Iese vcpe index_annual_2009

The Global Venture Capital
and Private Equity
Country Attractiveness Index
2009/2010 annual
Alexander Groh & Heinrich Liechtenstein

Sponsored by

The Global Venture Capital and Private Equity
Country Attractiveness Index

2009/2010 annual

Alexander Groh & Heinrich Liechtenstein

Sponsored by

Contents
Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Sponsors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
About the editors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Research team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

I. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

II. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

III. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

IV. Regional and country profiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
How to read the country and regional profiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Regional profiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Country profiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

V. 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

Foreword
from the research team
In this annual, we want to present the results of a
comprehensive research project on how to measure the
attractiveness of a country for investors in Venture Capital
(VC) and Private Equity (PE) limited partnerships. The project
was initiated at IESE Business School in Barcelona in 2006
with a European pilot study. From the European study we
gained experience and the confidence to extend the study
globally. Since 2006 two professors, one doctoral student, and
many research assistants have worked on the project.
We selected and collected more than 300 different data series
from all kind of providers – some ranging back to 2000. We
attempted to include as many countries as possible in
the study, and handled approximately 200,000 individual
data records.

We would not have been able to realize this without the
generous financial and non financial contributions from
our sponsors, and we greatly appreciate the support of IESE
Business School, their International Center for Financial
Research (CIIF), Ernst &Young, and DLA Piper Weiss Tessbach.

This is the first edition of the Venture Capital and Private
Equity (VCPE) Country Attractiveness Index. This index will
be subject to critique and we invite constructive feedback to
help us improve future editions of the index. Selected data
series may be subject to change in future editions and new
and more appropriate data series may be used as a substitute
to existing data. The quality of data and the number of
countries covered will increase. As a result, our index will be
a dynamic product that always considers the most adequate
and recent data. We believe this index is unique in providing
the VC and PE market segment with such a broad scope. We
hope investors will appreciate the information included in this
index; politicians may utilize the index to make improvements
in their countries to attract international risk capital.

We hope that you find our 2009/2010 Venture Capital and
Private 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.

Professor Josh Lerner
Jacob H. Schiff Professor of Investment Banking

Foreword Harvard Business School

Virtually every high growth business needs Another important trend has been the
capital. Investors allocate assets to earn professionalization of the venture capital
substantial returns. One would imagine that industry itself. Venture capital and private
the two facts above would bring venture equity organizations have matured. Their
capitalists 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 surprise
and assume significant risk in pursuing their that many nations are making greater efforts to
business, whether a young start up or a encouraging venture capital activity with an eye
restructuring division. Venture capitalists and to boosting innovation and entrepreneurship,
private equity investors are a special breed, who and to counteracting the recessionary impact
seek 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 and
endowments, or families), which limit their private equity investment as a professional
ability to absorb all the risk in new ventures. practice, understanding the way in which
While venture capital and private equity this industry works is critically important for
has become a well developed industry in the policymakers, practitioners, and would be
United 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, venture
and expectations has slowed the adoption of capital and private equity firms, or large
venture capital and private equity funds, and institutional capital pools. I applaud Alexander
limited the success of the pioneering funds. Groh and Heinrich Liechtenstein, who have taken
the heroic step of trying to draw together all the
But in the past few years, the venture information needed to assess whether a market
capital and private equity industry has been is ready for venture capital and private equity.
globalizing at a dramatic pace. Funds are
increasingly being raised internationally and The country attractiveness index—which builds
invested globally. More and more firms have on academic research into the determinants
established multinational operations. There is of these funds world wide—provides valuable
an increasing appreciation by entrepreneurs information to investors and political leaders
world wide of the benefits that venture and about which markets are most suited for
growth equity investors can bring. Company private investments. The index results both
managers are increasingly setting ambitious provide answers and raise questions—e.g., to
goals and looking to these investors to provide what extent will the financial crisis upend
the capital, advice, and strategic partnerships the established order of the most attractive
they 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

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 expertise

8 The Global Venture Capital and Private Equity Country Attractiveness Index - 2009/2010 annual

About the editors

Prof. Alexander Groh Prof. Heinrich Liechtenstein Research team
Alexander Groh
Dr. 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 Barcelona
sity 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 Liechtenstein
luation issues, performance measurement neurial ﬁnance, VC and PE, wealth ma-
Assistant Professor,
and socio-economic determinants for the nagement, and owners’ strategies. He is
development of national markets. He is active in several supervisory and advisory
Associate Professor of Finance at GSCM – boards of family holdings and founda-
Karsten Lieser
Montpellier 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
bleau, France, and was Assistant Professor wealth management and owners' strate-
of Corporate Finance and Entrepreneurial gies at Liechtenstein Global Trust, a family
Miriam Hesse
Finance 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-
courses for the European Venture Capital ded and sold two companies.
and Private Equity Association (EVCA), and Dr. Liechtenstein was born in Leoben,
Renata Semmel
the 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
for 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.
Degree of Mechanical Engineering and
Business Administration from Darmstadt
Matthias Wich
University of Technology, where he also
Research Assistant,
gained his Doctoral Degree in Finance.

Tobias Götz
Research Assistant,

Markus Grabellus
Research Assistant,

Markus Biesinger
Research Assistant,


I.


The Global VC/PE Country
Attractiveness Index
Article written by Alexander Groh, agroh@iese.edu, and Heinrich Liechtenstein, hl@iese.edu,
both, IESE Business School Barcelona.


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 opportunities


What are institutional investors’ Importance of Economic Activity the findings are equally valid for the later
selection criteria? Intuitively, the state of a country’s eco- stage. Jeng and Wells (2000) stress that
Our 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 and
allocation decisions upon. Their allocation portunities in general. Economic growth Schoar (2005) confirm this. Analogous to
criteria 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 liquid
pective. 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 as
tence, 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 stock
as part of their fund due diligence before accumulation of capital for investments. markets has a significant positive impact
limited 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 debt
index points to the general opportunities customers in the domestic market. Ro- financing is an obstacle for start-ups in
that arise from the socio-economic state main and van Pottelsberghe de la Potterie many countries. Entrepreneurs need to
of a country or region and as a result, we (2004) find that VC/PE activity is cyclical find backers - whether banks or VC/PE
contribute 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 promotes
first time that the different factors that de- Importance of the Depth of a Capital the growth of those industrial sectors that
termine the attractiveness of a country for Market have a higher need for external finance by
limited 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. They
extensively discussed in literature about the argue that a well-developed stock mar- Importance of Taxation
determinants of vibrant VC and PE markets. ket that permits venture capitalists to exit We assume that two types of taxes affect
We give a brief overview over this literature through an initial public offering (IPO) is VC and PE activity; those directly related to
and group the articles into six sub-chap- crucial for the existence of a vibrant VC the asset class, such as taxes on dividends
ters 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 and
appropriate and quantifiable to determine it is not merely the strong stock market Lerner (1998) stress that the capital gains
the 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), who
a 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 et
1. 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 rates
Equity Country Attractiveness Indices, forthcoming in the mise entrepreneurial activity. While their strongly affect entrepreneurship. Bruce and
Journal of Corporate Finance (Re-print). Available at
http://ssrn.com/author=330804. paper focuses on the early stage segment, Gurley (2005) explain that increases in the



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-


tivity. Furthermore, Romain and von Pot- For the index calculation, it would be
telsberghe 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, depending
nities, and the number of patents. Simi- on the data available, and their datasets
lar to Djankov et al. (2002), Baughn and are difficult to compare. Therefore, we try
Neupert (2003) argue that bureaucracy in to find the best possible proxies for the
the form of excessive rules and procedural aforementioned drivers of VC/PE activity,
requirements, multiple institutions from which are available for a large number of
which approvals are needed, and cumber- countries. From the foregoing review of
some 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, Depth
administrative burdens may discourage of a Capital Market, Taxation, Investor
new 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 among
the difficulty of identifying the appro- institutional investors, reported in Groh
priate 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 as
are more comprehensively discussed, “constructs” and seek for data series that
and certainly of very high relevance, it adequately express their character.
remains unclear how these interact. For
example, it is debatable whether the VC/
PE activity in a country with a high cor-
porate governance level is more affected
by the liquidity of the national stock
market or by labor regulations. While an
IPO exit is, in principle, possible at many
stock exchanges in the world, labor mar-
ket frictions can hardly be evaded.



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.


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 Index
1 Economic Activity 0.14 0.14 0.18 4.2.3 Intellectual Property Protection 0.33 0.33 0.33
1.1 Gross Domestic Product 0.33 0.33 0.33 4.3 Quality of Legal Enforcement 0.25 0.25 0.25
1.1.1 Total Economic Size 0.33 0.33 0.33 4.3.1 Judicial Independence 0.25 0.25 0.25
1.1.2 GDP per Capita 0.33 0.33 0.33 4.3.2 Impartial Courts 0.25 0.25 0.25
1.1.3 Real GDP year-on-year Growth 0.33 0.33 0.33 4.3.3 Integrity of the Legal System 0.25 0.25 0.25
1.2 Inflation 0.33 0.33 0.33 4.3.4 Rule of Law 0.25 0.25 0.25
1.3 Unemployment 0.33 0.33 0.33 4.4 Regulatory Quality 0.25 0.25 0.25
2 Depth of a Capital Market 0.23 0.19 0.29 5 Human and Social Environment 0.18 0.19 0.18
2.1 Size and Liquidity of the Stock Market 0.20 0.25 0.20 5.1 Education and Human Capital 0.25 0.25
2.1.1 Market Capitalization of Listed Companies 0.33 0.33 0.33 5.1.1 Quality of the Educational System 0.50 0.50
2.1.2 Total Trading Volume 0.33 0.33 0.33 5.1.2 Quality of Scientific Research Institutions 0.50 0.50
2.1.3 Listed Domestic Companies 0.33 0.33 0.33 5.2 Labor Market Rigidities 0.25 0.25 0.33
2.2 IPO Market Activity 0.20 0.25 0.20 5.2.1 Difficulty of Hiring Index 0.25 0.25 0.25
2.2.1 Market Volume 0.50 0.50 0.50 5.2.2 Rigidity of Hours Index 0.25 0.25 0.25
2.2.2 Number of IPOs 0.50 0.50 0.50 5.2.3 Difficulty of Firing Index 0.25 0.25 0.25
2.3 M&A Market Activity 0.20 0.25 0.20 5.2.4 Firing Costs 0.25 0.25 0.25
2.3.1 Market Volume 0.50 0.50 0.50 5.3 Bribing and Corruption 0.25 0.25 0.33
2.3.2 Number of Deals 0.50 0.50 0.50 5.3.1 Bribing and Corruption Index 0.33 0.33 0.33
2.4 Debt and Credit Market 0.20 0.20 5.3.2 Control of Corruption 0.33 0.33 0.33
2.4.1 Domestic Credit provided by Banking Sector 0.17 0.17 5.3.3 Extra Payments/Bribes 0.33 0.33 0.33
2.4.2 Ease of Access to Loans 0.17 0.17 5.4 Costs of Crime 0.25 0.25 0.33
2.4.3 Credit Information Index 0.17 0.17 5.4.1 Business Costs of Crime and Violence 0.50 0.50 0.50
2.4.4 Soundness of Banks 0.17 0.17 5.4.2 Costs of Organized Crime 0.50 0.50 0.50
2.4.5 Interest Rate Spread 0.17 0.17 6 Entrepreneurial Culture and Opportunities 0.18 0.19 0.06
2.4.6 Bank Non-performing Loans to Total Gross Loans 0.17 0.17 6.1 Innovation and R&D 0.25 0.25
2.5 Financial Market Sophistication 0.20 0.25 0.20 6.1.1 General Innovativeness Index 0.20 0.20
3 Taxation 0.09 0.10 0.06 6.1.2 Capacity for Innovation 0.20 0.20
3.1 Tax Incentives 0.50 0.50 1.00 6.1.3 Company Spending on R&D 0.20 0.20
3.1.1 Marginal Corporate Tax Rate 0.25 0.25 0.50 6.1.4 Utility Patents 0.20 0.20
3.1.2 Entrepreneurship Incentive 0.25 0.25 6.1.5 Scientific and Technical Journal Articles 0.20 0.20
3.1.3 Labor Tax and Contributions 0.25 0.25 6.2 Ease of Starting and Running a Business 0.25 0.25
3.1.4 Profit and Capital Gains Tax 0.25 0.25 0.50 6.2.1 Number of Procedures to start of Business 0.20 0.20
3.2 Administrative Tax Burdens 0.50 0.50 6.2.2 Time needed to start a Business 0.20 0.20
3.2.1 Number of Payments 0.50 0.50 6.2.3 Costs of Business Start-Up Procedures 0.20 0.20
3.2.2 Time spent on Tax Issues 0.50 0.50 6.2.4 Minimum Capital 0.20 0.20
4 Investor Protection and Corporate Governance 0.18 0.19 0.24 6.2.5 Administrative Requirements 0.20 0.20
4.1 Corporate Governance 0.25 0.25 0.25 6.3 Simplicity of Closing a Business 0.25 0.25 1.00
4.1.1 Disclosure Index 0.20 0.20 0.20 6.3.1 Time 0.33 0.33 0.33
4.1.2 Director Liability Index 0.20 0.20 0.20 6.3.2 Costs 0.33 0.33 0.33
4.1.3 Shareholder Suits Index 0.20 0.20 0.20 6.3.3 Recovery Rate 0.33 0.33 0.33
4.1.4 Legal Rights Index 0.20 0.20 0.20 6.4 ICT Infrastructure 0.25 0.25
4.1.5 Efficacy of Corporate Boards 0.20 0.20 0.20 6.4.1 Broadband Subscribers 0.25 0.25
4.2 Security of Property Rights 0.25 0.25 0.25 6.4.2 Fixed Line and Mobile Phone Subscribers 0.25 0.25
4.2.1 Legal Enforcement of Contracts 0.33 0.33 0.33 6.4.3 Internet Users 0.25 0.25
4.2.2 Property Rights 0.33 0.33 0.33 6.4.4 Secure Internet Servers 0.25 0.25



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 Kingdom


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.) 54,4
United 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



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.


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



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 and


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
Venezuela

Exhibit 4: Level 2 constructs - Comparison of the US, Slovenia and Venezuela

1.1 Gross Domestic Product
1.2 Inflation
1.3 Unemployment
2.1 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



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 the


Exhibit 5: Ranking of geographic regions

North America 97
Australasia 76
Western Europe 67
World 55
Asia 54
Middle East 46
Eastern Europe 42
Latin America 35
Africa 33
0 20 40 60 80 100

Exhibit 6: Key driver scores of geographic regions Exhibit 7: Key driver scores of geographic regions

1. Economic Activity 1. Economic Activity
125
125
100
100
6. 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. Taxation
Social 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.)



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.


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.)



