US Most Attractive Country In VC/PE Country Attractiveness Index

The United States has emerged as the most attractive country for investment in venture capital and private equity assets in the 2016 ranking by the Venture Capital and Private Equity (VC/PE) Country Attractiveness Index.

In the seventh edition of the Index, the United Kingdom comes second and Canada third.

Other countries in the top 10 are: Singapore (4), Hong Kong SAR (5), Australia (6), Japan (7), New Zealand (8), Germany (9) and Switzerland (10). The results are based on weighted indicators covering six key drivers relevant to venture capital and private equity investors.

The 2016 VC/PE Country Attractiveness Index is brought out by IESE’s Center for International Finance in conjunction with EMLYON Business School.

As many as 125 countries are listed in the ranking. Five new countries were added last year: These are Sri Lanka (57), Qatar (68), Lebanon (79), Bolivia (101) and Azerbaijan (104), with data tracked back to watch five-year trends in their rankings.

The six key drivers taken into consideration for the rankings are:

1. Economic activity including GDP, expected real GDP growth and unemployment.
2. Depth of capital markets, including IPO and M&A activity, debt and credit markets and financial market sophistication.
3. Taxation, including incentives for entrepreneurs and the ease of filing.
4. Investor protections and corporate governance, including legal protections
5. Human and social environment, including education, labour regulations and corruption measures
6. Entrepreneurial culture and deal opportunities, including indicators of innovation, corporate R&D, and the ease of starting, running and closing a business

The index is useful for investors to spot emerging market winners and assess risk/reward profiles around the globe. It may also help local regulators set or revise policies in order to better attract VC/PE money in the future.

The top ranked United States ticks all the boxes in the key drivers except one, that of taxation. Particularly notable are the US entrepreneurial culture and deal opportunities as well as the depth of its capital markets.

The country also scores near the top for its economic activity, human and social environment, and investor protections.

Rather than depend on year-to-year changes, which may stem from short-term volatility in some indicators, the index highlights five-year shifts, since private equity tends to be handled by long-term institutional investors in the first place. To this end, the index is accompanied by an interactive website to view five-year trends and regional shifts.

Philippines was first among the five year movers, climbing 20 places to land at 42nd. The two key drivers of this change wee its economic activity and increasingly sophisticated capital markets.

Positive trends were noted for Kazakhstan and Latvia, both up 15 places in five years to rank 49th and 52nd, respectively.

The biggest losers were Cyprus (down 29 spots to 67th), Tunisia (down 16 spots to 65th), Brazil, Egypt and Syria (each down 13 places to 54th, 70th and 121st, respectively).

Among the BRICS (Brazil, Russia, India, China and South Africa), Brazil ranks as the least attractive at 54th, behind the Russian Federation, which climbed to 41st. China remained the powerhouse of the group at 24^th.

India was gaining ground, now at 29th. South Africa is Africa’s top performer at 32nd place overall.

Heat Map 2016

To help track region trends, a heat map accompanies the index – with red indicating caution and green signalling a high ranking.

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Africa has many red spots and incomplete coverage (seen in grey). However, potential investors could take a look at the small island nation of Mauritius which has overtaken Morocco as Africa’s second most attractive investment destination. Now ranked 45th overall, Mauritius improved investor protection and corporate governance practice as well as its economic activity.

In the green, Western Europe accounts for almost half (14) of the ranking’s top 30 – from the United Kingdom (2nd) and Germany (9th) to Spain (26th) and Luxembourg (30th). Of the 20 economies in West Europe tracked, Cyprus (67th) and Malta (69th) are the region’s laggards.

Eastern Europe has its top performer Poland ranked 25th. In the Middle East, a green Israel is ranked 19th. In Latin America, Chile stands out at 27th.

To achieve a high ranking on the VC/PE Country Attractiveness Index, a country must score well on all six key drivers, the creators said. The index team is led by professors Heinrich Liechtenstein of IESE and Alexander Groh of EMLYON, and IESE alumni Karsten Lieser and Markus Biesinger.

(Image Courtesy :pixabay.com)