RSA report signals global battle

A rough rule of thumb for a country’s innovative potential is the proportion of venture investment going into its local companies.

Often, analysts also look at the value of venture assets under management, which can be invested outside the home area and help employ more venture managers (and which are statistically more likely to make successful deals), but given the luck involved in finding winning companies – more is generally a good thing for innovation and success.

The proviso is whether managers are professional and can gain commitments from people who care what they do with the money rather than government-backed/employed dilettantes as so many VCs seem to be these days.

The US leads corporate venturing deal making, as it does by investments from independent VCs, with 835 investments in the 12 months to end-June, according to Global Corporate Venturing.

This was up significantly (20%) from the 694 US deals in the prior 12 months.

By comparison, the UK’s 78 deals in the same 2011 to 2012 period was less than 10% of the US’s even though the British economy, at nearly $2.5 trillion, is a sixth of the $15 trillion American gross domestic product.

The overwhelming difference between Europe’s leading venture capital hub and the US’s is perhaps indicative of why the old world has failed to grow the new era of large companies to join the ranks of those more than 100 years old, such as Bosch, Siemens and Rolls-Royce.

When Chinese companies (see this week’s The Big Deal) are joining American peers in targeting European brand names as acquisition targets then this failure of entrepreneurialism, innovation and ambition becomes more pernicious.

To start to understand their failure, the UK’s Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) has begun to go back to its roots in the 1750s and look at how to help commercial enterprises as well as artists.

To this end the RSA commissioned Global Corporate Venturing to look at what policies can be done and how the history of corporate venturing has evolved – and where it is failing (see a nice Financial Times exclusive and click here for the report).

There are encouraging signs the UK government is hearing the message, although due to Chatham House rules the specific policies likely to be changed as part of an overhaul (ie creation) of an industrial strategy publicised as soon as this year cannot be disclosed.

And the level of corporate venturing activity in the UK has increased by 80% over the past year from the 43 deals in the July 2010 to June 2011 period, primarily as more overseas units arrive to pick up assets most local VCs seem unwilling to recognise as promising businesses, according to Global Corporate Venturing.

But one of the most interesting areas of writing the report was seeing how governments are competing to grow an economy. While foreign direct investment was the battleground in the 1980s – and remains important – many of the trends over the past decade have driven states towards attracting investors in fast-growing entrepreneurs.

Little-noticed, Singapore is understood to be one of, or perhaps the, largest limited partner in top tier venture capital firm Sequoia’s funds (a canny policy lies behind this success). In return the VC has just hired probably Asia’s most-networked individual and certainly a global thought-leader, Yinglan Tan, from his role as head of projects at the National Research Foundation under the Singaporean Prime Minister’s Office as its latest venture partner.

Venture is a people business and while there are notable tax and policies that can help, ultimately, the countries that succeed in this latest battlefield will be the ones that take a lead from the best entrepreneurs and hire and attract the top minds from around the world to work with them and create a true venture connectivity ecosystem. Sadly, a lack of vision is holding most countries back in this area.