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-


kings with respect to these two key drivers we expect several emerging countries to
before the financial crisis. IPO and M&A strongly improve their position over the
activity has come down significantly. The course of 2009/2010. However, we have to
size and liquidity of the stock markets wait for the following edition, to provide
melted down. The access to loans deterio- evidence for our expectations.
rated and interest rates increased to peak
levels. It became clear that the fraction How our index differs from
of non-performing loans is probably the other, more general indices on
highest seen in banking history, and the competitiveness
soundness of banks might be doubted in Some institutions provide competitiveness
several countries. These are all data series indices or assess the general conditions
we 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 do
a strong impact on all of them. However, not focus on the particularities of the VC
the 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 and
draw conclusions for the quality of our their tracking power to explain VC and
index at that time. PE activity is lower. For example, the Glo-
We assume that these effects will move bal Competitiveness Index from the WEF
several emerging countries to higher ranks tracks VC and PE activity with 0.69, while
for one simple reason. The rationale is the the IMD World Competitiveness Index
typical pattern we discussed above: the correlates with 0.57 only. This reveals that
high ranked countries are particularly our index is the more precise indicator
strong with respect to their capital mar- for VC and PE country attractiveness. The
kets. They will be affected most by the fi- reason for the superior tracking power of
nancial crisis because they lose dispropor- our index is simply that it is tailor-made,
tionally their competitive advantage by according to the particular determinants
the deteriorated capital market conditions. for vibrant VC and PE markets. There is no
Several emerging countries with sound other indicator tracking the actual VC and
growth opportunities, but negligible ca- PE activity over the 66 countries, and over
pital markets will benefit (in terms of in- time as good as our index.
dex scores) from the crisis. It is said that
their economic growth will be affected to
a minor extend, only. The crisis will har-
dly impact their scores with respect to the
other key drivers such as Taxation, Inves-
tor Protection and Corporate Governance,
the Human and Social Environment, or
their Entrepreneurial Culture. Therefore,



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-


II.


Legal systems, taxes
and VC and PE activity


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 return


money to their investors. We have seen Italy – which could continue to creep
some VC-backed IPOs starting to come across Europe. Venture capital has also
through again, and there is much spe- been pressured by the changing rules for
culation around the return of IPOs for the carry-forward of losses – in the cur-
large PE portfolio companies, but no- rent environment, many companies are
one really knows the pace of recovery or making losses, but if the tax treatment
what volume we are going to see. The of how those losses are carried forward
reopening 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 quality
factor in future buoyancy, as the Glo- of investment and the likelihood of a
bal VC/PE Country Attractiveness Index good fundamental return.
shows it has in the past, although it is
not always possible to generalize about Picking the winners
which types of areas will prosper. Many As LPs consider where to allocate their
people talk about China as a whole as capital, and PE and VC funds look to
being strong, for example, but in the US make the right investments themselves,
the VC ecosystem of Silicon Valley is the the investing landscape will inevitably
standard against which every other area change. There will undoubtedly be
is benchmarked. comparative winners and losers, and
the Global PE/VC Country Attractiveness
A changing tax topography Index could prove to be a valuable tool
The tax treatment of venture capital and in helping funds navigate through this
private equity is also changing rapidly. uncertain time.
With governments easing ﬁscal purse
strings but tightening anti-avoidance in
ways pertinent to both VC and PE, in-
vestors need clear and up-to-date advice
on what to do. In July, for example, the
Obama administration proposed legisla-
tion that affects foreign investment in
US funds – from next year, funds might
have to consider how they restructure
to attract foreign investment. Another
big issue is the limitation of interest
deductions – ﬁrst applied by Germany
and subsequently seen in Denmark and


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-


tant exit route. In summary, the common Specific regulation targeted towards so high that in practice most funds tend
law 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/and
environment with an experienced indus- which have enacted specific incentives offshore fund structures. This may help to
try 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 Germany
judicial system – corruption The UK, for example, offers generous have very recently enacted legislation
The 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 by
no perceived corruption take the top 20 tech companies, companies in disadvan- introducing a flat rate withholding tax of
places 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 Summary
are generally said to be not very reliable companies and offset losses against in- In summary it appears fair to conclude
and 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 on
bottom 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 towards
contractual 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 contravene
is Bulgaria which European Union mem- most vibrant VC scenes outside the Uni- established commercial market practice.
bership notwithstanding remains trou- ted States. Therefore, notwithstanding
bled with regard to enforcement and its precarious geopolitical situation, Is-
transparency and thus ranks in the bot- rael remains comparatively attractive for
tom 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 winner
nia. Slovenia has since its accession to the (Latin America) is Chile where tax profits
European Union introduced the VC Act of made by angel or seed capital investors
2007 and has made particular strong ef- in risk-capital funds are exempted form
forts 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, the
tractive for VC and PE investments. hurdles to qualify for tax exemptions are


III.


An insight into
different VC
and PE markets


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.


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 multilateral
relatively 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 ties
Africa retains a very strong medium- it bought an additional 15% of Vodacom with Latin America and Asian emerging
and 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 vulnerability
that 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, at
economically significant progress goes about US$19.3 billion. Meanwhile, Bharti Governance and investment
unnoticed 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 reforms
mittedly remains weak in many African talks to buy stakes in each other to create a (infrastructure development, institutional
countries, 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 regional
20 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 at
which remain today), and the majority did million raised in November 2008 for Nige- Oxford University, in a recent interview
not have functioning democracies. Today, ria’s first PPP, (and the first PPP toll road with Finance and Development said aid to
the African country that does not profess in West-Africa), the Lekki-Epe Expressway Africa hasn’t worked because the focus has
a 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.”9
years have also seen the appearance of a In these markets, the innovative use To Collier, “The micro agenda that seems
crop of younger, savvier political leaders of information and communication tech- to work there involves freeing up firms to
who 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’s
and creating the conditions for local en- phones, is vital for breaking barriers to Doing Business surveys, this is what we
trepreneurship to thrive. Such stable pro- market development. For example, in Ke- find. Where countries have easy entry and
gress, even from poor initial conditions, nya, where only 26% of the population exit for firms, the consequence of a falling
creates 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, economists
along 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 of
8. “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.



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.


Asia: Does vibrant entrepreneurial activity and
expected growth compensate some weaknesses?

General points cision-making for VC and PE investments for corruption. Civil servants are very well
The 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 are
ter North America, Australasia, and Wes- relatively low, especially, at the indirect tax
tern 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 lowest
of 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 outperforms
and Thailand (36) were in the mid-range, scores for all the categories, on a consistent Singapore only in the areas of Economic
with their raw overall scores clustering basis. Its category ranking was 3rd in Inves- Activity and Depth of Capital Markets. In
around 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 has
these 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 level
rankings may not fully reflect the oppor- Singapore beats Japan and Korea on economic growth in recent years. In terms
tunities in the different Asian markets, the basis of its attractiveness in the fol- of the capital markets, again the size and
but 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 area
Pasig City, Philippines ties etc., can be transferred abroad without of Taxation. Marginal corporate tax rates
vabola@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 latter's 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



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 China's 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 Taiwan's 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, Malaysia's 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. China's 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-


sia's large economic size makes it also the formally communist regime, but unders- depressed export sector, and the improving
frontrunner in the capital market, again tandable, since it is trying to imitate the consumer sector are clear areas where VC
by a slight margin over the Philippines. success of China. It also had a higher ICT and PE can be quite promising, considering
This means greater stock market turnover, infrastructure rating over the other two a long history of overleveraging. All these
liquidity, 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 protection
and 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. Its
ment, the quality of the educational sys- donesia has become an increasingly at- continued relatively strong growth since
tem and of scientific research spelled the tractive investment area, considering the it began more serious reforms after the
difference between Indonesia and Viet- political and judicial stability that it has Asian financial crisis is providing ample
nam. The Philippines lags badly behind the recently shown, and its large need for ex- opportunities in this largest population
other two in this area. It should be noted ternal finance. We think Vietnam comes in the Association of Southeast Asian
that 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 proving
tive 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 to
because of its economic activity, capi- China's emergence as an economic super
tal market, and taxation. The size of the Summary power in the region. All these would tend
Philippine economy was a little less than China, particularly in its consumer sec- to offset negative assessments on investor
half 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 breadth
to Indonesia's 6.0% growth. But the Phi- of market opportunities due to its rapid
lippines performed much better in terms economic growth, the depth of talent and
of 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 a
lippines scored most among the three reliable domestic partner and a manage-
countries with respect to investor protec- ment team that is attuned to the demands
tion 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 strong
uphold the right to private property so points discussed above, we think that
much 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 China
two areas, Vietnam lagged much behind market. Singularly, however, they have
in the other areas where Indonesia and sufficiently high levels of income and so-
the Philippines were fairly closed. It phistication in the capital markets that
ranks high in taxation mainly because render them especially attractive.
of the generosity of tax incentives and South Korea is technologically very
lower 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 relatively
countries 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



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 community


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 with
Paraguay, 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 as
and 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 Attractiveness
of the status of this type of asset class provided by the index on the region’s per- Index confirm what experts have been
around the world, especially for emerging ceived weaknesses enables us to unders- asking for a long time. The index points
regions such as Latin America. By obser- tand which key factors need to improve to the particular determinants for growth
ving the relative position of individual to achieve greater growth of the asset of VC and PE activities. We are especially
Latin American countries and the region class in Latin America. talking about the urgent need for strong
compared to the world, it is possible to First, in developed countries, the PE’s capital markets in the region. Depth of
infer the opportunities arising from likely business model was originally based on capital markets provide one of the main
future 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 exit
in six dimensions. Latin America shows siness model, even in the more developed route, so common in the more developed
strengths in only two of the six dimen- countries, as, at least for some time ac- markets, is virtually non-existent in Latin
sions 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 strategic
sub-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 region
main opportunities valued by investors in be necessary to rely on capital from in- with respect to the protection of their
Latin America apparently lie: the region’s vestors who seek growth. rights. The protection of investors’ rights
enormous capacity for investments in bu- In emerging countries in general, and is a clear weakness that, unfortunately, is
sinesses that showed growth in developed Latin America in particular, PE activities widespread in almost all Latin American
countries but which are not yet existent were unable to apply the original model countries and inevitably has an impact on
or 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 gives
the attractiveness of VC and PE in Latin growth in the countries with the least most fragility to the investors’ perception
America, 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 of
the 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 see
dimensions where the region shows rious Latin American countries. This is not how precisely the report differentiates
weaknesses 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 and
portunities, 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 reflect
mension in which the region is most fra- now takes a poor ranking position. This on the characteristics of Latin America
gile is the Depth of Capital Markets with is perfectly in line with Argentina’s cur- compared to the world average, using



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 World


IV.


Regional and
country proﬁles


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.



Africa
Basic Facts VCPE-Ranking Details
2005/06 2009/10 Quar le

1 VCPE Ranking
Rank Value Rank
8 33,2 8
4th 1st
2 4 y
2005/06
Rank
2009/10
Value Rank
Quartile
4th 1st
Econom c Ac 8 53,9 8 8 31,5 8
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
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 Africa's 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
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
• 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



Africa
Basic Facts VCPE-Ranking
2005/06 2009/10 Quar le
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
GDP Growth '02 '08 VC
Pop. Growth '02 '08 PE Key Factors Performance
Econom c
Ac t
125

SWOT Analysis 100
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 Africa's 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
n Amer ca 7 34,9 7
Afr ca 8 33,2 8


Details

y
2005/06 2009/10 Quartile

1.1 Gross Domestic Product 8 31,5 8
1.2 Inflation 8 65,7 8
1.3 Unemployment 8 75,7 8

2005/06 2009/10 Quartile

2.1 Size and Liquidity of the Stock Market 6 19,1 6
2.2 IPO Market Activity 8 1,4 8
2.3 M&A Market Activity 7 1,6 8
2.4 Debt & Credit Market 7 67,2 7

3 Taxation
3. Taxation
2005/06 2009/10 Quartile

3.2 Administrative Tax Burdens 6 87,4 7

4 Investor Protection and Corporate Governance
4. Investor Protection & Corporate Governance
2005/06 2009/10 Quartile

4.1 Corporate Governance 4 71,5 5
4.2 Security of Property Rights 7 46,4 7
4.3 Quality of Legal Enforcement 7 52,4 7
4.4 Regulatory Quality 8 47,5 8

5 Human & Social Environment
2005/06 2009/10 Quartile

5.1 Education & Human Capital 7 48,9 7
5.2 Labor Market Rigidities 5 64,5 5
5.3 Bribing & Corruption 8 31,3 8
5.4 Costs of Crime 8 56,2 8

6 Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile

6.2 Ease of Starting & Running a Business 6 73,4 7
6.3 Simplicity of Closing a Business 5 58,2 7
6.4 ICT Infrastructure 8 5,4 8

55


Asia
2005/06 2009/10 Quar le
Econom c Ac t 5 73,9 4
Taxa on 5 116,5 4
In . Prot. & Corp. Go . 4 68,1 4
Hum. & Soc. En . 5 74,0 5
Quar le
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
& 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
a n Amer ca 7 34,9 7
Afr ca 8 33,2 8


Details

1 Economic Activity
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


3 TaxationCapital Market
Depth of
3. Taxation
2005/06 2009/10 Quartile


4 Investor Protection & Corporate Governance
4. Investor Protection and Corporate Governance
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


6 Entrepreneurial Culture & Opportunities
6. Entrepreneurial Culture and Opportunities
2005/06 2009/10 Quartile




Australasia
2005/06 2009/10 Quartile
Economic Activity 2 95,5 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
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
& 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.
• 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
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
Latin America 7 34,9 7
Africa 8 33,2 8


Details

y
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


Depth of
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Eastern Europe

2005/06 2009/10 Quartile
Taxation 2 123,6 2
Hum. & Soc. Env. 6 69,0 6
Quartile
Economic
Activity
125

SWOT Analysis 100
& 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.
complex transactions
• Lack of management teams for MBO situations
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
Asia 4 53,5 4
Africa 8 33,2 8


Details

y
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


Depth of
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Latin America
2005/06 2009/10 Quartile
Taxation 6 112,6 5
Hum. & Soc. Env. 7 48,2 8
Quartile
Economic
Activity
125

SWOT Analysis 100
& 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.
companies, IPO opportunities, and the low dynamic of the M&A
markets
• 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
• Lack of basic infrastructure hinders the development on one side,
one the other, this provides investment opportunities North America 1 96,9 1
Asia 4 53,5 4
Africa 8 33,2 8


Details

y
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


4 Investor Protection and CorporateGovernance
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Middle East
2005/06 2009/10 Quartile
Taxation 1 133,3 1
Hum. & Soc. Env. 4 76,4 4
Quartile
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
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
• 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
Phil Gandier, Partner, Ernst & Young Middle East Eastern Europe 6 41,9 6
Africa 8 33,2 8


Details

y
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


Depth of
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




North America
2005/06 2009/10 Quartile
Taxation 4 100,8 8
Hum. & Soc. Env. 2 106,3 2
Quartile
Economic
Activity
125

SWOT Analysis 100
& 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.
• 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

2005/06 2009/10 Quartile
Asia 4 53,5 4
Africa 8 33,2 8


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 2 102,5 1

2005/06 2009/10 Quartile


3. Taxation
3 Taxation
2005/06 2009/10 Quartile


4. Investor Protection andCorporate Governance
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


6. EntrepreneurialCulture andOpportunities
2005/06 2009/10 Quartile




Western Europe

2005/06 2009/10 Quartile
Taxation 3 121,1 3
Hum. & Soc. Env. 3 93,3 3
Quartile
Economic
Activity
125

SWOT Analysis 100
& 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

2005/06 2009/10 Quartile
Asia 4 53,5 4
Africa 8 33,2 8


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 1 101,4 2

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Argentina
Capital: Buenos Aires ++ Official Language: Spanish ++ Currency: Argentine Peso


2005/06 2009/10 Quartile
Taxation 54 113,7 37
Hum. & Soc. Env. 62 44,9 53
Quartile
Economic
Activity
125

SWOT Analysis 100
& 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.
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

2005/06 2009/10 Quartile
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 66


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 60 82,5 45

2005/06 2009/10 Quartile


Depth of
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 52 11,1 52



Australia
Capital: Canberra ++ Official Language: English ++ Currency: Australian Dollar

2005/06 2009/10 Quartile
Hum. & Soc. Env. 6 112,3 5
Quartile
4th 1st
Entrepr. Culture & Opp. 13 86,1 13
Economic
Activity
125

SWOT Analysis 100
& 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.
• Competition from both local and overseas investors
• Tax rates are comparatively high
• 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 28


