplicity of Closing a Business 53 44,3 566.4 ICT Infrastructure 35 25,2 41 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 85
  • 82. Regional and country profiles China Capital: Beijing ++ O cial Language: Standard Mandarin ++ Currency: Yuan Renminbi Basic Facts VCPE-Ranking 2005/06 2009/10 Quar le Rank Value Rank 4th 1st VCPE Ranking 42 48,5 28 Econom c Ac t 28 79,7 35 Depth of Cap. Market 16 37,7 6 Taxa on 62 72,1 62 In . Prot. & Corp. Go . 55 48,6 52 Hum. & Soc. En . 42 61,4 42 4th Quar le 1st Entrepr. Culture & Opp. 50 29,6 50 GDP 4192 [bn USD] IPO Volume Popula on 1336 [mn] M&A Volume GDP Growth 02 08 VC Ac t Pop. Growth 02 08 PE Ac t Key Factors Performance Econom c Ac t 125 100 SWOT Analysis Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Period from first VC/PE round to IPO is shorter than in other 0 countries • Various IPOs with high international recognition in the past few years Hum. & Soc. Taxa on En ronment • Numerous alternative stock markets available for VC/PE exits • Large companies acquiring VC/PE investees seen as attractive Ch na alternative exit In . Prot. & As a Corp. Go . United States = 100 Points Weaknesses • Downturn of economy due to poor export atmosphere Separate VC and PE Indices • Poor market sentiment due to financial crisis • Government policy may affect the availability of exits in overseas 15 stock markets due to strict going public criteria 20 Opportunities 25 • Strong growing economy Index Rank • Focus on new industries, such as solar and wind power 30 • Higher chances of success for green field investments 35 Threats • High valuation levels may reduce the number of transactions 40 • LPs are requesting the GPs to be more cautious with investment 45 decisions 2005/06 2006/07 2007/08 2008/09 2009/10 • Uncertainty on the success of stimulus policies VC PE VCPE Outlook • Too early to assess the impact of the stimulus policies to the Comparison within Peer Group economy, but World Bank’s economic growth forecast for China 2005/06 2009/10 Quar le rose significantly Rank Value Rank 4th 1st • Large increase in use of wind and solar power over the next Hong Kong 4 79,5 5 decade planned: aimed to match Europe by 2020, producing a fifth of its energy from renewable sources Japan 7 76,5 7 Republ c of Korea 15 67,5 13 Ringo Choi, Managing Partner, Ernst & Young China Mala s a 23 54,4 25 Ch na 42 48,5 28 In a 46 40,9 38 Russ an Federa on 49 38,0 48 Indones a 60 30,7 54 Ph l pp nes 57 26,1 6186 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 83. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 33 52,1 421.2 Inflation 14 92,4 351.3 Unemployment 11 105,2 142 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 26 67,4 72.2 IPO Market Activity 3 36,0 22.3 M&A Market Activity 9 13,3 72.4 Debt & Credit Market 52 73,6 382.5 Financial Market Sophistication 57 32,0 56Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 63 55,1 653.2 Administrative Tax Burdens 56 94,3 454 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 62 46,1 524.2 Security of Property Rights 43 45,6 474.3 Quality of Legal Enforcement 51 64,3 444.4 Regulatory Quality 55 41,2 585 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 33 62,2 335.2 Labor Market Rigidities 25 51,8 455.3 Bribing & Corruption 56 39,0 475.4 Costs of Crime 43 112,8 376 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 35 17,2 356.2 Ease of Starting & Running a Business 59 63,1 586.3 Simplicity of Closing a Business 47 62,3 416.4 ICT Infrastructure 50 11,4 54 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 87
  • 84. Regional and country profiles Colombia Capital: Bogotá ++ Official Language: Spanish ++ Currency: Colombian Peso Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 55 29,4 58 Economic Activity 46 65,6 49 Depth of Cap. Market 47 8,1 51 Taxation 64 105,1 45 Inv. Prot. & Corp. Gov. 59 39,1 58 Hum. & Soc. Env. 60 31,3 64 Quartile 4th 1st Entrepr. Culture & Opp. 51 30,2 49 GDP 234 [bn USD] IPO Volume Population 47 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Low barriers to participation for institutional investors 0 • Liberal policies towards foreign portfolio investment • Under recent corporate governance reforms, standards for listed firms have improved Hum. & Soc. Taxation Environment Weaknesses Colombia • Decline in the country’s capital market development Inv. Prot. & Latin America • Low levels of market capitalization and high costs of meeting Corp. Gov. United States = 100 Points listing requirements mean that IPO exits are still not accessible to the vast majority of SMEs Separate VC and PE Indices • Efforts to transition to international accounting standards have met with continued delays 53 Opportunities 54 • A loosening of restrictions will now allow further participation of 55 pension funds in PE/VC activities Index Rank 56 Threats 57 • Corruption and the weakness of the local judicial system are still roadblocks 58 • Restricted size and liquidity of capital markets, and resulting 59 difficulty of exits constitute an important impediment 60 2005/06 2006/07 2007/08 2008/09 2009/10 VC PE VCPE Comparison within Peer Group 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Chile 27 45,8 32 Mexico 51 35,8 49 Brazil 56 34,6 51 Uruguay 50 33,4 52 Peru 54 32,4 53 Colombia 55 29,4 58 Argentina 59 29,1 59 Paraguay 66 14,9 65 Venezuela 65 8,9 6688 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 85. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 48 38,3 511.2 Inflation 49 88,0 411.3 Unemployment 59 83,8 632 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 51 7,3 562.2 IPO Market Activity 45 1,0 582.3 M&A Market Activity 39 1,6 472.4 Debt & Credit Market 42 71,3 412.5 Financial Market Sophistication 51 41,3 46Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 66 115,1 513.2 Administrative Tax Burdens 62 95,9 374 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 36 77,4 184.2 Security of Property Rights 62 24,5 634.3 Quality of Legal Enforcement 63 21,8 644.4 Regulatory Quality 51 56,3 475 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 46 46,0 465.2 Labor Market Rigidities 22 76,6 175.3 Bribing & Corruption 48 38,3 495.4 Costs of Crime 65 7,1 666 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 59 8,4 616.2 Ease of Starting & Running a Business 52 81,5 446.3 Simplicity of Closing a Business 20 83,2 236.4 ICT Infrastructure 52 14,7 49 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 89
  • 86. Regional and country profiles Croatia Capital: Zagreb ++ Official Language: Croatian ++ Currency: Croatian Kuna Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 47 38,6 45 Economic Activity 44 70,6 46 Depth of Cap. Market 59 8,4 49 Taxation 16 128,9 15 Inv. Prot. & Corp. Gov. 45 50,8 48 Hum. & Soc. Env. 40 61,1 43 Quartile 4th 1st Entrepr. Culture & Opp. 32 43,4 31 GDP 61 [bn USD] IPO Volume Population 5 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 150 125 SWOT Analysis 100 Entrepr. Culture Depth of Cap. & Opp. 75 Market Strengths 50 • Significant demand for all kind of financing 25 0 • Government recently introduced strategy for innovations (“BICRO” and “CRANE”) Hum. & Soc. Taxation Weaknesses Environment • VC/PE market is in an initial phase of development Croatia • Limited number of large potential investments Inv. Prot. & Eastern Europe • Legal and business conditions are not supporting a dynamic SME Corp. Gov. United States = 100 Points sector due to lack of simple licensing and registration processes, and barriers for investments Separate VC and PE Indices Opportunities 30 • Traditional bank loans become expensive and unavailable • Growth potential in companies that are active in Croatia and 35 neighboring countries 40 • Untapped midsize market Index Rank Threats 45 • Cultural structure does not contribute to the development of 50 entrepreneurship • Reduced availability of debt financing and general illiquidity 55 Outlook 60 • The Croatian market is traditionally bank oriented. Reduced access 2005/06 2006/07 2007/08 2008/09 2009/10 to bank loans for SMEs is expected to provide a platform for VC PE VCPE increasing VC/PE activities. Hidden values are expected to be more tapped by VC/PE in the near future. Comparison within Peer Group 2005/06 2009/10 Quartile Balazs Tuske, Partner, Ernst & Young Hungary Rank Value Rank 4th 1st Poland 41 45,8 31 Czech Republic 33 45,5 34 Estonia 30 44,5 35 Hungary 34 41,1 37 Lithuania 37 40,4 40 Croatia 47 38,6 45 Romania 52 38,1 47 Latvia 39 35,6 50 Bulgaria 48 30,6 5590 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 87. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 47 41,9 491.2 Inflation 37 90,9 381.3 Unemployment 61 92,2 542 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 54 14,0 372.2 IPO Market Activity 52 1,1 542.3 M&A Market Activity 56 1,1 602.4 Debt & Credit Market 61 70,1 442.5 Financial Market Sophistication 46 35,1 52Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 17 170,9 163.2 Administrative Tax Burdens 39 97,3 334 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 48 37,8 574.2 Security of Property Rights 51 44,7 504.3 Quality of Legal Enforcement 46 60,8 474.4 Regulatory Quality 41 64,8 425 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 43 53,7 405.2 Labor Market Rigidities 43 46,6 485.3 Bribing & Corruption 46 50,3 445.4 Costs of Crime 41 111,2 396 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 31 18,2 336.2 Ease of Starting & Running a Business 47 84,3 416.3 Simplicity of Closing a Business 44 58,8 476.4 ICT Infrastructure 33 39,4 32 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 91
  • 88. Regional and country profiles Czech Republic Capital: Prague ++ Official Language: Czech ++ Currency: Czech Koruna Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 33 45,5 34 Economic Activity 25 84,7 26 Depth of Cap. Market 43 9,9 44 Taxation 35 120,4 28 Inv. Prot. & Corp. Gov. 32 67,0 35 Hum. & Soc. Env. 23 87,2 20 Quartile 4th 1st Entrepr. Culture & Opp. 35 41,9 33 GDP 232 [bn USD] IPO Volume Population 10 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Relatively strong mid-term economic growth prospects 0 • Highly educated and skilled labor force, well developed infrastructure Hum. & Soc. Taxation Weaknesses Environment • Illiquid capital market Czech Republic • Negative perception/low profile of VC/PEs as a source of finance Inv. Prot. & Eastern Europe • Few opportunities for large investments (>500m) Corp. Gov. United States = 100 Points • Poor quality of legal enforcement and uncertain tax environment Opportunities Separate VC and PE Indices • Many good companies with poor financial management 29 • Large pool of owner managed businesses where owners are now 30 reaching retirement 31 • Companies struggling to obtain credit from banks and looking for 32 other sources of finance Index Rank 33 • Opportunities in non-cyclical industries such as healthcare 34 Threats 35 • 2010 elections may result in less favorable tax regime 36 37 • FX volatility (postponement of EURO adoption to at least 2015) 38 and adverse impact on export competitiveness 39 Outlook 2005/06 2006/07 2007/08 2008/09 2009/10 • Czech market continues to offer VC/PEs opportunities to execute VC PE VCPE leveraged transactions with companies showing reasonable growth prospects. Comparison within Peer Group 2005/06 2009/10 Quartile Vladislav Severa, Partner, Ernst & Young Czech Republic Rank Value Rank 4th 1st Poland 41 45,8 31 Czech Republic 33 45,5 34 Estonia 30 44,5 35 Hungary 34 41,1 37 Lithuania 37 40,4 40 Croatia 47 38,6 45 Romania 52 38,1 47 Latvia 39 35,6 50 Bulgaria 48 30,6 5592 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 89. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 27 64,3 281.2 Inflation 15 90,9 381.3 Unemployment 37 104,0 202 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 44 7,7 552.2 IPO Market Activity 52 1,6 362.3 M&A Market Activity 34 1,8 422.4 Debt & Credit Market 36 79,5 312.5 Financial Market Sophistication 35 56,8 35Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 27 160,8 233.2 Administrative Tax Burdens 54 90,2 504 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 25 62,8 344.2 Security of Property Rights 44 51,3 424.3 Quality of Legal Enforcement 36 74,7 354.4 Regulatory Quality 29 84,0 295 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 23 86,4 195.2 Labor Market Rigidities 20 85,3 115.3 Bribing & Corruption 39 60,3 355.4 Costs of Crime 24 129,8 226 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 27 29,6 276.2 Ease of Starting & Running a Business 48 79,1 456.3 Simplicity of Closing a Business 61 26,6 616.4 ICT Infrastructure 28 49,6 27 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 93
