It makes sense that venture capitalists hang around their turf. The early stage, high-risk companies they help build rely on their mentoring, technological expertise and network of connections. It's what Anil K. Gupta, professor of strategy and global e-business at the Smith School of Business at the University of Maryland and a visiting faculty member in Stanford University's Technology Ventures program, calls "domain capital." Typically, domain capital doesn't scale well or hold up over great distances.
But that might be changing. These days, VC firms aren't just pitching their connections in Silicon Valley, Boston or Austin. They are telling entrepreneurs what they can do for them in Hong Kong, Singapore and London. Benchmark Capital, which helped build eBay, announced a new general partner in its London office this week, and Bruce Dunlevie, one of Benchmark's Valley stalwarts, will move to that office for a year. Also, Crescendo Ventures, a leading VC firm that focuses on communications, is ramping up its international presence. The company will be opening up a business development office in Singapore.
So why are venture capitalists, who have so far worked with companies in their own backyard, setting up shop elsewhere? Gupta, whose new book, The Quest for Global Dominance (co-authored with Vijay Govindarajan) will be published this summer, says a number of factors are driving the trend toward VC firms increasing their global presence.
"First, the wholesale transformation in ideologies and regulatory regimes over the last decade has finally begun to unleash entrepreneurship all around the world," Gupta says. "This creates opportunities for seasoned VCs to leverage their expertise over a larger market base. Second, VC firms' portfolio companies are eyeing international markets at increasingly early stages; a VC firm that can facilitate a transition into foreign markets can add a lot of value.
"Infrastructure companies face much stronger imperatives to globalize their market presence earlier and at a faster pace than do application companies," he says. "This is because infrastructure products generally require little, if any, localization for different geographic markets; in addition, infrastructure companies are generally far more R&D intensive, and early globalization helps in spreading this fixed cost over a larger revenue base."
Publicly traded network infrastructure companies clearly demonstrate this. An upstart like Juniper Networks said 35 percent of its revenues came from international sales last quarter. And a giant like Nortel Networks received 43 percent of its revenues outside the U.S. in 2000.
The opportunities might be big outside the United States, but getting to them isn't easy. Draper Fisher Jurvetson was rebuffed in its Asian efforts after a partner in the Asian office left the firm. Chase H&Q also has had difficulties.
That is why Worldview Technology Partners, a firm that invests mainly in communications companies, has made this angle its main selling point. Other firms are scrambling to evolve a global presence. But Worldview, which started in 1996, had this in mind since its inception. The firm, which has offices in Singapore and Tokyo, isn't scouting out companies to invest in. They are providing support infrastructure to help their portfolio companies tap global markets. "Hence the name Worldview," says Michael Orsak, a general partner at Worldview Technology Partners.
Oslak points to Ciena, one of their portfolio companies, as an example of how his firm adds value beyond capital. Ciena was a pioneer in wavelength divisional-multiplexing technology, which allows more data streams to run over a piece of fiber, thus expanding its capacity. The technology wasn't understood in Japan at first, and Worldview played an integral role in convincing Japanese carriers to purchase Ciena's products, says Oslak.
"A company called Japan Teleway had laid a single strand of fiber along a railroad track, and we explained to them how they could enhance its capacity by using Ciena's products," says Oslak. "We got Ciena its first contract with the company, which was for $80 million dollars." He says his business development staff was so adamant about