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 31 97,1 26

2005/06 2009/10 Quartile


Depth of
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 18 57,8 18



Austria
Capital: Vienna ++ Official Language: German (official nationwide); Slovene, Croatian, Hungarian (each official in one region) ++
Currency: Euro
2005/06 2009/10 Quartile
Hum. & Soc. Env. 11 103,9 9
Quartile
Economic
Activity
125
SWOT Analysis 100
& 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.
companies with succession problems
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

2005/06 2009/10 Quartile
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 39


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 20 102,2 8

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 17 58,7 17



Belgium
Capital: Brussels ++ Official Language: Dutch, French, German ++ Currency: Euro

2005/06 2009/10 Quartile
Hum. & Soc. Env. 13 101,8 11
Quartile
4th 1st
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.
• Prominent role of government backed VC's
• 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
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 39


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 29 97,5 25

2005/06 2009/10 Quartile


3. Taxation
3 Taxation
2005/06 2009/10 Quartile


4. Investor Protectionand CorporateGovernance
2005/06 2009/10 Quartile


5. Human & Social Environment
5 Human and Social Environment
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 15 59,9 15



Brazil
Capital: Brasília ++ Official Language: Portuguese ++ Currency: Brazilian Real

2005/06 2009/10 Quartile
Taxation 66 39,2 65
Hum. & Soc. Env. 54 42,0 56
Quartile Entrepr. Culture & Opp. 65 22,7 57
4th 1st
Economic
Activity
125

SWOT Analysis 100
& 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
• Fighting the perception of corruption remains a serious challenge
• The process of registering and enforcing patents and other
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

2005/06 2009/10 Quartile
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
Paraguay 66 14,9 65
Venezuela 65 8,9 66


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 54 93,1 32

2005/06 2009/10 Quartile


Depth of
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 36 16,0 39



Bulgaria
Capital: Sofia ++ Official Language: Bulgarian ++ Currency: Bulgarian Lev

2005/06 2009/10 Quartile
Taxation 13 138,1 8
Hum. & Soc. Env. 50 49,4 49
Quartile
4th 1st
Economic
Activity
150
125
SWOT Analysis 100
& 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
• Deal size is relatively small Bulgaria
• Quality of target information below standard Inv. Prot. & Eastern Europe
Corp. Gov.
• 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

2005/06 2009/10 Quartile
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 55


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 50 70,2 57

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 55 11,9 48



Canada
Capital: Ottawa ++ Official Language: English, French ++ Currency: Canadian Dollar

2005/06 2009/10 Quartile
Hum. & Soc. Env. 5 111,9 6
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& 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.
• Generated returns remain disappointing, so far
• 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

2005/06 2009/10 Quartile
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 14


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 25 105,1 2

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 12 68,6 12



Chile
Capital: Santiago ++ Official Language: Spanish ++ Currency: Chilean Peso

2005/06 2009/10 Quartile
Hum. & Soc. Env. 27 77,0 27
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& 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.
listing requirements mean that IPO exits are not accessible to the
vast majority of SMEs
• 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

2005/06 2009/10 Quartile
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
Paraguay 66 14,9 65
Venezuela 65 8,9 66


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 36 81,8 46

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 39 15,2 41



China
Capital: Beijing ++ O cial Language: Standard Mandarin ++ Currency: Yuan Renminbi

2005/06 2009/10 Quar le
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
Econom c
Ac t
125
100
SWOT Analysis
& 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 .
Weaknesses
• Downturn of economy due to poor export atmosphere
• 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
• 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 61


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 14 92,4 35

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 35 17,2 35



Colombia
Capital: Bogotá ++ Official Language: Spanish ++ Currency: Colombian Peso

2005/06 2009/10 Quartile
Hum. & Soc. Env. 60 31,3 64
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& 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.
listing requirements mean that IPO exits are still not accessible to
the vast majority of SMEs
• 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

2005/06 2009/10 Quartile
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
Paraguay 66 14,9 65
Venezuela 65 8,9 66


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 49 88,0 41

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Croatia
Capital: Zagreb ++ Official Language: Croatian ++ Currency: Croatian Kuna

2005/06 2009/10 Quartile
Hum. & Soc. Env. 40 61,1 43
Quartile
4th 1st
Economic
Activity
150
125
SWOT Analysis 100
& 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
• 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.
sector due to lack of simple licensing and registration processes,
and barriers for investments
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
Poland 41 45,8 31
Estonia 30 44,5 35
Hungary 34 41,1 37
Croatia 47 38,6 45
Romania 52 38,1 47
Latvia 39 35,6 50
Bulgaria 48 30,6 55


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 37 90,9 38

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 31 18,2 33



Czech Republic
Capital: Prague ++ Official Language: Czech ++ Currency: Czech Koruna

2005/06 2009/10 Quartile
Hum. & Soc. Env. 23 87,2 20
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& 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
• 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.
• Poor quality of legal enforcement and uncertain tax environment
• 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
Poland 41 45,8 31
Estonia 30 44,5 35
Hungary 34 41,1 37
Croatia 47 38,6 45
Romania 52 38,1 47
Latvia 39 35,6 50
Bulgaria 48 30,6 55


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 15 90,9 38

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 27 29,6 27



Denmark
Capital: Copenhagen ++ Official Language: Danish ++ Currency: Danish Krone

2005/06 2009/10 Quartile
Hum. & Soc. Env. 2 120,8 2
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• Strong VC/PE environment with local as well as international
0
players
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
• 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

2005/06 2009/10 Quartile
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 39


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 13 101,5 10

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Egypt
Capital: Cairo ++ Official Language: Arabic ++ Currency: Egyptian Pound

2005/06 2009/10 Quartile
Hum. & Soc. Env. 49 37,9 61
Quartile
4th 1st
Economic
Activity
150
125
SWOT Analysis 100
& 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.
the market is necessary
• Regulatory enforcement is still a key issue to be addressed in the
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
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 64


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 58 47,6 62

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Estonia
Capital: Tallinn ++ Official Language: Estonian ++ Currency: Estonian Kroon

2005/06 2009/10 Quartile
Hum. & Soc. Env. 37 77,6 26
Quartile
4th 1st
Economic
Activity
150
125
SWOT Analysis 100
& 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.
• Historical high account deficit
• 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
Lili Kirikal, Manager, Ernst & Young Estonia Estonia 30 44,5 35
Hungary 34 41,1 37
Croatia 47 38,6 45
Romania 52 38,1 47
Latvia 39 35,6 50
Bulgaria 48 30,6 55


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 44 76,0 51

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 28 22,6 28



Finland
Capital: Helsinki ++ Official Language: Finnish, Swedish ++ Currency: Euro

2005/06 2009/10 Quartile
Hum. & Soc. Env. 7 107,4 7
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• High education and R&D contribution
0
• Strong selected sectors
Taxation
• Relative small local markets to support the business case Environment
• Early stage VC ﬁnancing needs to be further developed Finland

Corp. Gov.
• New sectors arising, for example cleantech United States = 100 Points
• Build globally leading clusters in certain strong industries
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

2005/06 2009/10 Quartile
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 39


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 4 98,9 20

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




France
Capital: Paris ++ Official Language: French ++ Currency: Euro

2005/06 2009/10 Quartile
Hum. & Soc. Env. 19 78,3 25
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& 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.
• Cleantech investments are late in France, although accelerating
• 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

2005/06 2009/10 Quartile
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 39


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 17 103,6 7

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 14 59,4 16



Germany
Capital: Berlin ++ Official Language: German ++ Currency: Euro

2005/06 2009/10 Quartile
Hum. & Soc. Env. 17 90,0 19
Quartile
4th 1st
Economic
Activity
150
125
SWOT Analysis 100
& 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.
Weaknesses
• Crisis driven failures have damaged the reputation of the
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
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 39


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 18 104,4 5

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Greece
Capital: Athens ++ Official Language: Greek ++ Currency: Euro

2005/06 2009/10 Quartile
Hum. & Soc. Env. 46 47,7 50
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& 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
• Limited number of large potential investments Greece
• Long negotiation time for deal making Inv. Prot. & Western Europe
Corp. Gov.
• 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.
George Momferratos, Partner, Ernst & Young Greece
2005/06 2009/10 Quartile
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 39


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 41 98,5 22

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 38 14,4 43



Hong Kong
Capital: ++ O cial Language: Chinese, English ++ Currency: Hong Kong Dollar

2005/06 2009/10 Quar le
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
Econom c
Ac t
150
125
SWOT Analysis 100
& 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 .
• Poor market sentiment due to financial crisis
• 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
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 61


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 6 98,5 22

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 23 38,9 23



Hungary
Capital: Budapest ++ Official Language: Magyar (Hungarian) ++ Currency: Forint

2005/06 2009/10 Quartile
Hum. & Soc. Env. 41 59,2 45
Quartile
4th 1st
Economic
Activity
150
125
SWOT Analysis 100
& 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.
• Lack of maturity in deal making
• 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
• Government's 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
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
Croatia 47 38,6 45
Romania 52 38,1 47
Latvia 39 35,6 50
Bulgaria 48 30,6 55


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 42 92,0 36

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 32 20,4 31



India
Capital: New Delhi ++ O cial Language: Hindi, English ++ Currency: Indian Rupee

2005/06 2009/10 Quar le
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
Po on 1186 [mn] M&A Volume
Econom c
Ac t
125
100
SWOT Analysis
& 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
• 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
• 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 61


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 46 83,3 44

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 43 12,7 46



Indonesia
Capital: Jakarta ++ l Language: Indonesia ++ Currency: Rupiah

2005/06 2009/10 Quar le
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
Econom c
Ac t
125
100
SWOT Analysis
& 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 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 country's 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
Giuseppe Nicolosi, Managing Partner, Ernst & Young Indonesia
2005/06 2009/10 Quar le
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
Ph l pp nes 57 26,1 61


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 62 76,7 50

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 56 10,4 56



Ireland
Capital: Dublin ++ Official Language: English, Irish ++ Currency: Euro

2005/06 2009/10 Quartile
Taxation 6 143,3 5
Hum. & Soc. Env. 10 99,6 13
Quartile
4th 1st
Economic
Activity
150
125
SWOT Analysis 100
& 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.
• 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
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 39


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 23 99,3 18

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 20 47,3 20



Israel
Capital: Jerusalem ++ Official Language: Hebrew, Arabic ++ Currency: New Israeli Shekel

2005/06 2009/10 Quartile
Hum. & Soc. Env. 21 78,8 24
Quartile
4th 1st
Economic
Activity
150
125
SWOT Analysis 100
& 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.
Weaknesses
• Geo-political situation
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
2005/06 2009/10 Quartile
Israel 21 55,8 22
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 64


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 9 96,4 29

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Italy
Capital: Rome ++ Official Language: Italian ++ Currency: Euro

2005/06 2009/10 Quartile
Hum. & Soc. Env. 48 52,0 47
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& 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.
Asian countries
• Articulated and significant tax burdens both for companies and
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 39


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 24 101,8 9

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 24 35,6 24



Japan
Capital: Tokyo ++ O cial Language: Japanese ++ Currency: Yen

2005/06 2009/10 Quar le
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
Econom c
Ac t
125
100
SWOT Analysis
& Opp. 50
Market
Strengths
25
• Japan is still the world’s second largest economy
0
• Market leading technology in many sectors
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 .
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
• 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
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 61


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 1 108,7 1

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Kenya
Capital: Nairobi ++ O cial Language: English, Swahili ++ Currency: Kenyan Shilling

2005/06 2009/10 Quar le
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
Econom c
Ac t
125
100
SWOT Analysis
& 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
• 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 64


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 61 18,2 65

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Kuwait
Capital: Kuwait City ++ Official Language: Arabic ++ Currency: Kuwaiti Dinar

2005/06 2009/10 Quartile
Taxation 3 50,2 64
Hum. & Soc. Env. 30 73,0 33
Quartile
4th 1st
Economic
Activity
150
125
SWOT Analysis 100
& Opp. 75 Market
Strengths 50
• High sovereign rating for Kuwait 25
0
• Cash rich economy
• Most businesses adopt/use IFRS
Hum. & Soc.
Taxation
• 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.
chasing few good assets)
• Highly dependent on oil prices
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
2005/06 2009/10 Quartile
Israel 21 55,8 22
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 64


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 45 81,1 47

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 47 13,5 45



Latvia
Capital: Riga ++ Official Language: Latvian ++ Currency: Latvian Lats

2005/06 2009/10 Quartile
Taxation 9 141,5 7
Hum. & Soc. Env. 35 69,5 36
Quartile
4th 1st
Economic
Activity
150
125
SWOT Analysis 100
& 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
• 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.
last years
• 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
2005/06 2009/10 Quartile
Poland 41 45,8 31
Estonia 30 44,5 35
Hungary 34 41,1 37
Croatia 47 38,6 45
Romania 52 38,1 47
Latvia 39 35,6 50
Bulgaria 48 30,6 55


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 52 58,2 61

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 49 10,9 53



Lithuania
Capital: Vilnius ++ Official Language: Lithuanian ++ Currency: Lithuanian Litas

2005/06 2009/10 Quartile
Hum. & Soc. Env. 43 63,9 40
Quartile
4th 1st
Economic
Activity
150
125
SWOT Analysis 100
& 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
• 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.
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
Poland 41 45,8 31
Estonia 30 44,5 35
Hungary 34 41,1 37
Croatia 47 38,6 45
Romania 52 38,1 47
Latvia 39 35,6 50
Bulgaria 48 30,6 55


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 30 73,5 54

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 37 17,7 34



Luxembourg
Capital: Luxembourg ++ Official Language: Luxermbourgish, French, German ++ Currency: Euro

2005/06 2009/10 Quartile
Hum. & Soc. Env. 34 81,1 22
Quartile
4th 1st
Economic
Activity
150
125
SWOT Analysis 100
& 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
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 39


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 28 101,5 10

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 21 42,8 22



Malaysia
Capital: Kuala Lumpur ++ l Language: Bahasa Melayu ++ Currency: Malaysian Ringgit

2005/06 2009/10 Quar le
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
Econom c
Ac t
125
100
SWOT Analysis
& 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
• 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
Ph l pp nes 57 26,1 61


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 35 92,0 36

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 29 20,6 30



Mexico
Capital: Mexico City ++ Official Language: Spanish ++ Currency: Mexican Peso

2005/06 2009/10 Quartile
Hum. & Soc. Env. 59 37,1 62
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& 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.
• Insurers are not permitted to use VC/PE assets to cover solvency
margins and face strong restrictions with respect to their VC/PE
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
2005/06 2009/10 Quartile
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
Paraguay 66 14,9 65
Venezuela 65 8,9 66


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 43 95,3 30

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 50 10,2 57



Morocco
Capital: Rabat ++ Official Language: Arabic ++ Currency: Moroccan Dirham

2005/06 2009/10 Quartile
Hum. & Soc. Env. 57 37,9 60
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& 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
• Barriers to trade and investment across the North African region
have stymied economic integration
• 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

2005/06 2009/10 Quartile
Israel 21 55,8 22
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 64


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 7 99,6 16

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Netherlands
Capital: Amsterdam ++ Official Language: Dutch ++ Currency: Euro

2005/06 2009/10 Quartile
Hum. & Soc. Env. 16 95,6 16
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& 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.
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
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 39


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 10 104,7 4

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




New Zealand
Capital: Wellington ++ Official Language: English, Maori ++ Currency: New Zealand Dollar

2005/06 2009/10 Quartile
Taxation 52 99,6 54
Hum. & Soc. Env. 3 116,5 4
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& 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.
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
2005/06 2009/10 Quartile
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 28