  • 90. Regional and country profiles Denmark Capital: Copenhagen ++ Official Language: Danish ++ Currency: Danish Krone Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 10 67,7 12 Economic Activity 14 92,3 14 Depth of Cap. Market 26 14,3 29 Taxation 33 120,5 27 Inv. Prot. & Corp. Gov. 4 106,0 4 Hum. & Soc. Env. 2 120,8 2 Quartile 4th 1st Entrepr. Culture & Opp. 7 100,1 2 GDP 345 [bn USD] IPO Volume Population 6 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Strong VC/PE environment with local as well as international 0 players Weaknesses Hum. & Soc. Taxation • Low end of the VC market not powerful enough Environment Denmark Opportunities • Many PE houses have raised funds recently Inv. Prot. & Western Europe Corp. Gov. • Backlog of exits from PE houses United States = 100 Points Threats Separate VC and PE Indices • Financing can still be a problem • Imbalance between financing opportunities and market pricing 8 on companies 9 10 Outlook 11 • Continuous PE activity expected Index Rank 12 13 Christian Aarosin, Partner, Ernst & Young Denmark 14 15 16 17 18 2005/06 2006/07 2007/08 2008/09 2009/10 VC PE VCPE Comparison within Peer Group 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Germany 9 69,1 10 Denmark 10 67,7 12 Finland 12 65,9 15 France 17 65,2 16 Belgium 19 61,1 17 Austria 20 58,6 19 Ireland 16 58,3 21 Italy 32 47,5 29 Greece 44 40,7 3994 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 91. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 16 72,5 211.2 Inflation 13 101,5 101.3 Unemployment 19 106,9 112 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 29 20,0 302.2 IPO Market Activity 36 1,3 422.3 M&A Market Activity 23 2,3 322.4 Debt & Credit Market 4 104,3 42.5 Financial Market Sophistication 9 93,8 13Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 42 143,2 323.2 Administrative Tax Burdens 10 101,4 124 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 11 89,9 114.2 Security of Property Rights 11 99,0 94.3 Quality of Legal Enforcement 1 129,7 14.4 Regulatory Quality 5 109,3 45 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 6 107,5 45.2 Labor Market Rigidities 6 91,6 65.3 Bribing & Corruption 3 137,6 25.4 Costs of Crime 3 157,2 36 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 8 78,2 86.2 Ease of Starting & Running a Business 5 104,6 86.3 Simplicity of Closing a Business 19 109,6 76.4 ICT Infrastructure 5 111,8 2 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 95
  • 92. Regional and country profiles Egypt Capital: Cairo ++ Official Language: Arabic ++ Currency: Egyptian Pound Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 53 30,1 57 Economic Activity 61 52,8 59 Depth of Cap. Market 51 9,3 45 Taxation 37 122,1 23 Inv. Prot. & Corp. Gov. 53 49,3 49 Hum. & Soc. Env. 49 37,9 61 Quartile 4th 1st Entrepr. Culture & Opp. 57 20,7 58 GDP 168 [bn USD] IPO Volume Population 77 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 150 125 SWOT Analysis 100 Entrepr. Culture Depth of Cap. & Opp. 75 Market Strengths 50 • Economy is sufficiently diversified and investors can find broad 25 0 industries for investment • Growth relies on reform initiatives that spurred FDI flow and strengthened the purchasing power of a large and growing Hum. & Soc. Taxation Environment population base Egypt Weaknesses Middle East Inv. Prot. & • Market is too fragmented, hence local knowledge and presence in Corp. Gov. United States = 100 Points the market is necessary • Regulatory enforcement is still a key issue to be addressed in the Separate VC and PE Indices country 50 Opportunities 51 • Ideal time to look at defensive sectors such as FMCG, education, 52 pharmaceutical and services related industries such as media and 53 advertising Index Rank 54 • Ideal time to have a closer look at distressed companies having 55 good business models 56 Threats 57 58 • Over the short-term, economic growth is projected to slow down 59 as the global tourism industry slows down 60 Outlook 2005/06 2006/07 2007/08 2008/09 2009/10 • Over the short-term period, global economic slow-down will VC PE VCPE impact growth prospects and overall business performance in Egypt. However, the long-term positive impact of the economic Comparison within Peer Group reforms will filter into the economy. 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Nawal Nely, Senior Manager, Ernst & Young Egypt Israel 21 55,8 22 United Arab Emirates 26 51,7 26 Saudi Arabia 36 46,4 30 Kuwait 29 40,1 42 Oman 38 38,1 46 Morocco 58 30,3 56 Egypt 53 30,1 57 Nigeria 64 24,4 62 Kenya 63 19,3 6496 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 93. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 60 33,8 571.2 Inflation 58 47,6 621.3 Unemployment 54 91,6 562 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 23 21,8 272.2 IPO Market Activity 38 1,4 382.3 M&A Market Activity 48 2,2 342.4 Debt & Credit Market 62 38,9 622.5 Financial Market Sophistication 62 25,9 58Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 31 171,1 153.2 Administrative Tax Burdens 53 87,1 544 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 56 46,2 514.2 Security of Property Rights 50 42,4 514.3 Quality of Legal Enforcement 39 70,4 384.4 Regulatory Quality 60 42,6 565 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 64 28,0 645.2 Labor Market Rigidities 49 23,1 635.3 Bribing & Corruption 52 23,7 565.4 Costs of Crime 14 134,0 216 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 60 8,6 606.2 Ease of Starting & Running a Business 60 95,1 236.3 Simplicity of Closing a Business 58 37,8 596.4 ICT Infrastructure 61 5,9 60 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 97
  • 94. Regional and country profiles Estonia Capital: Tallinn ++ Official Language: Estonian ++ Currency: Estonian Kroon Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 30 44,5 35 Economic Activity 39 51,6 60 Depth of Cap. Market 44 8,3 50 Taxation 25 129,7 14 Inv. Prot. & Corp. Gov. 21 82,6 20 Hum. & Soc. Env. 37 77,6 26 Quartile 4th 1st Entrepr. Culture & Opp. 24 58,8 25 GDP 24 [bn USD] IPO Volume Population 1 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 150 125 SWOT Analysis 100 Entrepr. Culture Depth of Cap. & Opp. 75 Market Strengths 50 • Simple and attractive tax system 25 0 • Increasing “European” business culture • Open economy with strong foreign direct investment inflows • Strong track record of VC/PE companies’ portfolios Hum. & Soc. Taxation Environment Weaknesses Estonia • Overall small M&A market and low liquidity stock exchange Inv. Prot. & Eastern Europe • Mostly investments in traditional industries Corp. Gov. United States = 100 Points • Historical high account deficit Opportunities Separate VC and PE Indices • Government has no debt and has accumulated extensive 25 stabilization reserves • Government strives to meet the Euro adaption criteria and join 30 the Euro-zone in 2011 • Increasing interest towards innovative industries Index Rank 35 Threats • Difficulties in obtaining bank financing in the near future 40 • VC/PE companies may struggle to find attractive exit 45 opportunities • Baltic region, which is seen as one area, eclipses the amenities of 50 Estonia 2005/06 2006/07 2007/08 2008/09 2009/10 Outlook VC PE VCPE • Development of VC/PE investments is much dependent on the sentiment about growth prospects and devaluation risks in the Comparison within Peer Group Baltics 2005/06 2009/10 Quartile • Foreign VC/PE houses will start to show interest for Baltic Rank Value Rank 4th 1st companies if the bottom has been reached and solid growth Poland 41 45,8 31 opportunities arise Czech Republic 33 45,5 34 Lili Kirikal, Manager, Ernst & Young Estonia Estonia 30 44,5 35 Hungary 34 41,1 37 Lithuania 37 40,4 40 Croatia 47 38,6 45 Romania 52 38,1 47 Latvia 39 35,6 50 Bulgaria 48 30,6 5598 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 95. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 45 17,9 631.2 Inflation 44 76,0 511.3 Unemployment 37 100,6 242 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 56 5,0 602.2 IPO Market Activity 48 1,0 582.3 M&A Market Activity 49 1,1 582.4 Debt & Credit Market 23 90,0 202.5 Financial Market Sophistication 21 78,4 25Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 32 164,6 193.2 Administrative Tax Burdens 8 102,1 94 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 24 64,3 314.2 Security of Property Rights 22 83,9 204.3 Quality of Legal Enforcement 27 89,3 254.4 Regulatory Quality 19 96,4 185 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 25 76,5 245.2 Labor Market Rigidities 61 38,3 555.3 Bribing & Corruption 25 89,0 225.4 Costs of Crime 23 139,3 136 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 28 22,6 286.2 Ease of Starting & Running a Business 10 108,8 66.3 Simplicity of Closing a Business 31 68,4 336.4 ICT Infrastructure 21 71,0 20 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 99
