China in the Race for Top Spot in Technology

Although USA maintains its lead as the world’s technology innovation hub, American tech startups have had to compete fiercely with Chinese firms for venture capital funding over the past year. The 2008 Global Venture Capital Survey, conducted in March, showed that Asian countries were making their presence felt as innovators in the IT (information technology) arena. And this, of course, has attracted venture capital.

The survey was conducted by Deloitte LLP and US trade group National Venture Capital Association (NVCA) and measured the opinions of almost 400 VCs across the globe. According to the survey, 57% of US venture capitalists were currently investing outside their domestic economy, as compared to 46% in 2007. What does that mean anyway? It means that three out of every five dollars being invested is invested outside the US. Last year, American VCs pumped close to $9 billion into startup companies outside the US. And about 30% of this was targeted towards China and India alone.

The percentage of VCs investing in foreign opportunities was even higher for Europe. The 2008 survey showed that 83% of European VCs (excluding those from the UK) were not investing in their home country, versus 61% in 2007.

“While technology innovation and entrepreneurship have largely been a U.S. phenomenon, other countries are quietly excelling in areas that are critical to the future of venture capital investment,” said Mark Heesen, president of the NVCA. “We are operating in a global economy, and venture capitalists will follow the best technologies. Those countries that can marry the innovation and entrepreneurial work ethic as the United States has done will become formidable economic competitors in the 21st century.”

And China seems to show immense potential in this regard. The influx of funding is rising, especially in view of China’s huge market for mobile phones. Venture capitalists are increasingly investing in Chinese startups that cater to this market with software, chips and networks. In the 2008 Global Venture Capital Survey, 16% of the VCs named China as having top technology for semiconductors. The Chinese market continues to be a hotspot for VCs targeting wireless and Internet companies.