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 34 99,3 18

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 22 45,2 21



Nigeria
Capital: Abuja ++ Official Language: English ++ Currency: Naira

2005/06 2009/10 Quartile
Hum. & Soc. Env. 64 40,0 57
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• Good growth prospects driven by oil reserves and a large
0
population
Taxation
• VC/PE markets are still "infant" compared to debt and public Environment
equity markets Nigeria
• Scarce talent for valuation and due diligence Inv. Prot. & Africa
• Entrepreneurs lack business skills Corp. Gov.
• Protectionist tariffs, currency and other controls
• Limited regulatory support for VC/PE and few bankable projects
Opportunities
59
• Economic liberalization programs
• Improvements in legal infrastructure and corporate governance 60
• Increasing number of investment professionals
61
• Tax relief on some VC investments
Index Rank

• Opportunities caused by the SME Equity Investment Scheme 62

Threats
63
• Poor infrastructure
• Social/ethnic and religious unrest 64
• High corruption levels
65
Outlook 2005/06 2006/07 2007/08 2008/09 2009/10
• Nigeria was strongly affected by the global economic downturn VC PE VCPE
and might need longer to emerge from the slowdown
Graham Stokoe, Associate Director, Ernst & Young South Africa
2005/06 2009/10 Quartile
Israel 21 55,8 22
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 64


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 66 73,8 53

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Norway
Capital: Oslo ++ Official Language: Bokmål Norwegian, Nynorsk Norwegian ++ Currency: Norvegian Krone

2005/06 2009/10 Quartile
Hum. & Soc. Env. 9 97,7 15
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• Strong VC/PE environment with local and Nordic players
0
• Some international players: mostly large Swedish PE ﬁrms
• Large amount of VC funds
• Strong VC/PE environment focusing on energy, oil services and ICT Hum. & Soc.
Taxation
Environment
Weaknesses Norway
• Limited number of large PE funds in Norway Inv. Prot. & Western Europe
Corp. Gov.
• Approximately €4,000 million in committed non-invested capital
• A large portion of investments are mature Separate VC and PE Indices
• Develop sectors towards cleantech, oil services and energy 8

Threats 9
• Shortage of funding from Norwegian banks 10
• IPOs do not exist as an exit strategy
11
Index Rank

Outlook 12
• Norway remains attractive for overseas investors, especially within
13
oil services sector
• VC/PE activities expected to increase at the end of 2009 14

15

Vegard Stevning, Partner, Ernst & Young Norway 16
2005/06 2006/07 2007/08 2008/09 2009/10

VC PE VCPE

2005/06 2009/10 Quartile
Germany 9 69,1 10
Denmark 10 67,7 12
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
Greece 44 40,7 39


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 11 100,0 14

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 16 63,8 14



Oman
Capital: Muscat ++ Official Language: Arabic ++ Currency: Rial Omani

2005/06 2009/10 Quartile
Taxation 4 146,7 2
Hum. & Soc. Env. 26 84,5 21
Quartile
4th 1st
Economic
Activity
150
125
SWOT Analysis 100
& Opp. 75 Market
Strengths 50
• High oil prices and increased perception of bargains in the 25
0
international market
Taxation
• Small market with very limited VC/PE activity and low Environment
attractiveness compared to the other GCC countries Oman
• Any entering private VC/PE company competes against Inv. Prot. & Middle East
established governmental and quasi-governmental funds Corp. Gov.
Opportunities
• Deal flow opportunities from family owned conglomerates Separate VC and PE Indices
• Investment opportunities also exist in the form of second and 30
third generation family owned business offices 32

Threats 34

• Investment from government owned funds may decrease as the 36
Index Rank

country is running a budget deficit 38

• Considerable reduction of the number of acquisitions should oil 40

prices drop significantly 42
44
Outlook 46
• In the short term, the activities of private funds may be 48
constrained as the government has cash surpluses, some of which 50
will be spent domestically. However, the government funds started 2005/06 2006/07 2007/08 2008/09 2009/10
investing overseas especially in real estate and the oil sector and VC PE VCPE
become less keen to take equity stakes in local private enterprises
Ragheev Singh, Partner, Ernst & Young Oman
2005/06 2009/10 Quartile
Israel 21 55,8 22
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 64


Details

y
2005/06 2009/10 Quartile

1.2 Inflation 16 66,9 58

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 46 11,8 49



Paraguay
Capital: Asunción ++ Official Language: Spanish, Guaraní ++ Currency: Guaraní

2005/06 2009/10 Quartile
Hum. & Soc. Env. 66 10,7 66
Quartile
4th 1st
Economic
Activity
150
125
SWOT Analysis 100
& Opp. 75 Market
Strengths 50
• Tax incentives for entrepreneurs and companies 25
0
• Relatively low and decreasing unemployment rate
Taxation
• Underdeveloped capital market Environment
• Low investor protection and corporate governance structures Paraguay
• Missing entrepreneurial culture Inv. Prot. & Latin America
• Excessive bureaucracy, perceived crime and corruption, Corp. Gov.
challenging infrastructure
• Expected growth provides some investment opportunities 63

Threats
• Democracy is not yet fully established and the possibility of a 64
military putsch is omnipresent
Index Rank

• Political parties are discredited
65
Outlook
• With the stabilization of democratic power, Paraguay’s prospects
should comprehensively improve 66

67
2005/06 2006/07 2007/08 2008/09 2009/10

VC PE VCPE

2005/06 2009/10 Quartile
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
Paraguay 66 14,9 65
Venezuela 65 8,9 66


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 53 79,3 48

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Peru
Capital: Lima ++ Official Language: Spanish, Quéchua (both official) ++ Currency: Nuevo Sol

2005/06 2009/10 Quartile
Hum. & Soc. Env. 61 42,4 55
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• High-quality accounting standards
0
• Country openness
• Relatively advanced regulations for VC/PE
Hum. & Soc.
Taxation
• Democratic institutions inspire little public trust Peru
• Judicial system remains little efﬁcient and prone to corruption Inv. Prot. & Latin America
• Minority rights are weakly regulated and protected Corp. Gov.
• IPO market is non-existing
• Pension funds are increasingly local active players 49
• Over the longer term, bureaucracy may be gradually reduced,
making the business environment more conducive to 50

entrepreneurship 51
Index Rank

Threats 52
• The IIPA asked that Peru be elevated to the US Trade
53
Representative’s Special 301 priority watch list
• Local culture about VC/PE needs to be developed 54

• Unfavorable tax laws and inadequate tax incentives 55

Outlook 56
• Peru is considered an incipient new market for PE/VC investment 2005/06 2006/07 2007/08 2008/09 2009/10
• Government support for the formation of a PE/VC industry VC PE VCPE
remains tepid
2005/06 2009/10 Quartile
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
Paraguay 66 14,9 65
Venezuela 65 8,9 66


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 12 92,7 34

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Philippines
Capital: Manila ++ O cial Language: Filipino, English ++ Currency: Philippine Peso

2005/06 2009/10 Quar le
Taxa on 49 96,8 59
In . Prot. & Corp. Go . 58 38,4 60
Hum. & Soc. En . 53 38,9 58

4th
Quar le
1st
Econom c
Ac t
125
100
SWOT Analysis
& Opp. 50
Market
Strengths
25
• Relatively large, young and growing middle-income population in
0
emerging urban centers
• Competent professionals and affordable workforce
• Robust remittances from over 8 million overseas Filipinos drive Hum. & Soc.
Taxa on
En ronment
consumer spending and economic activities
Ph l pp nes
Weaknesses
In . Prot. & As a
• Inadequate power and transport infrastructure in selected areas Corp. Go .
• Persistent politicking in the National Capital Region and persistent
terrorist activities in surrounding provinces
• Budget deﬁcits restrain government from undertaking programs
to improve infrastructure 53
54
Opportunities 55
• Increasing off-shoring and outsourcing activities in the US and 56
other industrial economies provide investment opportunities
Index Rank

57
• As signatory of China-ASEAN FTA, country is part of the world’s 58
most dynamic emerging regional market and investment 59
destination 60
61
Threats
62
• Politicking and terrorism concerns may disrupt business and
63
economic activities
2005/06 2006/07 2007/08 2008/09 2009/10
• Failure to improve infrastructure and lower cost of doing business
VC PE VCPE
may discourage prospective investors
Outlook Comparison within Peer Group
• Moderate growth may continue with large and young growing
2005/06 2009/10 Quar le
middle-income consumers
• Growth opportunities may accelerate with improved
Hong Kong 4 79,5 5
infrastructure facilities
Japan 7 76,5 7
Renato Galve Ernst & Young Philippines 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
Ph l pp nes 57 26,1 61


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 55 79,3 48

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Poland
Capital: Warsaw ++ Official Language: Polish ++ Currency: Zloty

2005/06 2009/10 Quartile
Hum. & Soc. Env. 44 71,2 34
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• Many experienced GPs relative to the rest of the CEE region
0
• Decent expectation of vendors
• Stronger position of VC/PE
Hum. & Soc.
Taxation
• Limited bank ﬁnancing Poland
• Market situation worsened due to inappropriate approaches of Inv. Prot. & Eastern Europe
selected VC/PE backed companies in pre-distressed situations Corp. Gov.
Opportunities
• Expected economic growth Separate VC and PE Indices
• Exits through IPOs at Warsaw stock exchange 30
• Privatization provides some opportunities
32
• Better condition and transparent perception of the Polish
economy, caused by the limited involvement of the government 34
during the slowdown
Index Rank

36

Threats 38
• Financing investments with bank loans is unpredictable at this 40
stage
42
• Size of local companies limits number of large transactions
44
Outlook
• Euro zone in 2014/2015 2005/06 2006/07 2007/08 2008/09 2009/10

VC PE VCPE
Brendan O’Mahony, Partner, Ernst & Young Poland
2005/06 2009/10 Quartile
Poland 41 45,8 31
Estonia 30 44,5 35
Hungary 34 41,1 37
Croatia 47 38,6 45
Romania 52 38,1 47
Latvia 39 35,6 50
Bulgaria 48 30,6 55


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 21 98,5 22

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 42 16,6 37



Portugal
Capital: Lisbon ++ Official Language: Portuguese ++ Currency: Euro

2005/06 2009/10 Quartile
Hum. & Soc. Env. 29 73,0 32
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• Very attractive tax conditions for business angels and VC/PE funds
0
Weaknesses
• Small number of business angels and early stage funds Hum. & Soc.
Taxation
• Low IRR of existing funds Environment
• Absence of Portuguese companies in the Alternext stock exchange Portugal

Corp. Gov.
• Need for consolidation in traditional industries with room for United States = 100 Points
build up buy outs
• Specialized funds: all existing funds are generalists Separate VC and PE Indices
• Clusters with good potential: energy, life sciences and leisure 25

Threats 26
• Government bonds yields very high (currently above 4.3%),
27
increasing opportunity cost of capital
Index Rank

• Small size of domestic market 28
• Low growth of Portuguese economy
29
Outlook 30
• Modest levels of fund raising and investment
• Increase of early stage and growth capital investments, partially 31

enhanced by state programs 32
• Buy outs penalized by difﬁcult credit environment 2005/06 2006/07 2007/08 2008/09 2009/10

VC PE VCPE
José Gonzaga Rosa, Partner, Ernst & Young Portugal
2005/06 2009/10 Quartile
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
Portugal 28 49,5 27
Greece 44 40,7 39


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 22 104,4 5

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 30 20,7 29



Republic of Korea
Capital: Seoul ++ Official Language: Korean ++ Currency: South Korean Won

2005/06 2009/10 Quartile
Hum. & Soc. Env. 24 73,6 30
Quartile
4th 1st
Economic
Activity
150
125
SWOT Analysis 100
& Opp. 75 Market
Strengths 50
• Dynamic and solid economy with positive GDP growth 25
0
• Top 10 export country in the world, with leading industries such
as electronics, semi-conductors, vessels, automobiles
• Increasing number of GPs with a rising influence in the M&A Hum. & Soc.
Taxation
Environment
market
Republic of Korea
Weaknesses Asia
Inv. Prot. &
• Recent volatility of foreign exchange rate Corp. Gov.
• Lack of infrastructure for foreign investors compared to advanced
countries
Opportunities
6
• Corporate restructuring on a rise 7
• Leading technologies in mobile phones, internet network, display, 8
shipbuilding etc. in favor of VC/PE investments 9
• Changes to partner with large conglomerates in the value chain
Index Rank

10

Threats 11

• Dominance of large conglomerates (chaebol) in many key 12

industries, making it hard for new enterprises to grow 13
14
• Saturation of domestic market in traditional industries, resulting
15
in fierce competition
16
Outlook 2005/06 2006/07 2007/08 2008/09 2009/10
• M&A activities expected to rise as Korean economy rebounds and VC PE VCPE
corporations continue to restructure
• Strong competition is expected in certain sectors such as green Comparison within Peer Group
energy and high technology areas, as large companies have
2005/06 2009/10 Quartile
significant cash and look for profit sources
Hong Kong 4 79,5 5
Ki Whan Jung, Partner, Ernst & Young Korea
Japan 7 76,5 7
Malaysia 23 54,4 25
China 42 48,5 28
India 46 40,9 38
Russian Federation 49 38,0 48
Indonesia 60 30,7 54
Philippines 57 26,1 61


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 32 96,7 28

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 13 69,2 11



Romania
Capital: Bucharest ++ Official Language: Romanian ++ Currency: Leu

2005/06 2009/10 Quartile
Taxation 65 95,8 60
Hum. & Soc. Env. 55 60,1 44
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• 5.8% expected annual economic growth during 2014 to 2018,
0
above Euro-zone average (BMI)
Taxation
• Longer payback periods Environment
• Relative expensive ﬁnancing Romania
• Pricing gap between buyers and sellers due to a few opportunistic Inv. Prot. & Eastern Europe
deals in the past Corp. Gov.
Opportunities
• Sizeable market with important domestic demand and uncovered Separate VC and PE Indices
needs in the following sectors: infrastructure, housing, green
40
energy and healthcare 42
• Still unconsolidated sectors, such as agro-food, logistics and IT 44

Threats 46
Index Rank

• Poor infrastructure 48

• Wages tend towards Western EU levels 50
52
Outlook 54
• Distressed assets, debt transactions and turnaround opportunities 56
likely to rise 58
• Key success factors for closing Romanian deals: local presence or 60
connections, focus, determination and patience to complete deals 2005/06 2006/07 2007/08 2008/09 2009/10
on a longer timeframe than expected VC PE VCPE

Cornelia Bumbacea, Partner, Ernst & Young Romania Comparison within Peer Group
2005/06 2009/10 Quartile
Poland 41 45,8 31
Estonia 30 44,5 35
Hungary 34 41,1 37
Croatia 47 38,6 45
Romania 52 38,1 47
Latvia 39 35,6 50
Bulgaria 48 30,6 55


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 59 85,1 43

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 53 10,7 54



Russian Federation
Capital: Moscow ++ Official Language: Russian ++ Currency: Russian Ruble

2005/06 2009/10 Quartile
Hum. & Soc. Env. 51 42,6 54
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• Consumers continue to desire "Western style" goods
0
• Many global players see Russia as having stronger prospects in the
near- and mid-term than most developed markets
Hum. & Soc.
Taxation
• Confidence and transparency in corporate laws and weak local Russian Federation
accounting and auditing standards Asia
Inv. Prot. &
• The need to be "on the ground" creates challenges for foreign GPs Corp. Gov.
• Weak infrastructure
• Financial pressures placed on oligarchs and other business owners 44
may bring unexpected deal flow
45
Threats 46
• A "second wave" of the financial crisis could severely damage
47
Index Rank

Russian’s economy, and government's reserves will likely not be
sufficient to intervene as heavily as in fall 2008 48