  • 96. Regional and country profiles Finland Capital: Helsinki ++ Official Language: Finnish, Swedish ++ Currency: Euro Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 12 65,9 15 Economic Activity 19 90,7 17 Depth of Cap. Market 25 14,5 28 Taxation 32 116,3 32 Inv. Prot. & Corp. Gov. 5 102,9 5 Hum. & Soc. Env. 7 107,4 7 Quartile 4th 1st Entrepr. Culture & Opp. 2 102,3 1 GDP 274 [bn USD] IPO Volume Population 5 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • High education and R&D contribution 0 • Strong selected sectors Weaknesses Hum. & Soc. Taxation • Relative small local markets to support the business case Environment • Early stage VC financing needs to be further developed Finland Opportunities Inv. Prot. & Western Europe Corp. Gov. • New sectors arising, for example cleantech United States = 100 Points • Build globally leading clusters in certain strong industries Separate VC and PE Indices Threats • Internalization is typically a must to success 10 • Challenges in financing in current environment 11 12 Outlook 13 • Finland will be seen as an interesting area to invest Index Rank 14 15 Petri Ojala, Partner, Ernst & Young Finland 16 17 18 19 20 2005/06 2006/07 2007/08 2008/09 2009/10 VC PE VCPE Comparison within Peer Group 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Germany 9 69,1 10 Denmark 10 67,7 12 Finland 12 65,9 15 France 17 65,2 16 Belgium 19 61,1 17 Austria 20 58,6 19 Ireland 16 58,3 21 Italy 32 47,5 29 Greece 44 40,7 39100 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 97. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 18 76,7 161.2 Inflation 4 98,9 201.3 Unemployment 40 98,3 382 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 21 29,5 202.2 IPO Market Activity 35 1,1 522.3 M&A Market Activity 21 2,0 362.4 Debt & Credit Market 13 101,0 72.5 Financial Market Sophistication 18 93,8 13Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 38 135,9 393.2 Administrative Tax Burdens 35 99,6 244 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 16 79,0 154.2 Security of Property Rights 2 110,7 14.3 Quality of Legal Enforcement 2 127,9 24.4 Regulatory Quality 4 100,1 145 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 2 108,8 35.2 Labor Market Rigidities 44 56,4 395.3 Bribing & Corruption 1 136,6 55.4 Costs of Crime 2 158,6 26 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 5 90,4 56.2 Ease of Starting & Running a Business 2 112,2 46.3 Simplicity of Closing a Business 5 111,2 56.4 ICT Infrastructure 10 97,2 9 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 101
  • 98. Regional and country profiles France Capital: Paris ++ Official Language: French ++ Currency: Euro Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 17 65,2 16 Economic Activity 24 95,0 11 Depth of Cap. Market 7 28,8 10 Taxation 58 106,1 44 Inv. Prot. & Corp. Gov. 23 83,9 19 Hum. & Soc. Env. 19 78,3 25 Quartile 4th 1st Entrepr. Culture & Opp. 22 69,2 22 GDP 2834 [bn USD] IPO Volume Population 62 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Smaller decrease of number of deals in France than in Europe 0 • Early stage investments resist better in France than in Europe, due to convergent public incentives in favor of innovation • Consistent deal-flow of high quality high tech projects Hum. & Soc. Taxation Environment Weaknesses France • French GPs realize less international deals than their European Inv. Prot. & Western Europe peers, e.g., UK, Germany, Sweden Corp. Gov. United States = 100 Points • Cleantech investments are late in France, although accelerating Opportunities Separate VC and PE Indices • Tax policy in favor of asset class: “FCPI”, “Loi Tepa” 8 • Tax policy in favor of innovation: “Credit Impot Recherche”, 9 “OSEO” incentives 10 Threats 11 Index Rank • Only a few large funds of funds 12 • French emerging companies have difficulties to grow (after four 13 years of existence) and to become market leaders 14 • Outlook 15 16 • French tax policies may foster new promising opportunities for 17 VC/PE 18 2005/06 2006/07 2007/08 2008/09 2009/10 Philippe Grand, Partner, Ernst & Young France VC PE VCPE Comparison within Peer Group 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Germany 9 69,1 10 Denmark 10 67,7 12 Finland 12 65,9 15 France 17 65,2 16 Belgium 19 61,1 17 Austria 20 58,6 19 Ireland 16 58,3 21 Italy 32 47,5 29 Greece 44 40,7 39102 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 99. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 19 87,4 81.2 Inflation 17 103,6 71.3 Unemployment 44 94,5 462 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 14 36,4 162.2 IPO Market Activity 9 4,4 162.3 M&A Market Activity 8 14,0 62.4 Debt & Credit Market 27 87,5 212.5 Financial Market Sophistication 13 100,0 8Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 61 110,1 553.2 Administrative Tax Burdens 31 102,2 84 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 44 58,3 424.2 Security of Property Rights 13 91,4 134.3 Quality of Legal Enforcement 18 104,2 184.4 Regulatory Quality 27 89,4 235 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 14 87,7 185.2 Labor Market Rigidities 53 35,2 575.3 Bribing & Corruption 17 100,3 175.4 Costs of Crime 30 121,3 306 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 14 59,4 166.2 Ease of Starting & Running a Business 29 83,9 426.3 Simplicity of Closing a Business 25 79,0 266.4 ICT Infrastructure 22 58,4 22 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 103
  • 100. Regional and country profiles Germany Capital: Berlin ++ Official Language: German ++ Currency: Euro Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 9 69,1 10 Economic Activity 43 97,1 5 Depth of Cap. Market 8 23,6 14 Taxation 24 126,6 16 Inv. Prot. & Corp. Gov. 12 94,2 14 Hum. & Soc. Env. 17 90,0 19 Quartile 4th 1st Entrepr. Culture & Opp. 12 85,1 14 GDP 3624 [bn USD] IPO Volume Population 83 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 150 125 SWOT Analysis 100 Entrepr. Culture Depth of Cap. & Opp. 75 Market Strengths 50 • Large number of interesting targets of all sizes and strong 25 0 potential from privately owned businesses facing succession problems • Many corporations in technological and market leadership Hum. & Soc. Taxation Environment • Diverse portfolio of industries in Europe’s leading economy Germany • Very strong infrastructure and reliable administration • Cultural attitude towards performance and diligence Inv. Prot. & Western Europe Corp. Gov. United States = 100 Points Weaknesses • Crisis driven failures have damaged the reputation of the Separate VC and PE Indices industry and it will take some time to win back sellers’ and public confidence 6 7 Opportunities • Unfavorable loan situation makes many companies look for other 8 sources of capital and VC/PE represents a promising option 9 Index Rank • Comprehensive restructuring in current crisis will bring German 10 industries into favorite competitive positions for the next cycle 11 Threats 12 • Current portfolios are hit hard by the crisis 13 • German economy is export oriented, and hence, strongly 14 dependent on the recovery of the world’s markets 2005/06 2006/07 2007/08 2008/09 2009/10 Outlook VC PE VCPE • Mid-term, the market will reach former performance as German targets are mostly leading players in important markets, and will Comparison within Peer Group fully participate from the post crisis upturn of the world economy. 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Florian Huber, Senior Manager, Ernst & Young Germany Germany 9 69,1 10 Denmark 10 67,7 12 Finland 12 65,9 15 France 17 65,2 16 Belgium 19 61,1 17 Austria 20 58,6 19 Ireland 16 58,3 21 Italy 32 47,5 29 Greece 44 40,7 39104 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 101. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 51 91,8 41.2 Inflation 18 104,4 51.3 Unemployment 57 95,7 422 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 25 27,7 212.2 IPO Market Activity 12 4,1 172.3 M&A Market Activity 7 8,5 132.4 Debt & Credit Market 17 81,5 282.5 Financial Market Sophistication 13 93,8 13Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 29 164,1 203.2 Administrative Tax Burdens 21 97,6 294 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 17 71,1 214.2 Security of Property Rights 10 97,3 104.3 Quality of Legal Enforcement 11 118,5 124.4 Regulatory Quality 18 96,1 195 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 12 93,7 135.2 Labor Market Rigidities 50 44,7 515.3 Bribing & Corruption 11 115,6 145.4 Costs of Crime 12 135,7 176 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 7 81,9 76.2 Ease of Starting & Running a Business 32 86,6 396.3 Simplicity of Closing a Business 21 88,0 216.4 ICT Infrastructure 16 84,1 14 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 105
  • 102. Regional and country profiles Greece Capital: Athens ++ Official Language: Greek ++ Currency: Euro Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 44 40,7 39 Economic Activity 29 88,5 21 Depth of Cap. Market 36 12,6 35 Taxation 41 120,9 26 Inv. Prot. & Corp. Gov. 48 54,2 45 Hum. & Soc. Env. 46 47,7 50 Quartile 4th 1st Entrepr. Culture & Opp. 37 36,7 39 GDP 355 [bn USD] IPO Volume Population 11 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Tax and legal environment supports VC/PE 0 • Small local VC/PE players • Numerous companies are controlled by one shareholding family Hum. & Soc. Taxation Weaknesses Environment • Limited number of large potential investments Greece • Long negotiation time for deal making Inv. Prot. & Western Europe Corp. Gov. Opportunities United States = 100 Points • Untapped market • Opportunities in companies that are also active in neighboring Separate VC and PE Indices countries 34 • Growth of region 36 Threats 38 • Reduced availability of debt financing 40 Index Rank • Recent drop in confidence • Local economy is expected to take longer to recover from the 42 global downturn due to structural issues 44 Outlook 46 • The mid-cap market is expected to continue to be dominated by a 48 handful of VC/PE players 50 • Downturn provides opportunities for established GPs to target 2005/06 2006/07 2007/08 2008/09 2009/10 diversified industries focusing on their core operations and selling VC PE VCPE non-core assets. Comparison within Peer Group George Momferratos, Partner, Ernst & Young Greece 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Germany 9 69,1 10 Denmark 10 67,7 12 Finland 12 65,9 15 France 17 65,2 16 Belgium 19 61,1 17 Austria 20 58,6 19 Ireland 16 58,3 21 Italy 32 47,5 29 Greece 44 40,7 39106 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 103. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 28 74,3 191.2 Inflation 41 98,5 221.3 Unemployment 49 94,8 452 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 36 17,2 322.2 IPO Market Activity 29 1,8 312.3 M&A Market Activity 43 2,6 292.4 Debt & Credit Market 28 80,5 302.5 Financial Market Sophistication 39 47,5 41Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 49 147,2 303.2 Administrative Tax Burdens 36 99,2 254 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 64 29,3 634.2 Security of Property Rights 41 53,9 404.3 Quality of Legal Enforcement 35 73,4 364.4 Regulatory Quality 32 74,7 345 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 52 42,8 565.2 Labor Market Rigidities 60 22,4 645.3 Bribing & Corruption 41 48,8 455.4 Costs of Crime 21 110,8 406 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 38 14,4 436.2 Ease of Starting & Running a Business 57 53,2 596.3 Simplicity of Closing a Business 27 78,2 286.4 ICT Infrastructure 40 30,5 37 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 107