• Increasing proportion of economy becoming state controlled 49

Outlook 50

• The more challenging economic environment will make it easier 51

to distinguish strong performers from those who have "risen 52
with the tide", and limits the number of local players who have 2005/06 2006/07 2007/08 2008/09 2009/10
traditionally used connections and speed to their advantage, VC PE VCPE
thereby presenting interesting opportunities
Doug Jenkinson, Partner, Ernst & Young Russia
2005/06 2009/10 Quartile
Hong Kong 4 79,5 5
Japan 7 76,5 7
Malaysia 23 54,4 25
China 42 48,5 28
India 46 40,9 38
Russian Federation 49 38,0 48


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 63 62,9 60

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 40 15,4 40



Saudi Arabia
Capital: Riyadh ++ Official Language: Arabic ++ Currency: Saudi Riyal

2005/06 2009/10 Quartile
Taxation 2 160,9 1
Hum. & Soc. Env. 33 70,4 35
Quartile
4th 1st
Economic
Activity
175
150
SWOT Analysis 125
& Opp. 75 Market
Strengths 50
• Robust economic growth and government's focus to keep KSA 25
0
on the growth path is expected to result in favorable investment
climate
• Large population base and related "real demand" key business Hum. & Soc.
Taxation
Environment
drivers
Saudi Arabia
Weaknesses Middle East
Inv. Prot. &
• Overhang of family businesses with weak corporate governance Corp. Gov.
framework
• Underdeveloped legal framework to support VC/PE activity
Opportunities
25
• Availability of attractive businesses which may consider
27
transitioning from family based to corporate structure
29
• Relatively larger size of businesses in Saudi makes it attractive
31
from a VC/PE ticket size perspective
Index Rank

33
Threats 35
• Limited appreciation of VC/PEs’ role and value added 37
• Most VC/PE activity is happening in the private/family space
39
• Managing expectations of existing shareholders/family members
41
is a key challenge
43
Outlook 2005/06 2006/07 2007/08 2008/09 2009/10
• Signiﬁcant interest from regional and international GPs looking to VC PE VCPE
Saudi Arabia
• As more transactions take place, the sellers' market will mature Comparison within Peer Group
2005/06 2009/10 Quartile
Tanuj Paruthi, Director, Ernst & Young Saudi Arabia
Israel 21 55,8 22
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 64


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 3 72,0 55

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 41 15,0 42



Singapore
Capital: Singapore ++ O cial Language: English, Malay,Chinese, Tamil ++ Currency: Singapore Dollar

2005/06 2009/10 Quar le
Taxa on 7 141,7 6
In . Prot. & Corp. Go . 1 113,5 1
Hum. & Soc. En . 1 124,1 1

4th
Quar le
1st
Econom c
Ac t
150
125
SWOT Analysis 100
& Opp. 75 Market
Strengths 50
• Corporate perceptions of VC/PE is positive 25
0
• Liberal financial environment conducive to optimizing innovative
financing structures, and access to a well developed capital
market Hum. & Soc.
Taxa on
En ronment
• Government’s active role through co-investment in new
enterprises, and favorable taxation for VC/PE funds S ngapore
In . Prot. & As a
Weaknesses Corp. Go .
• Cultural challenges in achieving control of private enterprises
• Lack of new deal opportunities; tight control by the GLC of the
economic landscape limits the need for external capital
• Valuation gap continues 3

Opportunities
• Several fragmented industries with potential for consolidation 4

• Less chasing of deals compared to other markets in the region
Index Rank

• Deal size suitable for limited leverage environment 5

Threats
• Competition from the SWF and government-backed VCs 6
• Competition by hedge funds and other speculative players
Outlook 7
• Strong fundamentals for economic growth and a liberal, 2005/06 2006/07 2007/08 2008/09 2009/10
supportive government should support the growth of VC/PE VC PE VCPE
activity
• Increased liquidity and stabilization of financial markets in the Comparison within Peer Group
recent months should soon support a reemergence of VC/PE
2005/06 2009/10 Quar le
activity
Hong Kong 4 79,5 5
Purandar Rao, Partner, Ernst & Young Singapore
S ngapore 5 78,5 6
Japan 7 76,5 7
Mala a 23 54,4 25
C a 42 48,5 28
I a 46 40,9 38
Indone a 60 30,7 54
P es 57 26,1 61


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 2 90,2 40

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Slovakia
Capital: Bratislava ++ Official Language: Slovak ++ Currency: Euro

2005/06 2009/10 Quartile
Hum. & Soc. Env. 38 67,6 37
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• Skilled workforce represents the main determinant of FDI inflows
0
• Completed market reforms are judged positively from abroad
Taxation
• Cost-based competitiveness is no longer sufficient in many Environment
industries Slovakia
• Too much exposure to EU import demand Inv. Prot. & Eastern Europe
• Further pursuit of market reforms less of a priority for the current Corp. Gov.
government
• Growth prospects remain positive despite the current global 37
turmoil
• Structural reforms should gradually improve the health of public 38

finance and country prospects 39
• Accession to the Euro zone in 2009 should increase the appeal for
Index Rank

40
foreign investors
41
Threats
• Export-oriented economy with a significant exposure to 42

automotive 43
• Substantial dependency on Russia’s gas/oil supplies
44
• Euro zone entry means loss of exchange rate flexibility and poses
2005/06 2006/07 2007/08 2008/09 2009/10
a threat to price levels
VC PE VCPE
Outlook
• Challenging economic environment will facilitate distinguishing Comparison within Peer Group
strong performers and those who have "risen with the tide", and
2005/06 2009/10 Quartile
limits the number of local players who have traditionally used
connections and speed to their advantage, thereby presenting
Poland 41 45,8 31
interesting opportunities.
Vladislav Severa, Partner, Ernst & Young Czech and Slovakia Estonia 30 44,5 35
Hungary 34 41,1 37
Slovakia 40 40,3 41
Croatia 47 38,6 45
Latvia 39 35,6 50
Bulgaria 48 30,6 55


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 33 97,1 26

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 33 17,2 36



Slovenia
Capital: Ljubljana ++ Official Language: Slovene ++ Currency: Euro

2005/06 2009/10 Quartile
Hum. & Soc. Env. 25 75,5 29
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• One of the strongest economies in Central and Eastern Europe
0
• High demand for financing
Taxation
• Very limited number of local VC/PE funds and transactions in the Environment
past Slovenia
• Unfavorable tax and legal regulations for VC/PE investments Inv. Prot. & Eastern Europe
• Limited number of potential large investments Corp. Gov.
Opportunities
• Generally underdeveloped VC/PE market provides room for new Separate VC and PE Indices
market entrants
25
• Increased demand for capital injections 27
• Potential for participation in the privatization of numerous state 29
owned/influenced companies 31
• Difficult to raise financing for local players
Index Rank

33

Threats 35

• Legal and business conditions are not supporting a dynamic SME 37

sector due to complicated licensing and registration processes and 39
41
investment barriers
43
• Lack of maturity in deal making, slow legal processing and
45
underdeveloped capital market
2005/06 2006/07 2007/08 2008/09 2009/10
Outlook VC PE VCPE
• Underdeveloped market with small number of transactions, lack
of regulatory framework, difficulties in accessing traditional bank Comparison within Peer Group
financing and the lack of experience in restructuring will demand
2005/06 2009/10 Quartile
for more VC/PE activities in Slovenia
• Start-ups exhibiting a dedicated growth and global reach present
Poland 41 45,8 31
under-valued opportunities to GPs
Slovenia 31 45,6 33
Balazs Tuske, Partner, Ernst & Young Hungary Czech Republic 33 45,5 34
Estonia 30 44,5 35
Hungary 34 41,1 37
Croatia 47 38,6 45
Latvia 39 35,6 50
Bulgaria 48 30,6 55


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 27 93,1 32

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 25 34,4 25



South Africa
Capital: Pretoria (exec.), Bloemfontein (judic.), Cape Town (legis.) ++ Official Language: Afrikaans, English and others ++
Currency: Rand
2005/06 2009/10 Quartile
Hum. & Soc. Env. 63 34,3 63
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• One of the most sophisticated VC/PE industries among emerging
0
markets
• Very positive with respect to investment and fund raising activity
• Expert transaction advisory services (tax, ﬁnancial, legal, Hum. & Soc.
Taxation
Environment
commercial) locally available
South Africa
• SAVCA Association that maintains ethical and professional
standards Inv. Prot. & Africa
Corp. Gov.
Weaknesses
• Local fund raising limited by caps of local pension funds
Opportunities
36
• Continent's largest and most diverse economy
• Limited competition from international VC/PE ﬁrms 38

• In principle, government's policies have and will continue to 40
encourage transaction activity
Index Rank

42
Threats
44
• Government perceived as being soft in wage negotiations
46
Outlook
• Recovery from recession in South Africa may lag global recovery 48

• VC/PE investment activity expected to increase again in 2010 50
2005/06 2006/07 2007/08 2008/09 2009/10
Graham Stokoe, Associate Director, Ernst & Young South Africa VC PE VCPE

2005/06 2009/10 Quartile
Israel 21 55,8 22
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 64


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 40 71,3 56

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 34 16,4 38



Spain
Capital: Madrid ++ Official Language: Spanish ++ Currency: Euro

2005/06 2009/10 Quartile
Hum. & Soc. Env. 32 66,5 38
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• Strong banking system, even during the credit crunch
0
• Strong PE sector in small and mid market due to the amount of
family owned companies
Hum. & Soc.
Taxation
• Relatively inﬂexible labor regulation restricts companies' ability to Spain
change headcount Western Europe
Inv. Prot. &
• Low work force mobility Corp. Gov.
Opportunities
• Favorable access to fast growing Latin American markets through Separate VC and PE Indices
Spanish companies
12
• The boards of directors of many companies are not involved in the
strategy deﬁnition and decision-making process, leaving room for 14
VC/PEs to improve the quality of board members
16
• Improved exit conditions due to the launch of a new stock
Index Rank

exchange 18

Threats
20
• Current discussion about a more restrictive EU regulation on
investments 22

Outlook 24
• These challenges may create an attractive market for transactions 2005/06 2006/07 2007/08 2008/09 2009/10
in the future VC PE VCPE

Remigio Barroso, Partner, Ernst & Young Spain Comparison within Peer Group
2005/06 2009/10 Quartile
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
Spain 22 58,3 20
Ireland 16 58,3 21
Greece 44 40,7 39


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 39 98,9 20

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 26 30,0 26



Sweden
Capital: Stockholm ++ Official Language: Swedish ++ Currency: Swedish Krona

2005/06 2009/10 Quartile
Hum. & Soc. Env. 12 103,4 10
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• Relatively long-established PE industry in Sweden
0
• Swedish companies tend to think globally from start up
Taxation
• Early stage financing less well established Environment
• Large public sector in Sweden can stifle entrepreneurship Sweden

Corp. Gov.
• Develop existing sectors where Sweden has a strong reputation United States = 100 Points
e.g., ICT, life sciences
• New sectors growing, such as cleantech Separate VC and PE Indices
Threats 8

• Shortage of leveraged financing for new investments 9
• Global economic downturn increases the risk of defaults among 10
VC/PE-backed companies
11
Index Rank

Outlook 12
• Sweden remains attractive to both local and overseas investors
13

David Ramm, Partner, Ernst & Young Sweden 14

15

16
2005/06 2006/07 2007/08 2008/09 2009/10

VC PE VCPE

2005/06 2009/10 Quartile
Germany 9 69,1 10
Sweden 13 69,0 11
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 39


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 5 101,5 10

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Switzerland
Capital: Bern ++ Official Language: German, French, Italian, Romansh ++ Currency: Swiss Franc

2005/06 2009/10 Quartile
Taxation 5 144,6 4
Hum. & Soc. Env. 4 119,0 3
Quartile
4th 1st
Economic
Activity
150
125
SWOT Analysis 100
& Opp. 75 Market
Strengths 50
• Strong biotech, med-tech and pharmaceutical focus, in general: 25
0
innovative high-tech industries
• Research universities provide a flow of technology spin-offs
• Strong lobbying/support networks improve the VC/PE fiscal and Hum. & Soc.
Taxation
Environment
regulatory environment
Switzerland
• Plenty of business angels
• Liberal labor law Inv. Prot. & Western Europe
Corp. Gov.
• Excellent tax treaty network United States = 100 Points

Weaknesses
• Small market
• Average deals are small- or medium-sized and so below the radar 6

of major PE houses
7
Opportunities
8
• Presence of major multinationals leads to spin-off opportunities
Index Rank

• Large cash pools looking for opportunities 9
• Biotech opportunities resulting from depressed prices
10
Threats
• Increased regulation post financial crisis 11
• Fewer transactions as GPs focus on portfolio management
12
Outlook 2005/06 2006/07 2007/08 2008/09 2009/10
• Short-term outlook is still uncertain and will depend on the global VC PE VCPE
economy
• Expect to see a continuation of smaller and mid-size deals Comparison within Peer Group
resulting from forced divestments
2005/06 2009/10 Quartile
• Increasing focus on cleantech as a growth area
Matthew Keson-Lee, Partner, Ernst & Young Switzerland
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 39


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 8 105,1 2

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Taiwan
Capital: Taipei ++ O cial Language: Standard Mandarin ++ Currency: New Taiwan Dollar

2005/06 2009/10 Quar le
Taxa on 28 116,9 31
In . Prot. & Corp. Go . 37 75,8 25
Hum. & Soc. En . 28 73,2 31

4th
Quar le
1st
Econom c
Ac t
125
100
SWOT Analysis
& Opp. 50
Market
Strengths
25
• Strong global position in the manufacturing of semiconductors
0
and other high-tech products
• Abundance of well-educated workforce and skilled labors
• Robust infrastructure Hum. & Soc.
Taxa on
En ronment
Weaknesses
Ta wan
• As export-driven economy, Taiwan has suffered severely from the In . Prot. & As a
recession in the US and Europe Corp. Go .
• Considerably high tax levels compared to regional peers
• Rising land and labor costs have forced manufacturers to move
plants to China or South East Asian countries
22
Opportunities
• Improved investment environment through normalization of the
cross-strait relationship with Mainland China 23

• Relaxation of restrictions on capital ﬂows between Taiwan and
Index Rank

Mainland China 24
• Progressive tax reforms by the government with an aim to bolster
domestic demands and attract foreign investments
• Well-established ties to Silicon Valley and the global tech 25

investing community provide opportunities for Taiwanese VC/PE
to replicate successful business models 26
2005/06 2006/07 2007/08 2008/09 2009/10
Threats
VC PE VCPE
• Taiwan’s trade growth is increasingly dependent upon China
• If the current thawing of relations with Mainland China is
reversed, this has a negative impact on Taiwan’s growth Comparison within Peer Group
2005/06 2009/10 Quar le
Outlook
• Continuing strong global position in high-tech sector
Hong Kong 4 79,5 5
• Continuing relaxation of restrictions of capital ﬂows between
Taiwan and Mainland China would attract overseas Taiwanese Japan 7 76,5 7
enterprises to return to Taiwan to being listed Republ c of Korea 15 67,5 13
Ta wan 25 55,3 23
Audry Ho, Director, Ernst & Young Taiwan Mala s a 23 54,4 25
Ch na 42 48,5 28
In a 46 40,9 38
Ph l pp nes 57 26,1 61


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 26 99,6 16

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 19 49,2 19



Thailand
Capital: Bangkok ++ Official Language: Thai ++ Currency: Baht

2005/06 2009/10 Quartile
Hum. & Soc. Env. 36 62,8 41
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• Well performing economy, despite the political uncertainty
0
• Substantial decrease in country’s vulnerability to capital outﬂows
• A "moderately free" economy
Hum. & Soc.
Taxation
• Dependence on exports and tourism Thailand
• Small size of the skilled workforce Inv. Prot. & Asia
• Poor protection of intellectual property Corp. Gov.
• Domestic political woes
• Lack of investment incentives
Opportunities
30
• Government policy emphasizing on large scale infrastructure 31
projects and economic relief for rural communities 32
• Forceful effort to protect intellectual property rights 33
Index Rank

Threats 34

• Continued political turmoil risks damaging attractiveness to 35

foreign investors 36

• Unstable prices of key export commodities causing burdensome 37
38
subsidies to the government
39
• Dependence on exporting products to China
40
• Controversial privatization program of state-owned companies
2005/06 2006/07 2007/08 2008/09 2009/10
• Negative corruption perception
VC PE VCPE
Outlook
• Thailand has current account surpluses and the accumulation of a Comparison within Peer Group
sizeable foreign exchange reserve buffer
2005/06 2009/10 Quartile
• Political concerns over a deep divide between the rural poor
population and the urban middle class/royalist elite, and
Hong Kong 4 79,5 5
separatism and terrorism in the South
Japan 7 76,5 7
Vorapoj Amnauypanit, Partner, Ernst & Young Thailand Republic of Korea 15 67,5 13
Malaysia 23 54,4 25
China 42 48,5 28
Thailand 35 41,4 36
India 46 40,9 38


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 47 93,8 31

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 51 11,5 50



Turkey
Capital: Ankara ++ Official Language: Turkish ++ Currency: Turkish Lira

2005/06 2009/10 Quartile
Hum. & Soc. Env. 45 54,3 46
Quartile
4th 1st
Economic
Activity
150
125
SWOT Analysis 100
& Opp. 75 Market
Strengths 50
• Large economy with substantial young population and highly 25
0
skilled workforce
• High and sustainable growth potential along the economy with
increasing efficiency Hum. & Soc.
Taxation
Environment
• Local banking system healthy and liquid
Turkey
• Entrepreneurial skills highly developed
• High quality management despite being an emerging market Inv. Prot. & Eastern Europe
Corp. Gov.
Weaknesses
• Low level of institutionalization where majority of the businesses
are family owned
• Legal and regulatory framework still converging to EU system 41

• Lack of robustness in financial statements and non compliance 42
with international standards for certain family owned businesses
43
Opportunities
Index Rank

44
• Positive outlook for nearly all industries, especially in consumer
related sectors 45
• Increasing understanding and acceptance of VC/PE 46

Threats 47
• Low protection of intellectual property rights
48
• Highly volatile market
2005/06 2006/07 2007/08 2008/09 2009/10
Outlook VC PE VCPE
• High potential growth market
Musfik Cantekinler, Partner, Ernst & Young Turkey
2005/06 2009/10 Quartile
Poland 41 45,8 31
Estonia 30 44,5 35
Hungary 34 41,1 37
Turkey 45 39,1 44
Croatia 47 38,6 45
Latvia 39 35,6 50
Bulgaria 48 30,6 55


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 56 76,0 51

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 45 13,9 44



Ukraine
Capital: Kyiv ++ Official Language: Ukrainian ++ Currency: Hryvnia

2005/06 2009/10 Quartile
Taxation 63 35,8 66
Hum. & Soc. Env. 47 51,6 48
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• Strong economic growth increased business opportunities in
0
many sectors
• Extension of a US$16.4bn emergency Stand-By Agreement from
the IMF significantly reduced the likelihood of a sovereign credit Hum. & Soc.
Taxation
Environment
default
Ukraine
• Decrease of inflation rate is expected in 2009 compared to 2008
Inv. Prot. & World
• Corruption remains a serious problem
• Ukraine's economy is poised for a significant slowdown due to
continuing deterioration in external credit conditions and the
ongoing low demand throughout Europe 57

• Absence of developed stock markets 58
• Production facilities are outdated and require significant capex
59
Opportunities
Index Rank

60
• Prospects of a more formal trade arrangement with the EU
• Financial pressure placed on business owners together with local 61
currency depreciation may lead to unexpected deal flow 62
• Liquidity problems of Ukrainian firms might lead to low valuations
• Low labor costs 63

• Euro-2012 championship hosted by Ukraine and Poland 64
2005/06 2006/07 2007/08 2008/09 2009/10
Threats
VC PE VCPE
• Economic policy is likely to remain politically motivated as
parliamentary fractions continue to compete for control and
influence. The unstable political situation will continue to hamper Comparison within Peer Group
the government's ability to respond to persistent macroeconomic 2005/06 2009/10 Quartile
challenges Rank Value Rank 4th 1st
• Economy highly depends on prices of natural gas imported from Poland 41 45,8 31
Russia Czech Republic 33 45,5 34
• Transparency, such as in the conduct of privatizations, will remain
Estonia 30 44,5 35
elusive
Hungary 34 41,1 37
Aaron Johnson, Partner, Ernst & Young Ukraine Lithuania 37 40,4 40
Croatia 47 38,6 45
Latvia 39 35,6 50
Bulgaria 48 30,6 55
Ukraine 61 23,6 63


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 64 22,2 64

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 48 11,9 47



United Arab Emirates
Capital: Abu Dhabi ++ Official Language: Arabic ++ Currency: UAE Dirham

2005/06 2009/10 Quartile
Taxation 1 145,5 3
Hum. & Soc. Env. 20 92,2 17
Quartile
4th 1st
Economic
Activity
150
125
SWOT Analysis 100
& Opp. 75 Market
Strengths 50
• Expected GDP growth and increasing population expected to 25
0
sustain investment opportunities
Taxation
• Large amounts of businesses are owned by government or private Environment
family houses which are not willing to sell United Arab
Emirates
• Existing portfolio companies may face challenging market Inv. Prot. &
Middle East
conditions Corp. Gov.
• Weak corporate governance
• Availability of assets at attractive valuations 23

Threats 24
• Size and liquidity of stock markets may affect exits
25
• Lack of liquidity impacts setting up new funds
Index Rank

26
Outlook
• Given a signiﬁcant accumulation of dry powder and reduced 27
valuation expectations, we could see increased VC/PE activity 28
• Availability of assets at attractive valuation
29

Andrew Brierly, Director, Ernst & Young United Arab Emirates 30
2005/06 2006/07 2007/08 2008/09 2009/10

VC PE VCPE

2005/06 2009/10 Quartile
Israel 21 55,8 22
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 64


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 51 66,9 58

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 44 18,3 32



United Kingdom
Capital: London ++ Official Language: English ++ Currency: Pound Sterling

2005/06 2009/10 Quartile
Hum. & Soc. Env. 15 97,9 14
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• Established key global VC/PE and financial centre
0
• Large numbers of assets currently under VC/PE ownership
• Asset class is recognized as a key element of the investment
landscape Hum. & Soc.
Taxation
Environment
Weaknesses United Kingdom
• Lack of leverage has stifled deal activity Inv. Prot. & Western Europe
• Existing portfolio facing challenging market conditions Corp. Gov.
• Continuing significant economic uncertainty
• Many unique investment opportunities at attractive valuations 0
• Pent up flow of exits due to transactions lull
• IPOs expected to be an increasingly common exit route 1

Threats
Index Rank

• Potential increasing regulatory burden placed upon Houses 2

• Re-financing challenges for investees over the next two years
• Fund raising difficulties due to liquidity issues and LPs becoming 3

more selective
4
Outlook
• Numerous assets exiting and therefore many opportunities for 5
selective acquisitions will exist. Deals are likely to be smaller as the 2005/06 2006/07 2007/08 2008/09 2009/10
case for leverage becomes tougher. Fund raising expected to be VC PE VCPE
much harder, with a “flight to quality” by investors
Steve Ivermee, Partner, Ernst & Young United Kingdom
2005/06 2009/10 Quartile
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 39


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 19 100,7 13

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


4. Investor Protection andCorporate Governance
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


6. Entrepreneurial Culture andOpportunities
2005/06 2009/10 Quartile

6.1 Innovation & R&D 11 64,5 13



United States of America
Capital: Washington D.C. ++ Official Language: English ++ Currency: US Dollar

2005/06 2009/10 Quartile
Hum. & Soc. Env. 14 100,0 12
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• Strong innovation and entrepreneurship culture
0
• Fully developed and robust “VC/PE eco-system”
Taxation
• Lack of VC/PE-backed exits, both IPOs and M&A Environment
• Limited partners face challenges United States

Opportunities Inv. Prot. & North America
Corp. Gov.
• New innovation and fast growth segments such as cleantech, United States = 100 Points
cloud computing, wireless and security
• Collaboration with China 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
Index Rank

Outlook 1
• Strong industry with new investment and growth opportunities
• The number of players will continue to shrink: less funds will be
able to raise follow-on funds

Gil Forer, Global Cleantech Leader, Ernst & Young 2
2005/06 2006/07 2007/08 2008/09 2009/10

VC PE VCPE

2005/06 2009/10 Quartile
United States 1 100,0 1
Canada 2 85,8 2
Germany 9 69,1 10
Sweden 13 69,0 11
Denmark 10 67,7 12
Norway 11 66,3 14


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 38 100,0 14

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Urugay
Capital: Montevideo ++ Official Language: Spanish ++ Currency: Uruguayan Peso

2005/06 2009/10 Quartile
Taxation 45 97,7 56
Hum. & Soc. Env. 31 81,1 23
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• Human and social environment is strong and improving
0
• Tax regulation, control of corruption, accounting standards, and
openness to inward portfolio investment are the major strengths.
Hum. & Soc.
Taxation
• A tax reform that became effective in July 2007 has a slightly Uruguay
negative impact on individual deals Latin America
Inv. Prot. &
• Minority rights protection is generally weak Corp. Gov.
• Uruguay has practically no capital market
• Public efforts to foster start-ups and innovation, such as a 47
small business loan guarantee programme or a new National
48
Association of Innovation are growing in strengths
49
• A new bankruptcy framework is still under consideration that
50
would facilitate the merger or sale of insolvent companies
Index Rank

51
Threats 52
• Minority rights are generally weak 53
• Uruguay has almost no capital markets, so IPOs are not a viable
54
exit option.
55
Outlook 56
• The country could make its PE/VC business environment more 2005/06 2006/07 2007/08 2008/09 2009/10
attractive by adopting a better legal framework for nationally VC PE VCPE
domiciled fund formation and operation
2005/06 2009/10 Quartile
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
Paraguay 66 14,9 65
Venezuela 65 8,9 66


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 48 85,8 42

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 54 11,2 51



Venezuela
Capital: Caracas ++ Official Language: Spanish ++ Currency: Bolívar Fuerte

2005/06 2009/10 Quartile
Taxation 57 95,2 61
Hum. & Soc. Env. 65 11,5 65
Quartile
4th 1st
Economic
Activity
125

SWOT Analysis 100
& Opp. 50
Market
Strengths
25
• Tax incentives for entrepreneurs and investors
0
Weaknesses
• Weak capital market Hum. & Soc.
Taxation
• Low investor protection and governance structures Environment
• Poor infrastructure Venezuela

Opportunities Inv. Prot. & Latin America
Corp. Gov.
• Arise with the establishment of a democratic government United States = 100 Points

Threats
• Strong decrease of GDP and productivity
64
Outlook
• The political situation renders the country not very attractive for
international investment
65
Index Rank

66

67
2005/06 2006/07 2007/08 2008/09 2009/10

VC PE VCPE

2005/06 2009/10 Quartile
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
Paraguay 66 14,9 65
Venezuela 65 8,9 66


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 65 1,1 66

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile




Vietnam
Capital: Hanoi ++ Official Language: Vietnamese ++ Currency: Dong

2005/06 2009/10 Quartile
Taxation 40 99,2 55
Hum. & Soc. Env. 56 46,5 52
Quartile
Pop. Growth PE Activity
Key Factors Performance
'02 '08

Economic
Activity
125

SWOT Analysis 100
& Opp. Market
Strengths 50

• Comparative advantages in terms of labor costs and productivity 25

• Abundance of natural resources 0

• Continuing progressive reforms of economic and tax regime
Hum. & Soc.
Weaknesses Taxation
Environment
• Deficient legal system
• Financial reporting not yet in line with international standards Vietnam
Inv. Prot. &
• Persistent administrative inefficiencies Corp. Gov.
Asia
Opportunities
• Under-served demand for products and services among large and Separate VC and PE Indices
young population
58
• Opening of markets through WTO commitments
• Extensive room for financial and operational improvements within 59
local companies
60
Threats
Index Rank

• Inflation resulting from expansionary monetary policies 61
• Escalated non-performing loans through aggressive growth-
oriented lending practices 62

• Lack of long-term commitment to address infrastructure 63
shortcomings
64
Outlook 2005/06 2006/07 2007/08 2008/09 2009/10
• Continuing strong global position in commodities production VC PE VCPE
(rice, coffee and tea)
• Progress towards greater transparency and global economic Comparison within Peer Group
integration
• Comparatively attractive investment destination relative to 2005/06 2009/10 Quartile
regional peers due to political stability and increasingly favorable Rank Value Rank 4th 1st

investment policies Hong Kong 4 79,5 5
Japan 7 76,5 7
Tom Herron, Director, Ernst & Young Vietnam Republic of Korea 15 67,5 13
Malaysia 23 54,4 25
China 42 48,5 28
India 46 40,9 38
Vietnam 62 27,1 60


Details

1 Economic Activity
2005/06 2009/10 Quartile

1.2 Inflation 57 30,2 63

2005/06 2009/10 Quartile


3 Taxation
3. Taxation
2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile


2005/06 2009/10 Quartile

6.1 Innovation & R&D 58 10,5 55


Appendices
Methodology, technical descriptions, limitations,
data descriptions, data sources and references


Appendices

Computation of the index

Regional averages
The VCPE attractiveness of each of the co- The regional and world averages are calculated for each data
series. They are calculated either without weights or weighted by
vered countries is computed by calculating
GDP, or population.
a weighted average of country performance
scores in the before mentioned categories.
The scores within each category are derived
• xq,i = raw data value of category q and country i
from several raw data series. • vi = weight for country i
• i = country i
Some of the raw data series provide values
that are highly related to other country
characteristics (e.g., it is quite comprehen- Normalization
sible that a country with a high population In order to make the cross-sectional data series comparable, the
raw data has to be converted into a common range. The rescaling
has higher expenditures on educations than
method is used to normalize indicators to such a range by linear
a country with a lower population). The- transformation. Thereby, 100 represents the best score, while 1
the worst.
refore, all data series measuring efficiency
For every individual variable, we define whether high values
rather than absolute size are deflated by an influence the attractiveness for investors positively or negatively,
and hence, assign 100 points either to the highest score (e.g., in
appropriate measure. We use the GDP and
case of the GDP per capita) or to the lowest (e.g., in case of high
population to deflate those data series. hiring costs).
The sub-item points for every country are calculated accor-
ding to the following formula:

• yq,i = normalized value of category q and country i
• xq,i = raw data value of category q and country i
• min(xq)) = Minimum raw data value of category q
within the sample
• max(xq)) = Maximum raw data value of category q
within the sample

Example
Raw data value 1 12 20
[any unit] (lowest value in (highest value
sample) in sample)
Normalized value 99x[(1-1)/(20- 99x[(12-1)/(20- 99x[(20-1)/(20-
[1-100] 1)]+1=1 1)]+1=58 1)]+1=100


Aggregation Weighting
For the index-score calculation, we use geometric aggregation After calculating the performance scores for each data series on
because it is better suited than arithmetic aggregation. Geome- the lowest level, the scores are aggregated using the aforemen-
tric aggregation rewards those countries or those sub-indicators tioned aggregation method. On the lowest level, items are aggre-
with higher scores. Overall, a shortcoming in the value of one gated with equal weights, i.e., the weights are derived from the
variable or sub-index can be compensated by a surplus in ano- number of components that are aggregated.
ther. Compensability is constant in linear aggregation, while it is The following Exhibit shows the aggregation path from the
smaller in geometric aggregation for the sub-indicators with low normalized and deflated (raw) data series to the final VCPE
values. Therefore, countries with low scores in some sub-indices Country Attractiveness Index score.
would benefit from linear aggregation.
For this reason, we use geometric aggregation as follows. (Raw) Data Series Sub-Items Key-factors Index
normalized, deflated

Agregation equal weights equal weights weights according
with number of items

3/22
Economic
Activity
• Index Value i = Index value of country i
• yq,i = normalized value of category q and country i
• wq = weight of category q Capital 5/22
VPC Index
Markets Score

Example
Economic Depth of a Investor
Category 2/22
Activity Capital Market Protection Taxation

Weight 0.5 0.25 0.25
Normalized value
30 40 50
of country i (yq,i)
Index value for the
(300.5) x (400.25) x (500.25) = 36.63
country


Appendices

Statistical validation of the index

Correlation is a measure for the strength and directionality of a
linear relationship between two variables. The Pearson-Correla-
tion-Coefﬁcient px,y , ranges from 0 to ±1 (or 0 to ±100%), with
0 indicating a non-linear or missing relationship between two
data sets and ±1 indicating perfect linearity. A positive (negative)
correlation indicates a positive (negative) relationship.