  • 104. Regional and country profiles Hong Kong Capital: ++ O cial Language: Chinese, English ++ Currency: Hong Kong Dollar Basic Facts VCPE-Ranking 2005/06 2009/10 Quar le Rank Value Rank 4th 1st VCPE Ranking 4 79,5 5 Econom c Ac 4 89,3 19 Depth of Cap. Market 6 37,7 5 Taxa on 8 137,7 9 In . Prot. & Corp. Go . 3 107,1 3 Hum. & Soc. En . 8 106,1 8 4th Quar le 1st Entrepr. Culture & Opp. 14 77,9 18 GDP 219 [bn USD] IPO Volume Popul on 7 [mn] M&A Volume GDP Growth 02 08 VC Pop. Growth 02 08 PE Key Factors Performance Econom c Ac t 150 125 SWOT Analysis 100 Entrepr. Culture Depth of Cap. & Opp. 75 Market Strengths 50 • Financial center with a very strong and professional infrastructure 25 0 • Period from first VC/PE round to IPO is shorter than in other countries • Various IPOs with high international recognition in the last few Hum. & Soc. Taxa on En ronment years HongKong Weaknesses In . Prot. & As a • Downturn of Chinese exports due to world-wide recession Corp. Go . United States = 100 Points • Poor market sentiment due to financial crisis Opportunities Separate VC and PE Indices • Strong growing Chinese economy 3 • Focus on new industries, such as solar and wind power • Higher chances of success for green field investments Threats 4 Index Rank • High valuation levels may reduce the number of transactions • LPs are requesting the GPs to be more cautious with investment decisions 5 • Uncertainty on the success of Chinese stimulus policies Outlook • Too early to assess the impact of the Chinese stimulus policies, 6 but World Bank’s economic growth forecast for China rose 2005/06 2006/07 2007/08 2008/09 2009/10 significantly, underlining Hong Kong’s upside potential VC PE VCPE • Large increase in use of wind and solar power over the next decade planned: aimed to match Europe by 2020, producing a Comparison within Peer Group fifth of its energy from renewable sources 2005/06 2009/10 Quar le Rank Value Rank 4th 1st Ringo Choi, Managing Partner, Ernst & Young China Hong Kong 4 79,5 5 Japan 7 76,5 7 Re c of Korea 15 67,5 13 Mala a 23 54,4 25 C a 42 48,5 28 I a 46 40,9 38 n Fede on 49 38,0 48 Indone a 60 30,7 54 P es 57 26,1 61108 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 105. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 6 67,8 261.2 Inflation 6 98,5 221.3 Unemployment 24 106,6 122 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 2 104,1 12.2 IPO Market Activity 8 7,4 102.3 M&A Market Activity 11 9,3 102.4 Debt & Credit Market 9 100,5 92.5 Financial Market Sophistication 2 106,2 3Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 11 181,8 133.2 Administrative Tax Burdens 3 104,4 14 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 3 102,5 54.2 Security of Property Rights 8 100,8 64.3 Quality of Legal Enforcement 16 112,1 164.4 Regulatory Quality 1 113,7 15 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 24 73,9 255.2 Labor Market Rigidities 7 98,1 45.3 Bribing & Corruption 15 118,9 135.4 Costs of Crime 7 146,9 96 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 23 38,9 236.2 Ease of Starting & Running a Business 3 118,0 26.3 Simplicity of Closing a Business 15 101,8 156.4 ICT Infrastructure 11 78,6 15 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 109
  • 106. Regional and country profiles Hungary Capital: Budapest ++ Official Language: Magyar (Hungarian) ++ Currency: Forint Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 34 41,1 37 Economic Activity 34 74,3 41 Depth of Cap. Market 48 8,0 54 Taxation 15 126,4 17 Inv. Prot. & Corp. Gov. 29 70,7 31 Hum. & Soc. Env. 41 59,2 45 Quartile 4th 1st Entrepr. Culture & Opp. 30 47,1 30 GDP 157 [bn USD] IPO Volume Population 10 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 150 125 SWOT Analysis 100 Entrepr. Culture Depth of Cap. & Opp. 75 Market Strengths 50 • Post privatization phase 25 0 • Hungary is known to have grown talent and know how in selected industries • Tax laws are changing to attract foreign investors Hum. & Soc. Taxation Environment Weaknesses Hungary • Macro-economic policy is heavily influenced by foreign investors Inv. Prot. & Eastern Europe • Limited number of large potential investments Corp. Gov. United States = 100 Points • Lack of maturity in deal making Opportunities Separate VC and PE Indices • Untapped midsize market 30 • Growth potential of Hungarian companies already invested in 32 neighboring countries 34 • Growth opportunities of CEE region 36 • Market consolidation in various industries Index Rank 38 • Difficult to raise financing for local players 40 • Hidden values due to under-developed management structures 42 • Governments support for the EU funded “Jeremie-Program” (Oct 44 2009) to fuel VC activities and to encourage companies to come 46 to market, presenting viable investment opportunities 48 50 Threats 2005/06 2006/07 2007/08 2008/09 2009/10 • Reduced availability of debt financing VC PE VCPE • Currency volatility • Recent drop in investor confidence Comparison within Peer Group Outlook 2005/06 2009/10 Quartile • Strengthening investments of regional VC/PE players leveraging Rank Value Rank 4th 1st market consolidation and untapped values Poland 41 45,8 31 Balazs Tuske, Partner, Ernst & Young Hungary Czech Republic 33 45,5 34 Estonia 30 44,5 35 Hungary 34 41,1 37 Lithuania 37 40,4 40 Croatia 47 38,6 45 Romania 52 38,1 47 Latvia 39 35,6 50 Bulgaria 48 30,6 55110 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 107. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 35 47,5 451.2 Inflation 42 92,0 361.3 Unemployment 29 93,9 502 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 46 8,1 522.2 IPO Market Activity 52 1,0 582.3 M&A Market Activity 45 1,3 522.4 Debt & Credit Market 38 71,2 422.5 Financial Market Sophistication 45 41,3 46Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 16 167,2 183.2 Administrative Tax Burdens 29 95,6 394 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 39 53,8 444.2 Security of Property Rights 24 73,8 244.3 Quality of Legal Enforcement 37 70,4 394.4 Regulatory Quality 25 89,5 225 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 40 61,6 345.2 Labor Market Rigidities 58 29,3 625.3 Bribing & Corruption 34 60,9 345.4 Costs of Crime 33 111,8 386 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 32 20,4 316.2 Ease of Starting & Running a Business 37 82,4 436.3 Simplicity of Closing a Business 36 69,5 326.4 ICT Infrastructure 30 42,1 31 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 111
  • 108. Regional and country profiles India Capital: New Delhi ++ O cial Language: Hindi, English ++ Currency: Indian Rupee Basic Facts VCPE-Ranking 2005/06 2009/10 Quar le Rank Value Rank 4th 1st VCPE Ranking 46 40,9 38 Econom c Ac 45 63,0 55 Depth of Cap. Market 9 33,5 8 Taxa on 56 97,1 58 In . Prot. & Corp. Go . 43 54,8 44 Hum. & Soc. En . 39 64,9 39 4th Quar le 1st Entrepr. Culture & Opp. 63 11,5 64 GDP 1201 [bn USD] IPO Volume Po on 1186 [mn] M&A Volume GDP Growth 02 08 VC Pop. Growth 02 08 PE Key Factors Performance Econom c Ac t 125 100 SWOT Analysis Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Second-fastest growing economy; increased consumption among 0 youth driving cross-sector growth • Strong private sector; VC/PE investments growing at CAGR of 84% (from US$1 billion in 2002 to US$41.3 billion by 2008) Hum. & Soc. Taxa on En ronment • High intellectual capital, leading to emergence of VC hotspots (e.g., Bengaluru) Ind a • Active equity capital and transaction markets facilitating exit In . Prot. & As a Corp. Go . options United States = 100 Points Weaknesses Separate VC and PE Indices • Regulatory restrictions on foreign investment in certain sectors, albeit easing gradually 25 • Crowded market (~300+ GPs) with limited scale of assets limiting deal sizes; buy-out market in a nascent stage 30 Opportunities Index Rank 35 • Capital required for core (and defensive) sectors (e.g., infrastructure, manufacturing, healthcare) 40 • Stable government with a long-term secular and growth oriented outlook 45 • Few large domestic funds provide foreign investment opportunities 50 2005/06 2006/07 2007/08 2008/09 2009/10 Threats VC PE VCPE • Competition from emerging nations (e.g., Brazil, China) to attract foreign VC/PE funds • Unclear policy and taxation Comparison within Peer Group 2005/06 2009/10 Quar le Outlook Rank Value Rank 4th 1st • Cross-sector growth and a strong financial services framework Hong Kong 4 79,5 5 characterize the economy. A stable government is also expected to encourage further foreign investment, thereby providing Japan 7 76,5 7 opportunities for VC/PE Re c of Korea 15 67,5 13 Mala a 23 54,4 25 Nishesh Dalal, Associate Director, Ernst & Young India C a 42 48,5 28 I a 46 40,9 38 n Fede on 49 38,0 48 Indone a 60 30,7 54 P es 57 26,1 61112 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 109. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 53 33,4 581.2 Inflation 46 83,3 441.3 Unemployment 46 89,9 572 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 9 68,7 62.2 IPO Market Activity 7 15,0 42.3 M&A Market Activity 12 7,2 162.4 Debt & Credit Market 41 78,5 332.5 Financial Market Sophistication 29 72,2 29Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 56 119,4 493.2 Administrative Tax Burdens 57 79,0 604 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 28 72,9 204.2 Security of Property Rights 54 39,2 544.3 Quality of Legal Enforcement 34 76,0 344.4 Regulatory Quality 54 41,4 575 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 28 77,8 235.2 Labor Market Rigidities 28 59,5 365.3 Bribing & Corruption 55 33,6 545.4 Costs of Crime 40 113,8 356 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 43 12,7 466.2 Ease of Starting & Running a Business 53 36,6 636.3 Simplicity of Closing a Business 64 12,1 646.4 ICT Infrastructure 64 3,1 64 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 113
  • 110. Regional and country profiles Indonesia Capital: Jakarta ++ l Language: Indonesia ++ Currency: Rupiah Basic Facts VCPE-Ranking 2005/06 2009/10 Quar le Rank Value Rank 4th 1st VCPE Ranking 60 30,7 54 Econom c Ac t 60 63,5 54 Depth of Cap. Market 39 13,8 31 Taxa on 48 97,5 57 In . Prot. & Corp. Go . 64 32,1 63 Hum. & Soc. En . 52 47,6 51 4th Quar le 1st Entrepr. Culture & Opp. 61 16,6 61 GDP 478 [bn USD] IPO Volume Popula on 234 [mn] M&A Volume GDP Growth 02 08 VC Ac t Pop. Growth 02 08 PE Ac t Key Factors Performance Econom c Ac t 125 100 SWOT Analysis Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • High economic growth 0 • High market potential from large population and rich natural resources Hum. & Soc. Taxa on Weaknesses En ronment • Disadvantageous tax system towards double taxation on income Indones a • Inefficient IPO regulation that reduces VC/PE exit options In . Prot. & As a Corp. Go . Opportunities United States = 100 Points • Opportunities for acquiring under-valued assets of under- managed large family companies Separate VC and PE Indices • Intensification of infrastructure development and natural resource 52 exploration 54 Threats • Indonesian law does not recognize limited partnership 56 Index Rank • Weak judicial independence 58 Outlook • Despite a few large VC/PE transactions lately and the countrys 60 high market potential, VC/PE is still developing. One of the 62 obstacles is that Indonesia’s law does not recognize limited partnerships and collective investment framework. Most existing 64 VC/PE firms operate as extended arm of VC/PE institutions of 2005/06 2006/07 2007/08 2008/09 2009/10 developed countries. Current target industries include coal mining, VC PE VCPE infrastructure, telecommunication, CPO plantation and banking Comparison within Peer Group Giuseppe Nicolosi, Managing Partner, Ernst & Young Indonesia 2005/06 2009/10 Quar le Rank Value Rank 4th 1st Hong Kong 4 79,5 5 Japan 7 76,5 7 Republ c of Korea 15 67,5 13 Mala s a 23 54,4 25 Ch na 42 48,5 28 In a 46 40,9 38 Russ an Federa on 49 38,0 48 Indones a 60 30,7 54 Ph l pp nes 57 26,1 61114 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 111. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 55 36,1 541.2 Inflation 62 76,7 501.3 Unemployment 56 92,5 532 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 37 14,3 362.2 IPO Market Activity 23 3,5 202.3 M&A Market Activity 27 3,3 232.4 Debt & Credit Market 57 63,5 522.5 Financial Market Sophistication 53 47,5 41Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 44 115,1 523.2 Administrative Tax Burdens 59 82,5 584 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 53 50,2 494.2 Security of Property Rights 66 11,3 654.3 Quality of Legal Enforcement 57 47,3 534.4 Regulatory Quality 61 39,5 595 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 29 64,1 305.2 Labor Market Rigidities 51 39,7 535.3 Bribing & Corruption 62 20,5 585.4 Costs of Crime 36 98,8 466 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 56 10,4 566.2 Ease of Starting & Running a Business 62 74,5 486.3 Simplicity of Closing a Business 59 30,0 606.4 ICT Infrastructure 62 3,2 63 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 115