To test the results of the index calculations, we calculate the
correlation between the index scores with the control variable.
The results of these analyses are displayed in the following Table.
The correlation coefﬁcients are very high for all cases considered.
These high values proof the accuracy of the index scores and its
ability to measure a countries’ attractiveness for investors in VC
and PE funds.

VC/PE invest-
VC investments PE investments
ments
LN (average 2006-2008) LN (average 2006-2008)
LN (average 2006-2008)

VC/PE Index
0,8104 - -
2009/2010
VC Index
- 0,8100 -
2009/2010
PE Index
- - 0,7807
2009/2010


Limitations of our index and FAQs

From interviews with limited partners we learnt: “For us, a we would create the crystal ball for investment advisers.
country is attractive if there is low competition among expe- Unfortunately, we are unable to do that – at least to the
rienced general partners for many high quality transactions, extent described above. The constraint is not insufficient
which can be executed quickly at low valuation levels with knowledge on the drivers of VC and PE activity, the constraint
excellent exit perspectives.” Hence, we were advised to assess is data availability and (very much related) the lack of quanti-
exactly these criteria with our index, and as a result tative measures.

How to measure GP quality and potential deal flow? the quality) of deal supporting institutions, such as investment
How should we determine the experience and quality of local fund banks, M&A boutiques, consultants, law firms, and similar. Se-
managers and the competition for transactions among the teams in cond, we would have to assess the IPO and M&A market acti-
an objective way for all our sample countries? It is already challen- vity for some time in the future to determine exit perspectives.
ging to find information about the number of VC and PE players in While we might find data on the number of investment banks,
many of them. How shall we estimate the potential deal flow in the law firms, and deal supporting institutions (not about their qua-
particular countries? We could try to assess the number of start-ups lity) for some of the more developed economies, this informa-
that deserve VC backing. We could also run analyses on the number tion is non-existent for the majority of our sample countries.
of corporations that might spin-off from larger conglomerates, on And, investors might be more interested in learning about the
the number of medium-sized firms, which might have a succession less developed countries and regions they do not deal with on a
problem, turn into restructuring activities; or, in principle, qualify for regular base. We want to draw their attention to the different
PE backing just due to a typical size or business segment. Additio- emerging regions of the world which they might not cover yet.
nally, we could try to determine potential take private candidates.
This might be feasible for selected economies. However, it is impos- Our proposed solution: Assessing the six key drivers
sible for the majority of our countries covered, due to missing data. We hope that our arguments reveal the impossibility to create
How could we conclude from the potential deal flow to the quality the investment adviser’s crystal ball. We propose the use of the
of the proposed transactions? We would need to gather informa- six latent key drivers to assess the attractiveness of a country for
tion on industry segments, growth potential, and on the corporate VC and PE investors. We regard this as the only solution to over-
management teams for thousands of transactions – and we would come the measurement problem for the magnitude of our sample
still not be able to distinguish the quality of potential deals in an countries.
objective way.
Is our index a good indicator of special opportunities or
How to proof current levels of valuation? individual fund performances?
How shall we estimate if a current level of valuation is appro- We are aware that there are probably many successful general
priate? Valuations are the result of a benchmarking process where partners in countries scoring low in our index. This means that
the benchmark value is observable. This first raises the question smart managers of these funds are able to benefit from deficien-
about the adequate benchmark, and then, problems to control for cies of the local markets and might also be successful due to low
liquidity risks, leverage risks, size, growth, and finally sovereign competition. Anyway, the opposite might be valid for the very at-
and currency risks for all the different countries. We are unable tractive countries. Our index cannot capture these special oppor-
to control for these factors for two simple reasons: first, there is tunities, nor can it explain individual fund or aggregate country
no model yet to account for all of these risks, and second, once performance. We point to the focus of our index again: we aim
again, we do not get the necessary data on the valuations of VC to assess attractiveness of countries for investors in VC and PE on
and PE transactions. a macro-perspective by general socio-economic conditions and
not by special opportunities or quality assessments of particular
How to assess the professionalism of deal supporting management teams.
institutions?
How should we assess the required time to perform transactions,
and the perspectives to divest holdings after a certain holding
period? We would first need to collect data on the number (and


Appendices

Table with sources and explanations
of the data series

Indicators Dimension Positive/ VC PE Explanation Source
for index negative
calculation impact
1 Economic Activity
1.1.1 Total Economic [LN GDP in USD] + X X The economic size of a country is measured by its GDP, which is the Euromonitor International
Size sum of gross value added by all resident producers in the economy from IMF (International
plus any product taxes and minus any subsidies not included in the Financial Statistics)
value of the products. It is calculated without making deductions for
depreciation of fabricated assets or for depletion and degradation of
natural resources.
1.1.2 GDP per Capita [‘000 USD per + X X Find definition above (Economic Size 1.1.1). “Per Capita” describes Euromonitor International
capita] the division of each data point by the corresponding size of the from IMF (International
country’s population (e.g. Finland’s GDP in 2004 divided by its size of Financial Statistics)
population in this year).
1.1.3 Real GDP year-on- [%] + X X Gross domestic product is the sum of gross value added by all Euromonitor International
year Growth resident producers in the economy plus any product taxes and from IMF (International
minus any subsidies not included in the value of the products. It is Financial Statistics and
calculated without making deductions for depreciation of fabricated World Economic Outlook/
assets or for depletion and degradation of natural resources. Real UN/national statistics)
GDP: the number reached by valuing all the productive activity
within the country at a specific year's prices. When economic activity
of two or more time periods is valued at the same year's prices, the
resulting figure allows comparison of purchasing power over time,
since the effects of inflation have been removed by maintaining
constant prices.
1.2 Inflation [%] - X X The annual average inflation rate indicates the average percentage IMF
increase in the price of goods and services comparing every month
of the year with corresponding month last year. Data are averages
for the year, not end-of-period data.
1.3 Unemployment [%] - X X Unemployment rate: the International Labor Organization (ILO) Euromonitor
Rate international standard definition of unemployment is based on the International from ILO
following three criteria which should be satisfied simultaneously:
"without work", "currently available for work" and "seeking work".
2 Depth of a Capital Market
2.1 Size and Liquidity of the Stock Market
2.1.1 Market [% of GDP] + X X Market capitalization is the share price times the number of shares World Bank (World
Capitalization of outstanding. Listed domestic companies are the domestically Development Indicator)
Listed Companies incorporated companies listed on the country's stock exchanges at
the end of the year. Listed companies do not include investment
companies, mutual funds, or other collective investment vehicles.
2.1.2 Stock Market Total [% of GDP] + X X “Stock Market Total Value Traded” refers to the total value of shares World Bank (World
Value Traded traded during the period. This indicator complements the market Development Indicator)
capitalization ratio by showing whether market size is matched by
trading.
2.1.3 Listed Domestic [% of total + X X Listed domestic companies are the domestically incorporated World Bank (World
Companies sample sum] companies listed on the country's stock exchanges at the end of the Development Indicator)
year. This indicator does not include investment companies, mutual
funds, or other collective investment vehicles.


for index negative
calculation impact
2.2.1 IPO Volume [% of total + X X Proceeds amount + overallotment sold in this market: Thomson One Banker
sample sum] This data series shows the proceeds amount of the issue in this
market plus the overallotment amount (a.k.a. green shoe) sold in this
market; i.e., number of shares in this market plus the overallotment
shares sold in this market multiplied by the offer price. A green shoe
clause in an underwriting agreement provides that, in the case of
excess demand, the issuer will authorize additional shares to be sold
through the existing syndicate.
2.2.2 Number of IPOs [% of total + X X Number of IPOs in a country. Thomson One Banker
sample sum]
2.3 M&A Market Activity
2.3.1 M&A Market [% of total + X X The data comprise M&A ranking value incl. net debt of target. Thomson One Banker
Volume sample sum] According to Thomson the ranking value is calculated as follows:
RANKVAL = VALNOLIA + straight debt + short-term debt + preferred
equity-cash; VALNOLIA = transaction value excluding liabilities
assumed; transaction value minus the value of any liabilities agreed
to be assumed in the transaction.
2.3.2 Number of M&A [% of total + X X Number of M&A deals in a country. Thomson One Banker
Deals sample sum]
2.4 Debt and Credit Market
2.4.1 Domestic Credit [% of GDP] + - X Domestic credit provided by the banking sector includes all credit World Bank (World
provided by to various sectors on a gross basis, with the exception of credit to Development Indicator)
Banking Sector the central government, which is net. The banking sector includes
monetary authorities and deposit money banks, as well as other banking
institutions where data are available (including institutions that do not
accept transferable deposits but do incur such liabilities as time and
savings deposits). Examples of other banking institutions are savings and
mortgage loan institutions and building and loan associations.
2.4.2 Ease of Access to [-] + - X This data series measures the perceived simplicity of obtaining a bank WEF
Loans loan in a country with only a good business plan and no collateral.
2.4.3 Credit Information [-] + - X The depth of credit information index measures rules affecting World Bank, Doing
Index the scope, accessibility and quality of credit information available Business
through either public or private credit registries. The index ranges
from 0 to 6, with higher values indicating the availability of more
credit information, from either a public registry or a private bureau,
to facilitate lending decisions. If the registry is not operational or has
coverage of less than 0.1% of the adult population, the score on the
depth of credit information index is 0.
2.4.4 Soundness of [-] + - X This data series measures the perceived “Soundness of Banks” in a WEF
Banks country. The index ranges from 1 to 7, with higher values indicating
that banks are generally healthy with sound balance sheets and low
values indicating that banks are in danger of insolvency and may
require a government bailout.
2.4.5 Interest Rate [%] - - X Interest rate spread is the interest rate charged by banks on loans International Monetary
Spread to prime customers minus the interest rate paid by commercial or Fund (IMF), World
similar banks for demand, time, or savings deposits. Development Indicators
(WDI)
2.4.6 Bank Non- [%] - - X Bank non-performing loans to total gross loans are the value of World Bank (World
performing Loans non-performing loans divided by the total value of the loan portfolio Development Indicator)
to Total Gross (including non-performing loans before the deduction of specific
Loans loan-loss provisions). The loan amount recorded as non-performing
should be the gross value of the loan as recorded on the balance
sheet, not just the amount that is overdue.
2.5 Financial Market [-] + X X This data series measures the perceived level of sophistication of WEF
Sophistication financial markets in a country. The index ranges 1 to 7, with higher
values indicating that financial market sophistication is excellent by
international standards and low values indicating that it is poor by
international standards.


Appendices

for index negative
calculation impact
3 Taxation
3.1 Tax Incentives
3.1.1 Marginal [%] - X X Highest marginal tax rate (corporate rate) is the highest rate shown World Bank (World
Corporate Tax on the schedule of tax rates applied to the taxable income of Development Indicator);
Rate corporations. KPMG´s Corporate and
indirect tax rate survey
2008
3.1.2 Incentive for being [%] + X - Difference: income tax - corporate tax. The meaning of this driver is Please see 3.1.1, Fraser
an Entrepreneur based on the fact that an employee tends to become entrepreneur if Institute for Income Tax
the individual tax payment is significant higher than the corporate tax.
3.1.3 Labor Tax and [%] - X - Doing Business measures all taxes and contributions that are World Bank (Doing
Contributions government mandated (at any level - federal, state or local), apply Business)
to a medium-sized business and have an impact in its income
statements.
3.1.4 Profit and Capital [%] - X X Commercial profits are defined as sales minus cost of goods sold, World Bank (Doing
Gains Tax minus gross salaries, minus administrative expenses, minus other Business)
expenses, minus provisions, plus capital gains (from the property sale)
minus interest expense, plus interest income and minus commercial
depreciation. To compute the commercial depreciation, a straight-
line depreciation method is applied with the following rates: 0% for
the land, 5% for the building, 10% for the machinery, 33% for the
computers, 20% for the office equipment, 20% for the truck and
10% for business development expenses.
3.2 Administrative Tax Burdens
3.2.1 Number of [#] - X - The tax payments indicator reflects the total number of taxes World Bank (Doing
Payments and contributions paid, the method of payment, the frequency of Business)
payment and the number of agencies involved for this standardized
case during the second year of operation. It includes payments made
by the company on consumption taxes, such as sales tax or value
added tax. These taxes are traditionally withheld on behalf of the
consumer. Although they do not affect the income statements of the
company, they add to the administrative burden of complying with
the tax system and so are included in the tax payments measure.
3.2.2 Time spent on Tax [Hours per year] - X - Time is recorded in hours per year. The indicator measures the time World Bank (Doing
Issues to prepare, file and pay (or withhold) three major types of taxes and Business)
contributions: the corporate income tax, value added or sales tax
and labor taxes, including payroll taxes and social contributions.
Preparation time includes the time to collect all information
necessary to compute the tax payable. If separate accounting books
must be kept for tax purposes - or separate calculations made - the
time associated with these processes is included. This extra time is
included only if the regular accounting work is not enough to fulfill
the tax accounting requirements. Filing time includes the time to
complete all necessary tax forms and make all necessary calculations.
Payment time is the hours needed to make the payment online or at
the tax office. Where taxes and contributions are paid in person, the
time includes delays while waiting.
4.1 Corporate Governance
4.1.1 Disclosure Index [-] + X X This index measures the extent to which transparency of enterprise World Bank (Doing
related party transactions exists. The index ranges from 0 to 10, with Business)
higher values indicating greater disclosure.
4.1.2 Director Liability [-] + X X This index measures the extent of liability for self-dealing. The index World Bank (Doing
Index ranges from 0 to 10, with higher values indicating greater liability of Business)
directors.