  • 112. Regional and country profiles Ireland Capital: Dublin ++ Official Language: English, Irish ++ Currency: Euro Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 16 58,3 21 Economic Activity 1 84,4 28 Depth of Cap. Market 28 10,7 41 Taxation 6 143,3 5 Inv. Prot. & Corp. Gov. 9 101,6 7 Hum. & Soc. Env. 10 99,6 13 Quartile 4th 1st Entrepr. Culture & Opp. 19 78,1 17 GDP 270 [bn USD] IPO Volume Population 4 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 150 125 SWOT Analysis 100 Entrepr. Culture Depth of Cap. & Opp. 75 Market Strengths 50 25 • Strow focus on indigenous entrepreneurs/start-ups 0 • VC/PE co-invest with government funding which reduces institutional funding required Hum. & Soc. • Successful fundraisings Environment Taxation Weaknesses Ireland • Limited debt available Inv. Prot. & Western Europe • Low risk appetite Corp. Gov. United States = 100 Points • A number of sectors which VC/PE find less attractive such as retail, leisure and construction Separate VC and PE Indices Opportunities 12 • Government focus on high potential and "Smart Economy" 14 businesses such as new green technologies • Strong medical device/pharmaceutical industry and renewable 16 energy opportunities Index Rank 18 • Valuations are coming down as there are less funding alternatives available to investees 20 22 Threats • Recession is significantly deeper than in other countries 24 • Company failures are increasing 26 • Declining opportunities for start-ups in the recession except in 2005/06 2006/07 2007/08 2008/09 2009/10 defensive sectors VC PE VCPE • Declining M&A market means reduced exit opportunities and returns for VC/PE Comparison within Peer Group Outlook Quartile 2005/06 2009/10 • Increasing VC/PE focus on technology and biotech with high Rank Value Rank 4th 1st expertise developed in these sectors less competition from private Germany 9 69,1 10 high net worth funds due to their exposure in declining markets Denmark 10 67,7 12 • Government provides tax breaks Finland 12 65,9 15 John O’Halloran, Director, Ernst & Young Ireland France 17 65,2 16 Belgium 19 61,1 17 Austria 20 58,6 19 Ireland 16 58,3 21 Italy 32 47,5 29 Greece 44 40,7 39116 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 113. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 1 61,4 301.2 Inflation 23 99,3 181.3 Unemployment 12 98,6 352 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 38 11,4 442.2 IPO Market Activity 31 1,1 562.3 M&A Market Activity 36 1,9 392.4 Debt & Credit Market 6 78,1 342.5 Financial Market Sophistication 13 78,4 25Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 8 200,0 83.2 Administrative Tax Burdens 6 102,6 64 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 7 94,8 104.2 Security of Property Rights 21 85,7 184.3 Quality of Legal Enforcement 14 118,3 134.4 Regulatory Quality 9 111,0 35 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 11 100,4 85.2 Labor Market Rigidities 10 88,3 95.3 Bribing & Corruption 16 81,7 285.4 Costs of Crime 22 136,0 156 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 20 47,3 206.2 Ease of Starting & Running a Business 9 101,3 146.3 Simplicity of Closing a Business 8 108,7 86.4 ICT Infrastructure 19 71,5 19 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 117
  • 114. Regional and country profiles Israel Capital: Jerusalem ++ Official Language: Hebrew, Arabic ++ Currency: New Israeli Shekel Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 21 55,8 22 Economic Activity 23 87,7 24 Depth of Cap. Market 24 15,3 26 Taxation 51 106,3 43 Inv. Prot. & Corp. Gov. 19 80,7 21 Hum. & Soc. Env. 21 78,8 24 Quartile 4th 1st Entrepr. Culture & Opp. 21 71,1 21 GDP 203 [bn USD] IPO Volume Population 7 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 150 125 SWOT Analysis 100 Entrepr. Culture Depth of Cap. & Opp. 75 Market Strengths 50 • Strong entrepreneurial culture 25 0 • Mature market with very good infrastructure • Government support, favorite tax regime and solid regulatory environment Hum. & Soc. Taxation Environment • High level human capital Israel • International culture with a global vision • Solid banking system Inv. Prot. & Middle East Corp. Gov. United States = 100 Points Weaknesses • Geo-political situation Separate VC and PE Indices Opportunities 20 • Many late stage companies • Lack of financing for mega deals 21 • Some privatization 22 • Opportunities in cleantech market Index Rank 23 Threats 24 • Security and political environment • Lack of long-term planning 25 Outlook 26 • Israel’s economy is expected to have good growth mainly due to 27 the perspectives in technology based industries. 2005/06 2006/07 2007/08 2008/09 2009/10 VC PE VCPE Oren Bar-On, Partner, Ernst & Young Israel Comparison within Peer Group 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Israel 21 55,8 22 United Arab Emirates 26 51,7 26 Saudi Arabia 36 46,4 30 Kuwait 29 40,1 42 Oman 38 38,1 46 Morocco 58 30,3 56 Egypt 53 30,1 57 Nigeria 64 24,4 62 Kenya 63 19,3 64118 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 115. Details1 Economic Activity1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 22 70,4 221.2 Inflation 9 96,4 291.3 Unemployment 45 99,4 322 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 20 31,9 192.2 IPO Market Activity 20 2,0 282.3 M&A Market Activity 33 1,8 412.4 Debt & Credit Market 25 83,0 262.5 Financial Market Sophistication 21 84,6 21Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 57 124,8 463.2 Administrative Tax Burdens 44 90,5 494 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 9 95,2 94.2 Security of Property Rights 36 55,1 384.3 Quality of Legal Enforcement 21 92,6 224.4 Regulatory Quality 33 87,5 255 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 22 63,5 315.2 Labor Market Rigidities 39 58,1 375.3 Bribing & Corruption 27 81,9 275.4 Costs of Crime 31 127,8 246 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 6 83,9 66.2 Ease of Starting & Running a Business 16 98,3 216.3 Simplicity of Closing a Business 45 55,5 506.4 ICT Infrastructure 20 55,9 24 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 119
  • 116. Regional and country profiles Italy Capital: Rome ++ Official Language: Italian ++ Currency: Euro Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 32 47,5 29 Economic Activity 50 89,7 18 Depth of Cap. Market 17 17,7 21 Taxation 55 101,6 49 Inv. Prot. & Corp. Gov. 46 53,1 46 Hum. & Soc. Env. 48 52,0 47 Quartile 4th 1st Entrepr. Culture & Opp. 27 56,3 27 GDP 2286 [bn USD] IPO Volume Population 59 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Banking system only moderately hit by the global credit crunch 0 compared to other industrialized countries • Highly fragmented and flexible industrial base mainly comprised of small-to-mid family-owned businesses Hum. & Soc. Taxation Environment Weaknesses Italy • Companies operating in mature low value-added industries Inv. Prot. & Western Europe exposed to international competition from Eastern European and Corp. Gov. United States = 100 Points Asian countries • Articulated and significant tax burdens both for companies and Separate VC and PE Indices individuals • Labor market less flexible compared to other industrialized 26 countries 28 • Investments in infrastructure below European average and low 30 level of Internet penetration and computer literacy Index Rank • SMEs companies with unsophisticated reporting systems and 32 statutory accounts often only prepared for compliance/tax 34 purposes 36 Opportunities • Market fragmentation leaves room for viable deals in the mid-cap 38 market 40 • Launch of AIM Italy dedicated to small/mid size companies and 2005/06 2006/07 2007/08 2008/09 2009/10 simplified listing procedures VC PE VCPE • Change in bankruptcy law creates opportunities for turnaround transactions Comparison within Peer Group Threats 2005/06 2009/10 Quartile • Limited VC role in supporting R&D activity and early stage Rank Value Rank 4th 1st financing in innovative ventures Germany 9 69,1 10 Outlook Denmark 10 67,7 12 • Once current uncertainty is overcome, the Italian market may Finland 12 65,9 15 present good grounds for investment opportunities and growth France 17 65,2 16 Belgium 19 61,1 17 Umberto Nobile, Partner, Ernst & Young Italy Austria 20 58,6 19 Ireland 16 58,3 21 Italy 32 47,5 29 Greece 44 40,7 39120 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 117. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 59 73,0 201.2 Inflation 24 101,8 91.3 Unemployment 34 97,1 392 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 28 20,9 282.2 IPO Market Activity 14 3,2 222.3 M&A Market Activity 6 10,1 92.4 Debt & Credit Market 45 61,6 542.5 Financial Market Sophistication 51 41,3 46Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 58 108,4 573.2 Administrative Tax Burdens 33 95,2 424 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 57 37,4 584.2 Security of Property Rights 38 46,1 464.3 Quality of Legal Enforcement 47 58,1 504.4 Regulatory Quality 31 79,4 325 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 57 44,4 525.2 Labor Market Rigidities 23 61,5 335.3 Bribing & Corruption 36 52,3 435.4 Costs of Crime 60 51,2 606 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 24 35,6 246.2 Ease of Starting & Running a Business 49 74,5 496.3 Simplicity of Closing a Business 29 73,4 306.4 ICT Infrastructure 26 51,8 26 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 121
  • 118. Regional and country profiles Japan Capital: Tokyo ++ O cial Language: Japanese ++ Currency: Yen Basic Facts VCPE-Ranking 2005/06 2009/10 Quar le Rank Value Rank 4th 1st VCPE Ranking 7 76,5 7 Econom c Ac 9 96,9 6 Depth of Cap. Market 4 37,5 7 Taxa on 60 101,6 48 In . Prot. & Corp. Go . 17 91,0 18 Hum. & Soc. En . 18 92,1 18 4th Quar le 1st Entrepr. Culture & Opp. 8 94,7 8 GDP 5009 [bn USD] IPO Volume Popul on 128 [mn] M&A Volume GDP Growth 02 08 VC Pop. Growth 02 08 PE Key Factors Performance Econom c Ac t 125 100 SWOT Analysis Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Japan is still the world’s second largest economy 0 • Market leading technology in many sectors Weaknesses Hum. & Soc. Taxa on • VC/PE investors are seen critically regarding their commitment to En ronment the companies’ interests Japan • Relatively weak corporate governance compared to Western In . Prot. & As a standards Corp. Go . United States = 100 Points Opportunities • Japanese companies receive limited investments and would Separate VC and PE Indices benefit from VC/PE as they are broadly diversified with many non- 5 core businesses • Succession issues in family-owned businesses foster VC/PE 6 investment 7 • Take-private deals and PIPEs are becoming more understood and Index Rank accepted by management 8 Threats 9 • Increasingly negative sentiment towards VC/PE if VC/PE investors are not seen as appropriately supporting investee companies in 10 the current economic climate 11 • Increasingly difficult funding environment 2005/06 2006/07 2007/08 2008/09 2009/10 Outlook VC PE VCPE • VC/PE sector will likely pick up in 2011 • Many companies will find it increasingly hard to obtain access Comparison within Peer Group to additional capital and will need to deploy their capital more 2005/06 2009/10 Quar le effectively Rank Value Rank 4th 1st • Many companies will be forced to divest non-core businesses Hong Kong 4 79,5 5 Michael Buxton, Partner, Ernst & Young Japan Japan 7 76,5 7 Re c of Korea 15 67,5 13 Mala a 23 54,4 25 C a 42 48,5 28 I a 46 40,9 38 n Fede on 49 38,0 48 Indone a 60 30,7 54 P es 57 26,1 61122 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 119. Details1 Economic Activity1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 17 79,4 151.2 Inflation 1 108,7 11.3 Unemployment 13 105,2 142 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 5 64,0 82.2 IPO Market Activity 4 8,4 82.3 M&A Market Activity 3 22,9 32.4 Debt & Credit Market 20 100,3 102.5 Financial Market Sophistication 35 59,8 34Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 64 108,2 593.2 Administrative Tax Burdens 26 95,4 404 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 14 85,6 144.2 Security of Property Rights 18 87,0 174.3 Quality of Legal Enforcement 17 104,3 174.4 Regulatory Quality 23 88,5 245 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 21 84,4 205.2 Labor Market Rigidities 9 85,6 105.3 Bribing & Corruption 19 100,8 165.4 Costs of Crime 44 98,8 466 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 3 91,8 46.2 Ease of Starting & Running a Business 31 99,9 186.3 Simplicity of Closing a Business 3 115,3 26.4 ICT Infrastructure 12 76,0 16 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 123
  • 120. Regional and country profiles Kenya Capital: Nairobi ++ O cial Language: English, Swahili ++ Currency: Kenyan Shilling Basic Facts VCPE-Ranking 2005/06 2009/10 Quar le Rank Value Rank 4th 1st VCPE Ranking 63 19,3 64 Econom c Ac t 66 6,6 66 Depth of Cap. Market 57 7,2 57 Taxa on 50 68,7 63 In . Prot. & Corp. Go . 50 43,0 55 Hum. & Soc. En . 58 38,3 59 4th Quar le 1st Entrepr. Culture & Opp. 60 17,6 60 GDP 30 [bn USD] IPO Volume Popula on 39 [mn] M&A Volume GDP Growth 02 08 VC Ac t Pop. Growth 02 08 PE Ac t Key Factors Performance Econom c Ac t 125 100 SWOT Analysis Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Regional hub, providing access to the rest of East Africa 0 • Well developed IT and communication infrastructure • Highly qualified pool of professionals in all disciplines • Increased access to credit, and presence of Development Banks Hum. & Soc. Taxa on En ronment e.g., PTA Bank, IFC, EADB, ADB • Government encouraging and facilitating PPPs Ken a • Presence of International VC/PE firms coupled with large local In . Prot. & Afr ca Corp. Go . firms United States = 100 Points Weaknesses Separate VC and PE Indices • Preference of bank debt and public equity markets • Shocks of the 2008 political unrest result in higher risk rating 62 • High cost of doing business e.g., high cost of energy • Predominantly agro-based economy 63 • Tax regime Index Rank Opportunities 64 • Returning professionals from developed countries • Economic liberalization programs, and Internationalization • SMEs face financing challenges 65 • Robust emerging middle class will spur economy • The emerging security exchanges in the East African region will 66 provide better exit routes 2005/06 2006/07 2007/08 2008/09 2009/10 VC PE VCPE Threats • Potential political instability • Opening of COMESA markets may lead to cheap imports that Comparison within Peer Group harm local industries 2005/06 2009/10 Quar le • Level of corruption Rank Value Rank 4th 1st Israel 21 55,8 22 Outlook • Increased focus on PPP will boost the growth of VC/PE Saud Arab a 36 46,4 30 • Projected higher economic growth Kuwa t 29 40,1 42 • The global crisis has increased interest in Africa, with Kenya being South Afr ca 43 39,5 43 a beneficiary Oman 38 38,1 46 Morocco 58 30,3 56 Evans Kamau, Senior Manager, Ernst & Young Kenya Eg pt 53 30,1 57 N ger a 64 24,4 62 Ken a 63 19,3 64124 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 121. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 65 14,3 641.2 Inflation 61 18,2 651.3 Unemployment 66 1,1 662 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 59 5,6 592.2 IPO Market Activity 52 1,4 392.3 M&A Market Activity 62 1,0 652.4 Debt & Credit Market 44 68,5 462.5 Financial Market Sophistication 46 35,1 52Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 55 56,2 643.2 Administrative Tax Burdens 51 83,8 574 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 27 63,2 334.2 Security of Property Rights 48 40,3 524.3 Quality of Legal Enforcement 60 29,3 624.4 Regulatory Quality 56 45,9 555 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 27 69,7 285.2 Labor Market Rigidities 15 76,6 185.3 Bribing & Corruption 64 8,8 645.4 Costs of Crime 61 46,1 626 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 57 9,7 586.2 Ease of Starting & Running a Business 54 69,6 536.3 Simplicity of Closing a Business 51 46,7 546.4 ICT Infrastructure 66 3,0 65 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 125
  • 122. Regional and country profiles Kuwait Capital: Kuwait City ++ Official Language: Arabic ++ Currency: Kuwaiti Dinar Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 29 40,1 42 Economic Activity 3 92,4 13 Depth of Cap. Market 37 11,6 38 Taxation 3 50,2 64 Inv. Prot. & Corp. Gov. 35 62,1 40 Hum. & Soc. Env. 30 73,0 33 Quartile 4th 1st Entrepr. Culture & Opp. 39 32,0 45 GDP 141 [bn USD] IPO Volume Population 3 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 150 125 SWOT Analysis 100 Entrepr. Culture Depth of Cap. & Opp. 75 Market Strengths 50 • High sovereign rating for Kuwait 25 0 • Cash rich economy • Most businesses adopt/use IFRS Hum. & Soc. Taxation Weaknesses Environment • Weakness of corporate governance as most businesses are Kuwait controlled by influential families Middle East Inv. Prot. & • Asset starved economy – impacting asset pricing (too much cash Corp. Gov. United States = 100 Points chasing few good assets) • Highly dependent on oil prices Separate VC and PE Indices Opportunities 22 • Consolidation imminent in certain sectors • Business houses need to restructure/transform into public 27 companies as part of overall estate planning • Opportunities for public to private transactions Index Rank 32 Threats • Size and liquidity of stock market may affect exits 37 Outlook 42 • Increased PE activity as a result of consolidation in selected sectors – motivated in part by the current economic environment 47 • Availability of assets at attractive valuations 2005/06 2006/07 2007/08 2008/09 2009/10 VC PE VCPE Anil Menon, Director, Ernst & Young Kuwait Comparison within Peer Group 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Israel 21 55,8 22 United Arab Emirates 26 51,7 26 Saudi Arabia 36 46,4 30 Kuwait 29 40,1 42 Oman 38 38,1 46 Morocco 58 30,3 56 Egypt 53 30,1 57 Nigeria 64 24,4 62 Kenya 63 19,3 64126 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 123. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 3 86,3 101.2 Inflation 45 81,1 471.3 Unemployment 2 112,7 12 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 19 19,3 312.2 IPO Market Activity 52 2,0 292.3 M&A Market Activity 61 1,5 492.4 Debt & Credit Market 32 78,9 322.5 Financial Market Sophistication 35 47,5 41Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 3 25,3 663.2 Administrative Tax Burdens 17 99,6 234 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 37 56,0 434.2 Security of Property Rights 39 59,4 334.3 Quality of Legal Enforcement 22 90,4 244.4 Regulatory Quality 39 49,5 525 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 53 43,1 555.2 Labor Market Rigidities 18 80,3 145.3 Bribing & Corruption 35 56,3 395.4 Costs of Crime 12 145,8 116 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 47 13,5 456.2 Ease of Starting & Running a Business 50 64,0 576.3 Simplicity of Closing a Business 30 63,4 386.4 ICT Infrastructure 41 19,3 45 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 127
  • 124. Regional and country profiles Latvia Capital: Riga ++ Official Language: Latvian ++ Currency: Latvian Lats Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 39 35,6 50 Economic Activity 47 37,7 64 Depth of Cap. Market 58 6,2 60 Taxation 9 141,5 7 Inv. Prot. & Corp. Gov. 27 72,5 29 Hum. & Soc. Env. 35 69,5 36 Quartile 4th 1st Entrepr. Culture & Opp. 33 38,7 36 GDP 33 [bn USD] IPO Volume Population 2 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 150 125 SWOT Analysis 100 Entrepr. Culture Depth of Cap. & Opp. 75 Market Strengths 50 • EU efforts stimulate investments in growth companies with the 25 0 JEREMIE fund – the launch has meant more cash available for future deals Hum. & Soc. Taxation Weaknesses Environment • VC is historically underdeveloped Latvia • Local PE houses have invested actively but with heavy leverage Inv. Prot. & Eastern Europe • Only a few have saved cash or invested conservatively over the Corp. Gov. United States = 100 Points last years Opportunities Separate VC and PE Indices • Bank financing availability seems to be easing gradually, which 35 raises hope for some deals to commence in the future 37 Threats 39 • The prospects of many have been slashed by the crisis 41 Index Rank 43 Outlook 45 • Development of VC/PE investments will be much dependent on 47 the general public perceptions about growth prospects of Baltic 49 economies 51 • GPs from abroad will start showing stronger interest for Baltic 53 companies when the bottom has been reached and the growth 55 opportunities become visible 2005/06 2006/07 2007/08 2008/09 2009/10 VC PE VCPE Raimonds Kulbergs, Manager, Ernst & Young Latvia Comparison within Peer Group 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Poland 41 45,8 31 Czech Republic 33 45,5 34 Estonia 30 44,5 35 Hungary 34 41,1 37 Lithuania 37 40,4 40 Croatia 47 38,6 45 Romania 52 38,1 47 Latvia 39 35,6 50 Bulgaria 48 30,6 55128 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 125. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 46 9,6 661.2 Inflation 52 58,2 611.3 Unemployment 43 95,4 432 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 62 3,1 632.2 IPO Market Activity 52 1,0 582.3 M&A Market Activity 60 1,1 622.4 Debt & Credit Market 37 65,2 492.5 Financial Market Sophistication 42 41,3 46Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 7 202,0 73.2 Administrative Tax Burdens 40 99,2 264 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 18 70,8 224.2 Security of Property Rights 30 64,8 304.3 Quality of Legal Enforcement 38 72,0 374.4 Regulatory Quality 30 83,4 315 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 47 52,9 435.2 Labor Market Rigidities 37 55,6 405.3 Bribing & Corruption 40 58,4 385.4 Costs of Crime 18 135,9 166 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 49 10,9 536.2 Ease of Starting & Running a Business 18 95,0 246.3 Simplicity of Closing a Business 40 59,6 456.4 ICT Infrastructure 32 36,3 33 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 129