for index negative
calculation impact
4.1.3 Shareholder Suits [-] + X X This index measures the extent of shareholders’ ability to sue officers World Bank (Doing
Index and directors for misconduct. The index ranges from 0 to 10, with Business)
higher values indicating greater powers of shareholders to challenge
the transaction.
4.1.4 Legal Rights Index [-] + X X The strength of legal rights index measures the degree to which World Bank (Doing
collateral and bankruptcy laws protect the rights of borrowers and Business)
lenders and thus facilitate lending. The index ranges from 0 to 10,
with higher scores indicating that collateral and bankruptcy laws are
better designed to expand access to credit.
4.1.5 Efficacy of [-] + X X Corporate governance by investors and boards of directors in WEF
Corporate Boards your country is characterized by (1 = management has little
accountability, 7 = investors and Boards exert strong supervision of
management decisions)
4.2 Security of Property Rights
4.2.1 Legal Enforcement [-] + X X This component is based on the World Bank’s Doing Business Fraser Institute
of Contracts estimates for the time and money required to collect a clear-cut
debt.
4.2.2 Property Rights [-] + X X “Property rights” is an assessment of the ability of individual to Heritage Foundation
accumulate private property, secured by clear laws that are fully
enforced by the state.
4.2.3 Intellectual [-] + X X This data series measures the perceived “Intellectual Property WEF (Executive Opinion
Property Protection” in a country. The index ranges from 1 to 7, with higher Survey 2007, 2008)
Protection values indicating that Intellectual property protection and anti-
counterfeiting measures in a country are strong and enforced
whereas low values indicate the opposite.
4.3 Quality of Legal Enforcement
4.3.1 Judicial [-] + X X This data series measures the perceived “Judicial Independence” in a Fraser Institute. WEF
Independence country. The index ranges from 0 to 7, with higher values indicating (Global Competitiveness
that the judiciary in a country is independent from political Report )
influences of members of government, citizens, or firms and lower
values indicating that it is heavily influenced.
4.3.2 Impartial Courts [-] + X X This data series measures the perceived quality of the legal Fraser Institute
framework in a country. The index ranges from 0 to 10, with
higher values indicating that the framework in a country for
private businesses to settle disputes and challenge the legality of
government actions and/or regulations follows a clear, neutral
process. Lower values indicate that the framework seems to be
inefficient and subject to manipulation.
4.3.3 Integrity of the [-] + X X This component is based on two sub-components. Each sub- Fraser Institute. PRS Group
Legal System component equals half of the total. The “law” sub-component (International Country
assesses the strength and impartiality of the legal system, and the Risk Guide)
“order” sub-component assesses popular observance of the law. The
index ranges from 0 to 10. High rating values indicate a sound legal
system.
4.3.4 Rule of Law [-] + X X “Rule of Law” measures the extent to which agents have confidence World Bank (Worldwide
in and abide by the rules of society, in particular the quality of Governance Indicator)
contract enforcement, the police, and the courts, as well as the
likelihood of crime and violence. The index ranges from 0 to 100.
4.4 Regulatory [-] + X X “Regulatory Quality” measures the ability of the government to World Bank (Worldwide
Quality formulate and implement sound policies and regulations that Governance Indicator)
permit and promote private sector development. The index ranges
from -2.5 to 2.5 with higher values corresponding to better
governance outcomes.


Appendices

for index negative
calculation impact
5 Human and Social Environment
5.1 Education and Human Capital
5.1.1 Quality of the [-] + X X This data series measures the perceived “Quality of the Educational WEF
Educational System” in a country. The index ranges from 1 to 7, with higher
System values indicating that the educational system in a country meets the
needs of a competitive economy. Low values indicate that the system
does not meet the needs of a competitive economy.
5.1.2 Quality of [-] + X X This data series measures the perceived “Quality of Scientific WEF
Scientific Research Research Institutions” in a country. The index ranges from 1 to 7,
Institutions with higher values indicating that Scientific research institutions in
a country (e.g., university laboratories, government laboratories) are
the best in their fields internationally. Low values indicate that they
are not competitive or nonexistent.
5.2 Labor Market Rigidities
5.2.1 Difficulty of Hiring [-] - X X This Index measures the “Difficulty of hiring” regarding (i) whether World Bank (Doing
Index fixed term contracts are prohibited for permanent tasks; (ii) the Business)
maximum cumulative duration of fixed term contracts; and (iii) the
ratio of the minimum wage for a trainee or first time employee to
the average value added per worker. The index ranges from 0 to 100.
High scores are assigned to countries where fixed-term contracts are
prohibited for permanent tasks, the maximum cumulative duration
of fixed-term contracts is low, and if the ratio of the minimum wage
to the average value added per worker is high.
5.2.2 Rigidity of Hours [-] - X X This index measures the “Rigidity of hours index” regarding five World Bank (Doing
Index components: (i) whether night work is unrestricted; (ii) whether Business)
weekend work is unrestricted; (iii) whether the work week can
consist of 5.5 days; (iv) whether the workweek can extend to 50
hours or more (including overtime) for two months a year to respond
to a seasonal increase in production; and (v) whether paid annual
vacation is 21 working days or fewer. The index ranges from 0 to
100. High scores are assigned to countries where the five before
mentioned statements are not true.
5.2.3 Difficulty of Firing [-] - X X The “Difficulty of Firing Index” has eight components: (i) whether World Bank (Doing
Index redundancy is disallowed as a basis for terminating workers; (ii) Business)
whether the employer needs to notify a third party (such as a
government agency) to terminate one redundant worker; (iii)
whether the employer needs to notify a third party to terminate a
group of 25 redundant workers; (iv) whether the employer needs
approval from a third party to terminate one redundant worker; (v)
whether the employer needs approval from a third party to terminate
a group of 25 redundant workers; (vi) whether the law requires the
employer to reassign or retrain a worker before making the worker
redundant; (vii) whether priority rules apply for redundancies; and
(viii) whether priority rules apply for reemployment. For the first
question an answer of yes for workers of any income level gives a
score of 10 and means that the rest of the questions do not apply.
An answer of yes to question (iv) gives a score of 2. For every other
question, if the answer is yes, a score of 1 is assigned; otherwise
a score of 0 is given. Questions (i) and (iv), as the most restrictive
regulations, have greater weight in the construction of the index.
5.2.4 Firing Costs [Weeks of - X X The “Firing Cost indicator” measures the cost of advance notice World Bank (Doing
wages] requirements, severance payments and penalties due when Business)
terminating a redundant worker, expressed in weeks of salary. If the
firing cost adds up to eight or fewer weeks of salary, a score of 0 is
assigned. If the cost adds up to more than eight weeks of salary, the
score is the number of weeks. One month is recorded as four and
1/3 weeks.


for index negative
calculation impact
5.3 Bribing and Corruption
5.3.1 Bribing and [-] + X X This index describes the overall extent of corruption (frequency and/ Transparency International
Corruption Index or size of bribes) in the public and political sectors. The index ranges
from 0 to 10. Countries where bribing and corruption cases are
frequent receive a low rating score.
5.3.2 Control of [-] + X X This data series measures the perception of the extent to which World Bank (Worldwide
Corruption public power is exercised for private gain, including both petty and Governance Indicator)
grand forms of corruption, as well as "capture" of the state by elites
and private interests. Countries in which seemingly public power
is frequently used for private gain a low rating score. The index
ranges from -2.5 to 2.5 with higher values corresponding to better
governance outcomes.
5.3.3 Extra Payments/ [-] + X X This index measures the frequency of extra payments and bribes Fraser Institute
Bribes firms pay in a country. The index ranges from 0 to 10 with higher
values corresponding to better governance outcomes. Countries
where these payments are frequent receive a low rating score.
5.4 Costs of Crime
5.4.1 Business Costs [-] + X X This data series measures the costs on businesses imposed by the WEF
of Crime and incidence of common crime and violence in a country. The index
Violence ranges from 1 to 7. High values are assigned to countries where
crime does not impose significant costs on businesses.
5.4.2 Cost of Organized [-] + X X This data series measures the perceived “Cost of Organized Crime” in WEF
Crime a country. The index ranges from 1 to 7 with higher values indicating
that organized crime (mafia-oriented racketeering, extortion) in
a country does not impose significant costs on businesses. Lower
values indicate that organized crime imposes significant costs on
businesses.
6 Entrepreneurial Opportunities
6.1 Innovation and R&D
6.1.1 General [-] + X - The framework groups the eight pillars of innovation into two INSEAD
Innovativeness categories: inputs and outputs. The five input pillars – institutions
Index and policies, human capacity, infrastructure, technological
sophistication and business markets and capital - represent aspects
which enhance the capacity of a nation to generate ideas and
leverage them for innovative products and services. The three
output pillars - knowledge, competitiveness, and wealth - represent
the ultimate benefits of innovation for a nation - more knowledge
creation, increased competitiveness and greater wealth generation.
Each pillar of the GII model is measured by a number of quantitative
and qualitative variables. The averaged scores for the input and
output pillars together give an overall score - the Global Innovation
Index. The values of each variable for the country are scaled on a
range of 1 to 7.
6.1.2 Capacity for [-] + X - This index measures the perceived “Capacity for Innovation” in a WEF
Innovation country. The index ranges from 1 to 7 with higher values indicating
that companies obtain technology by conducting formal research
and pioneering their own new products and processes. Low values
indicate that companies obtain technology exclusively from licensing
or imitating foreign companies.
6.1.3 Company [-] + X - This index measures the “Company Spending on R&D” in a country. WEF
Spending on R&D The index ranges from 1 to 7 with higher values indicating that
companies in a country spend heavily on research and development
relative to international peers. Low values indicate that companies do
not spend money on research and development.


Appendices

for index negative
calculation impact
6.1.4 Utility Patents [# per mn + X - This data series provides the number of utility patents (i.e., patents WEF
population] for invention) granted between January 1 and December 31, 2007,
per million population.
6.1.5 Scientific and [# per capita] + X - The data series “Scientific and Technical Journal Articles” refer to World Bank (World
Technical Journal the number of scientific and engineering articles published in the Development Indicator)
Articles following fields: physics, biology, chemistry, mathematics, clinical
medicine, biomedical research, engineering and technology and
earth.
6.2 Ease of Starting and Running a Business
6.2.1 Number of [#] - X - This data series provides the average number of administrative World Bank (Doing
Procedures to procedures necessary to start a business in a country. A procedure Business)
start a Business is defined as any interaction of the company founder with external
parties (for example, government agencies, lawyers, auditors or
notaries). Interactions between company founders or company
officers and employees are not counted as procedures. Only
procedures required of all businesses are covered. Industry-specific
procedures are excluded. For example, procedures to comply with
environmental regulations are included only when they apply to all
businesses conducting general commercial or industrial activities.
Procedures that the company undergoes to connect to electricity,
water, gas and waste disposal services are not included.
6.2.2 Time needed to [Days] - X - This data series provides the average number of days necessary to World Bank (Doing
start a Business start a business in a country. Time is recorded in calendar days. The Business)
measure captures the median duration that incorporation lawyers
indicate is necessary to complete a procedure with minimum follow-
up with government agencies and no extra payments. It is assumed
that the minimum time required for each procedure is one day.
6.2.3 Cost of Business [% of income - X - This data series provides the average amount of money necessary to World Bank (Doing
Start-Up per capita] start a business in a country. Cost is recorded as a percentage of the Business)
Procedures country’s income per capita. It includes all official fees and fees for
legal or professional services if such services are required by law. Fees
for purchasing and legalizing company books are included if these
transactions are required by law. The cost excludes bribes.
6.2.4 Minimum Capital [% of income - X - The paid-in minimum capital requirement reflects the amount that World Bank (Doing
per capita] the entrepreneur needs to deposit in a bank or with a notary before Business)
registration and up to three months following incorporation and
is recorded as a percentage of the country’s income per capita. The
amount is typically specified in the commercial code or the company
law. Many countries have a minimum capital requirement but allow
businesses to pay only a part of it before registration, with the rest to
be paid after the first year of operation.
6.2.5 Administrative [-] + X - This data series measures the perceived “Administrative Fraser Institute
Requirements Requirements” in a country. The index ranges from 0 to10 with
higher values indicating that complying with administrative
requirements (permits, regulations, reporting) issued by the
government in a country is not burdensome. Lower values indicate
that the administrative requirements are perceived as burdensome.
6.3 Simplicity of Closing a Business
6.3.1 Time [Years] - X X This data series provides the average number of years necessary to World Bank (Doing
close a business in a country. Time is recorded in calendar years. Business)
Information is collected on the sequence of procedures and on
whether any procedures can be carried out simultaneously. Potential
delay tactics by the parties, such as the filing of dilatory appeals or
requests for extension, are taken into consideration.


for index negative
calculation impact
6.3.2 Cost [% of estate] - X X This data series provides the average costs of closing a business in World Bank (Doing
a country. The cost of the proceedings is recorded as a percentage Business)
of the estate’s value. The cost is calculated on the basis of survey
responses by insolvency practitioners and includes court fees as well
as fees of insolvency practitioners, independent assessors, lawyers
and accountants. Respondents provide cost estimates from among
the following options: less than 2%, 2–5%, 5–8%, 8–11%, 11–18%,
18–25%, 25–33%, 33–50%, 50–75% and more than 75% of the
value of the business estate.
6.3.3 Recovery Rate [Cents on US$] + X X The recovery rate is recorded as cents on the dollar recouped by World Bank (Doing
[Cents on US$] creditors through the bankruptcy or insolvency proceedings. The Business)
calculation takes into account whether the business emerges from
the proceedings as a going concern as well as costs and the loss
in value due to the time spent closing down. If the business keeps
operating, no value is lost on the initial claim, set at 100 cents on the
dollar. If it does not, the initial 100 cents on the dollar are reduced
to 70 cents on the dollar. Then the official costs of the insolvency
procedure are deducted (one cent for each percentage of the initial
value). Finally, the value lost as a result of the time the money
remains tied up in insolvency proceedings is taken into account,
including the loss of value due to depreciation of the hotel furniture.
Consistent with international accounting practice, the depreciation
rate for furniture is taken to be 20%. The furniture is assumed to
account for a quarter of the total value of assets. The recovery rate
is the present value of the remaining proceeds, based on end-
2006 lending rates from the IMFs International Financial Statistics,
supplemented with data from central banks.
6.4 ICT Infrastructure (Information and Communications Technology)
6.4.1 Broadband [# per 100 + X - This data series provides the total number of broadband subscribers World Bank (World
Subscribers people] with a digital subscriber line, cable modem, or other high-speed Development Indicator)
technologies in a country.
6.4.2 Fixed Line and [# per 100 + X - Fixed lines are telephone mainlines connecting a customer's World Bank (World
Mobile Phone people] equipment to the public switched telephone network. Development Indicator)
Subscribers
6.4.3 Internet Users [# per 100 + X - Internet users are people with access to the worldwide network. World Bank (World
people] Development Indicator)
6.4.4 Secure Internet [# per mn + X - Secure servers are servers using encryption technology in Internet World Bank (World
Servers people] transactions. Development Indicator)
Correlation Data
Venture Capital LN [USD mn] X Amount of venture capital investments in a country per year. The Thomson One
Investments country is defined by fund location. Thomson Reuters uses the term
to describe the universe of venture investing. It does not include
buyout investing, mezzanine investing, fund of fund investing,
secondaries, etc.
Private Equity LN [USD mn] X Amount of private equity investments in a country per year. The Thomson One
Investments country is defined by fund location. Thomson Reuters uses the term
to describe the universe of all venture investing, buyout investing
and mezzanine investing.
Venture Capital LN [USD mn] X X The sum of venture capital and private equity investments in a Thomson One
and Private Equity country per year.
Investments


Appendices

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2009/2010 annual
The Global Venture Capital and Private Equity Country
Attractiveness Index

This report presents the results of a comprehensive research project on how to
measure the attractiveness of a country for equity capital investors. Designed
to be an index produced annually, it is a dynamic product.

An online version that uses the most recent data and allows for country
comparisons can be found at http://vcpeindex.iese.us/.

Ernst & Young are delighted to be associated with the report and hope that the
information is unique in supporting PE and VC houses with equity investment
decisions and governments on what needs to be done to attract international
risk capital.

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