  • 126. Regional and country profiles Lithuania Capital: Vilnius ++ Official Language: Lithuanian ++ Currency: Lithuanian Litas Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 37 40,4 40 Economic Activity 35 67,2 48 Depth of Cap. Market 54 6,9 58 Taxation 10 136,7 10 Inv. Prot. & Corp. Gov. 31 69,9 32 Hum. & Soc. Env. 43 63,9 40 Quartile 4th 1st Entrepr. Culture & Opp. 29 49,6 29 GDP 48 [bn USD] IPO Volume Population 3 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 150 125 SWOT Analysis 100 Entrepr. Culture Depth of Cap. & Opp. 75 Market Strengths 50 • Flexibility of market players presents good prospects for the future 25 0 • Open market, having good relationships with both Western and Eastern Europe Hum. & Soc. Taxation Weaknesses Environment • Lack of available capital and innovation in using alternative means Lithuania of financing Eastern Europe Inv. Prot. & • Low level of experience of local market players Corp. Gov. United States = 100 Points Opportunities • Low priced market as a consequence of current downturn in the Separate VC and PE Indices economy 35 • Numerous opportunities relating to the operational effectiveness 37 of businesses, synergies, and management, enhancing the value of businesses in the future 39 Index Rank Threats 41 • Changing legislation in tax area as well as in other business 43 related areas (e.g., competition, de-monopolization) towards 45 unfavorable direction 47 • Late and very limited credit market reopening • Negative short- and mid-term outlook on Lithuania from foreign 49 investors 2005/06 2006/07 2007/08 2008/09 2009/10 Outlook VC PE VCPE • Challenging economical environment will leave the strongest players in the market and will strengthen their position Comparison within Peer Group 2005/06 2009/10 Quartile Rolandas Laukaitis, Senior Manager, Ernst & Young Lithuania Rank Value Rank 4th 1st Poland 41 45,8 31 Czech Republic 33 45,5 34 Estonia 30 44,5 35 Hungary 34 41,1 37 Lithuania 37 40,4 40 Croatia 47 38,6 45 Romania 52 38,1 47 Latvia 39 35,6 50 Bulgaria 48 30,6 55130 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 127. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 43 41,4 501.2 Inflation 30 73,5 541.3 Unemployment 40 100,0 282 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 60 4,3 612.2 IPO Market Activity 52 1,2 482.3 M&A Market Activity 54 1,2 542.4 Debt & Credit Market 30 75,8 352.5 Financial Market Sophistication 46 35,1 52Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 12 187,5 113.2 Administrative Tax Burdens 16 99,7 224 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 34 63,5 324.2 Security of Property Rights 28 65,3 294.3 Quality of Legal Enforcement 43 67,0 414.4 Regulatory Quality 26 85,7 265 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 35 53,7 405.2 Labor Market Rigidities 59 46,0 505.3 Bribing & Corruption 37 54,1 405.4 Costs of Crime 24 124,9 276 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 37 17,7 346.2 Ease of Starting & Running a Business 24 92,4 316.3 Simplicity of Closing a Business 23 85,6 226.4 ICT Infrastructure 31 43,4 29 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 131
  • 128. Regional and country profiles Luxembourg Capital: Luxembourg ++ Official Language: Luxermbourgish, French, German ++ Currency: Euro Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 24 54,6 24 Economic Activity 5 92,4 12 Depth of Cap. Market 40 10,1 42 Taxation 12 136,4 11 Inv. Prot. & Corp. Gov. 13 94,7 13 Hum. & Soc. Env. 34 81,1 22 Quartile 4th 1st Entrepr. Culture & Opp. 20 74,6 20 GDP 54 [bn USD] IPO Volume Population 0 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 150 125 SWOT Analysis 100 Entrepr. Culture Depth of Cap. & Opp. 75 Market Strengths 50 • Direct and personal contact with regulatory authorities with 25 0 respect to accreditation processes and tax treatment • Multilingual and internationally-oriented qualified workforce • No constraints applicable to pension funds when investing in Hum. & Soc. Taxation Environment VC/PE and absence of geographical restrictions for investments Luxembourg outside Luxembourg • Favorable tax policy with respect to investments in VC/PE, Inv. Prot. & Western Europe Corp. Gov. intellectual property and R&D expenditures United States = 100 Points • Complete portfolio of products enabling maximum legal, tax and operational structuring flexibility Separate VC and PE Indices Weaknesses 20 • Lack of specific tax rate for SMEs 21 • Limited deal flow 22 23 Opportunities Index Rank 24 • Re-domiciliation of businesses looking for an on-shore European 25 VC/PE Fund label 26 • Stock options tax treatment could be used to support talent 27 retention in investee company 28 • VC/PE structures very relevant for investment in cleantech and 29 renewable energies 30 2005/06 2006/07 2007/08 2008/09 2009/10 Threats VC PE VCPE • Duplication of available products and tax incentives by competitive locations • Treaty access requires strict compliance with substance Comparison within Peer Group requirements 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Outlook Germany 9 69,1 10 • Thanks to a tradition of innovation and client-focused attitude of authorities, Luxembourg managed to position itself as a major Denmark 10 67,7 12 center for VC/PE on-shore investment and fund structuring in Finland 12 65,9 15 Europe. The country seems fully prepared to welcome VC/PE France 17 65,2 16 players considering on-shore re-domiciliation in a global context Belgium 19 61,1 17 calling for increased regulation Austria 20 58,6 19 Ireland 16 58,3 21 Luxembourg 24 54,6 24 Greece 44 40,7 39132 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 129. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 5 74,8 181.2 Inflation 28 101,5 101.3 Unemployment 15 104,0 202 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 53 8,3 512.2 IPO Market Activity 33 1,3 462.3 M&A Market Activity 40 1,5 482.4 Debt & Credit Market 51 56,3 562.5 Financial Market Sophistication 3 115,4 1Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 13 189,7 103.2 Administrative Tax Burdens 23 98,0 274 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 31 62,4 364.2 Security of Property Rights 9 104,0 44.3 Quality of Legal Enforcement 12 118,9 114.4 Regulatory Quality 3 104,4 95 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 32 68,3 295.2 Labor Market Rigidities 63 32,1 595.3 Bribing & Corruption 12 123,0 105.4 Costs of Crime 6 160,6 16 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 21 42,8 226.2 Ease of Starting & Running a Business 15 98,7 196.3 Simplicity of Closing a Business 32 71,6 316.4 ICT Infrastructure 6 102,5 5 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 133
  • 130. Regional and country profiles Malaysia Capital: Kuala Lumpur ++ l Language: Bahasa Melayu ++ Currency: Malaysian Ringgit Basic Facts VCPE-Ranking 2005/06 2009/10 Quar le Rank Value Rank 4th 1st VCPE Ranking 23 54,4 25 Econom c Ac t 33 77,5 38 Depth of Cap. Market 12 23,0 15 Taxa on 27 123,7 21 In . Prot. & Corp. Go . 25 73,3 28 Hum. & Soc. En . 22 75,8 28 4th Quar le 1st Entrepr. Culture & Opp. 31 43,2 32 GDP 209 [bn USD] IPO Volume Popula on 27 [mn] M&A Volume GDP Growth 02 08 VC Ac t Pop. Growth 02 08 PE Ac t Key Factors Performance Econom c Ac t 125 100 SWOT Analysis Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Established regulatory framework and financial markets, both 0 conventional and Islamic • Government support and tax incentives for the VC/PE industry • Liberalization of foreign equity restrictions should widen the Hum. & Soc. Taxa on En ronment spectrum of opportunities in PIPEs and buyouts by foreign funds Mala s a Weaknesses In . Prot. & As a • Sources of capital still come predominantly from government Corp. Go . United States = 100 Points agencies, despite consistent calls for banks, pensions funds and insurance companies to increase their participation Separate VC and PE Indices • Governmental and regulatory approval processes remain sub- optimal despite current liberalization measures 17 • Government-linked investment corporations (“GLICs”) and 18 government-linked companies (“GLCs”) continue to add to their 19 portfolios through direct investments, which stiffens competition 20 Index Rank for larger deals 21 • Need for improvement of local PE and VC managers’ skills 22 23 Opportunities 24 • Large and diversified conglomerates and GLCs continue to rebalance 25 their portfolios through divestment of non-core businesses 26 • Several GLICs hold substantial direct investments in related 27 enterprises which provide attractive consolidation opportunities 2005/06 2006/07 2007/08 2008/09 2009/10 • Stimulus packages are slowly taking effect, creating opportunities VC PE VCPE to participate in capital raising activities by private sector promoters Threats Comparison within Peer Group • Increased competition for already limited quality deals by SPACs 2005/06 2009/10 Quar le that raise public capital Rank Value Rank 4th 1st • Government-driven national PE management company (“Ekuinas”) Hong Kong 4 79,5 5 with an initial allocation of RM500 million for investments in SMEs Japan 7 76,5 7 Outlook Republ c of Korea 15 67,5 13 • Cautious optimism is returning, but competition in the industry is Mala s a 23 54,4 25 likely to increase Ch na 42 48,5 28 In a 46 40,9 38 Edwin Chew, Executive Director, Ernst & Young Malaysia Russ an Federa on 49 38,0 48 Indones a 60 30,7 54 Ph l pp nes 57 26,1 61134 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 131. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 42 47,2 461.2 Inflation 35 92,0 361.3 Unemployment 6 107,2 102 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 15 41,7 142.2 IPO Market Activity 13 3,4 212.3 M&A Market Activity 16 6,3 182.4 Debt & Credit Market 18 95,8 152.5 Financial Market Sophistication 27 75,3 27Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 26 152,9 273.2 Administrative Tax Burdens 43 100,1 194 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 4 105,9 44.2 Security of Property Rights 34 57,9 354.3 Quality of Legal Enforcement 28 82,6 324.4 Regulatory Quality 40 57,1 455 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 17 80,9 215.2 Labor Market Rigidities 13 74,5 245.3 Bribing & Corruption 32 61,3 335.4 Costs of Crime 42 89,2 516 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 29 20,6 306.2 Ease of Starting & Running a Business 17 97,0 226.3 Simplicity of Closing a Business 34 68,2 346.4 ICT Infrastructure 37 25,6 39 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 135
  • 132. Regional and country profiles Mexico Capital: Mexico City ++ Official Language: Spanish ++ Currency: Mexican Peso Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 51 35,8 49 Economic Activity 30 80,5 32 Depth of Cap. Market 45 11,1 39 Taxation 44 108,9 40 Inv. Prot. & Corp. Gov. 51 51,9 47 Hum. & Soc. Env. 59 37,1 62 Quartile 4th 1st Entrepr. Culture & Opp. 43 31,9 46 GDP 1084 [bn USD] IPO Volume Population 108 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Tax treatment, and quality of accounting standards are relative 0 strengths • Many newly registered businesses and entrepreneurial activities in recent years Hum. & Soc. Taxation Environment Weaknesses Mexico • IPOs remain a difficult and unattractive exit option for VC/PE Inv. Prot. & Latin America investments Corp. Gov. United States = 100 Points • Insurers are not permitted to use VC/PE assets to cover solvency margins and face strong restrictions with respect to their VC/PE Separate VC and PE Indices allocations • Mexican law protects intellectual property rights, but enforcement 46 is weak and pirated goods exist throughout the country 47 Opportunities 48 • Arise by improvements of tax treatment, corporate governance, Index Rank protection of minority rights and quality of accounting standards 49 Threats 50 • Growing evidence of violence and crime • Need to lift barriers to institutional investment and improve the 51 access to equity markets for SMEs 52 Outlook 2005/06 2006/07 2007/08 2008/09 2009/10 • Underperform relative to the size and the potential of the VC PE VCPE country´s economy Comparison within Peer Group 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Chile 27 45,8 32 Mexico 51 35,8 49 Brazil 56 34,6 51 Uruguay 50 33,4 52 Peru 54 32,4 53 Colombia 55 29,4 58 Argentina 59 29,1 59 Paraguay 66 14,9 65 Venezuela 65 8,9 66136 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 133. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 36 52,1 411.2 Inflation 43 95,3 301.3 Unemployment 6 105,2 142 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 49 8,4 502.2 IPO Market Activity 41 1,7 322.3 M&A Market Activity 37 3,3 242.4 Debt & Credit Market 43 69,1 452.5 Financial Market Sophistication 42 50,6 38Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 46 125,7 453.2 Administrative Tax Burdens 47 94,3 444 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 61 53,8 454.2 Security of Property Rights 45 50,3 434.3 Quality of Legal Enforcement 54 42,4 544.4 Regulatory Quality 45 63,0 435 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 61 36,9 615.2 Labor Market Rigidities 46 53,8 435.3 Bribing & Corruption 51 35,4 535.4 Costs of Crime 63 27,0 646 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 50 10,2 576.2 Ease of Starting & Running a Business 45 77,9 466.3 Simplicity of Closing a Business 24 81,5 246.4 ICT Infrastructure 47 16,0 47 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 137
  • 134. Regional and country profiles Morocco Capital: Rabat ++ Official Language: Arabic ++ Currency: Moroccan Dirham Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 58 30,3 56 Economic Activity 53 65,0 51 Depth of Cap. Market 55 9,1 46 Taxation 59 101,4 50 Inv. Prot. & Corp. Gov. 60 38,8 59 Hum. & Soc. Env. 57 37,9 60 Quartile 4th 1st Entrepr. Culture & Opp. 52 26,2 53 GDP 87 [bn USD] IPO Volume Population 32 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Low competition yet in one of the advanced African markets 0 • Will probably turn into a hub for European GPs expanding to Northern African countries • Geo-political location and relations: close to Spain, and Portugal, Hum. & Soc. Taxation Environment strongly connected to France Morocco • Tax breaks providing incentives to investors Inv. Prot. & Africa Weaknesses Corp. Gov. United States = 100 Points • Barriers to trade and investment across the North African region have stymied economic integration Separate VC and PE Indices • Economy remains dependent on agriculture • 15 percent of the population is considered poor 54 Opportunities 55 • Economic growth rates of 5% expected 56 • Political activity to ease capital flows Index Rank • Opportunities from corporations that shift production to low cost 57 facilities • State-led projects for roads, railways, ports, health and education 58 Threats 59 • Political tensions with Algeria 60 Outlook 2005/06 2006/07 2007/08 2008/09 2009/10 • Business-friendly reforms are expected to spur VC/PE activity VC PE VCPE Comparison within Peer Group 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Israel 21 55,8 22 Saudi Arabia 36 46,4 30 Kuwait 29 40,1 42 South Africa 43 39,5 43 Oman 38 38,1 46 Morocco 58 30,3 56 Egypt 53 30,1 57 Nigeria 64 24,4 62 Kenya 63 19,3 64138 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 135. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 63 30,8 591.2 Inflation 7 99,6 161.3 Unemployment 53 89,3 592 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 52 12,8 402.2 IPO Market Activity 51 1,3 432.3 M&A Market Activity 51 1,1 572.4 Debt & Credit Market 54 73,1 392.5 Financial Market Sophistication 46 44,4 45Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 62 114,4 533.2 Administrative Tax Burdens 41 89,9 514 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 66 18,0 654.2 Security of Property Rights 55 39,0 554.3 Quality of Legal Enforcement 41 68,4 404.4 Regulatory Quality 59 47,2 535 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 59 33,1 625.2 Labor Market Rigidities 65 16,5 655.3 Bribing & Corruption 53 36,0 525.4 Costs of Crime 49 104,5 446 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 63 7,3 636.2 Ease of Starting & Running a Business 34 94,4 266.3 Simplicity of Closing a Business 39 65,5 356.4 ICT Infrastructure 56 10,3 56 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 139
  • 136. Regional and country profiles Netherlands Capital: Amsterdam ++ Official Language: Dutch ++ Currency: Euro Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 14 70,1 9 Economic Activity 18 101,2 3 Depth of Cap. Market 15 22,1 16 Taxation 46 118,0 29 Inv. Prot. & Corp. Gov. 14 93,5 15 Hum. & Soc. Env. 16 95,6 16 Quartile 4th 1st Entrepr. Culture & Opp. 9 95,7 6 GDP 859 [bn USD] IPO Volume Population 17 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • VC/PE is of great economic importance 0 • GPs are real active shareholders with extensive experience • Dutch GPs are successful in receiving financing from banks as they usually use less leverage Hum. & Soc. Taxation Environment Weaknesses Netherlands • VC/PE firms tend to focus primarily on financial results and cost Inv. Prot. & Western Europe cutting, often by cutting headcount Corp. Gov. United States = 100 Points Opportunities • Increasing activity of foreign VC/PE firms Separate VC and PE Indices • VC/PE has become a fixed part of the investment portfolio of 4 many banks and pension funds • Sharp increase in private investors, such as families and wealthy 6 individuals 8 Index Rank Threats • Number of transactions in the Dutch buy-out market remains low 10 • Increasing interest rates 12 • Limitations regarding the fiscal advantage of deducting interest expenses 14 Outlook 16 • More equity capital is required for new investments 2005/06 2006/07 2007/08 2008/09 2009/10 • Disappointing performance of some portfolio companies VC PE VCPE • Anticipated that portfolio companies of VC/PE firms surpass the financial performance of publicly-listed companies Comparison within Peer Group 2005/06 2009/10 Quartile Marc Guns, Partner, Ernst & Young Netherlands Rank Value Rank 4th 1st Netherlands 14 70,1 9 Germany 9 69,1 10 Denmark 10 67,7 12 Finland 12 65,9 15 France 17 65,2 16 Belgium 19 61,1 17 Austria 20 58,6 19 Ireland 16 58,3 21 Greece 44 40,7 39140 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 137. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 23 91,1 61.2 Inflation 10 104,7 41.3 Unemployment 21 108,7 62 Depth of Capital Market2. Depth of Capital Market 2005/06 2009/10 Quartile Rank Value Rank 4th 1st2.1 Size and Liquidity of the Stock Market 18 33,0 182.2 IPO Market Activity 18 2,2 272.3 M&A Market Activity 13 7,1 172.4 Debt & Credit Market 1 102,0 52.5 Financial Market Sophistication 5 100,0 8Depth of Capital Market3 Taxation3. Taxation 2005/06 2009/10 Quartile Rank Value Rank 4th 1st3.1 Tax Incentives 53 138,1 353.2 Administrative Tax Burdens 34 100,8 154 Investor Protection and CorporateGovernance4. Investor Protection & Corporate Governance 2005/06 2009/10 Quartile Rank Value Rank 4th 1st4.1 Corporate Governance 23 65,9 304.2 Security of Property Rights 17 88,4 154.3 Quality of Legal Enforcement 4 124,3 64.4 Regulatory Quality 6 105,6 75 Human & Social Environment5. Human and Social Environment 2005/06 2009/10 Quartile Rank Value Rank 4th 1st5.1 Education & Human Capital 9 100,3 95.2 Labor Market Rigidities 35 54,6 415.3 Bribing & Corruption 10 129,2 75.4 Costs of Crime 32 118,1 336 Entrepreneurial Culture and Opportunities6. Entrepreneurial Culture & Opportunities 2005/06 2009/10 Quartile Rank Value Rank 4th 1st6.1 Innovation & R&D 9 72,7 106.2 Ease of Starting & Running a Business 25 89,5 346.3 Simplicity of Closing a Business 7 108,0 96.4 ICT Infrastructure 2 119,5 1 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual 141
  • 138. Regional and country profiles New Zealand Capital: Wellington ++ Official Language: English, Maori ++ Currency: New Zealand Dollar Basic Facts VCPE-Ranking 2005/06 2009/10 Quartile Rank Value Rank 4th 1st VCPE Ranking 18 60,0 18 Economic Activity 27 83,5 29 Depth of Cap. Market 27 11,1 40 Taxation 52 99,6 54 Inv. Prot. & Corp. Gov. 2 113,4 2 Hum. & Soc. Env. 3 116,5 4 Quartile 4th 1st Entrepr. Culture & Opp. 16 82,2 15 GDP 126 [bn USD] IPO Volume Population 4 [mn] M&A Volume GDP Growth 02 08 VC Activity Pop. Growth 02 08 PE Activity Key Factors Performance Economic Activity 125 SWOT Analysis 100 Entrepr. Culture 75 Depth of Cap. & Opp. 50 Market Strengths 25 • Encouraging clear and simple regulatory environment 0 • Recent introduction of limited liability partnership regime enhances global consistency • Growing awareness and support of VC activity complementing Hum. & Soc. Taxation Environment already strong PE investment culture New Zealand Weaknesses Australasia Inv. Prot. & • Relative weakness of capital market Corp. Gov. United States = 100 Points Opportunities • Increasing allocation of government controlled funds to private Separate VC and PE Indices VC enterprises – continued stimulation of sector through the NZ 15 Superannuation Fund (SWF equivalent) and other initiatives 16 • Demographics mean there is a strong SME business base with 17 ageing investors looking for exit route 18 Index Rank Threats 19 • Lack of sufficient IPO exit perspectives 20 21 Outlook 22 • Infrastructure opportunities expected to increase with a PPP 23 regime to be created. 24 • Returning strength to debt markets expected to increase leverage 25 opportunity. 2005/06 2006/07 2007/08 2008/09 2009/10 VC PE VCPE Bryan Zekulich, Partner, Ernst & Young New Zealand Comparison within Peer Group 2005/06 2009/10 Quartile Rank Value Rank 4th 1st Australia 6 81,9 4 Hong Kong 4 79,5 5 Singapore 5 78,5 6 Japan 7 76,5 7 Republic of Korea 15 67,5 13 New Zealand 18 60,0 18 Taiwan 25 55,3 23 Malaysia 23 54,4 25 China 42 48,5 28142 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual
  • 139. Details y1. Economic Activity 2005/06 2009/10 Quartile Rank Value Rank 4th 1st1.1 Gross Domestic Product 30 55,8 341.2