How do you assess the attractiveness of a venture capital market in a new region?

1 Market size and growth

One of the first factors to consider is the size and growth of the overall market and the specific sectors that are relevant for your VC strategy. You want to look for markets that have a large and growing population of potential customers, a high gross domestic product (GDP) per capita, and a strong demand for innovation and digitalization. You also want to identify the key sectors that are driving the market growth, such as e-commerce, fintech, healthtech, or edtech, and the sub-sectors that are emerging or underserved, such as biotech, agritech, or proptech.

2 Entrepreneurial ecosystem

Another factor to evaluate is the quality and quantity of the entrepreneurial ecosystem in the region. You want to look for markets that have a high density of startups and scale-ups, a diverse and talented pool of founders and employees, a supportive network of mentors and advisors, and a vibrant culture of entrepreneurship and risk-taking. You also want to examine the availability and accessibility of resources and support for entrepreneurs, such as incubators, accelerators, co-working spaces, events, media, education, and training.

3 Regulatory environment

A third factor to consider is the regulatory environment and the legal framework that governs the VC activity in the region. You want to look for markets that have a stable and transparent political system, a favorable and consistent tax regime, a clear and efficient intellectual property protection, and a low level of corruption and bureaucracy. You also want to assess the ease and cost of doing business in the region, such as setting up a company, hiring and firing employees, enforcing contracts, resolving disputes, and exiting investments.

4 Competitive landscape

A fourth factor to evaluate is the competitive landscape and the level of maturity of the VC industry in the region. You want to look for markets that have a sufficient and diverse supply of VC funds, ranging from seed to growth stage, and covering different sectors and geographies. You also want to analyze the track record and performance of the existing VC funds, the quality and quantity of their portfolio companies, the exit opportunities and valuations, and the gaps and opportunities in the market.

5 Cultural fit

A fifth factor to consider is the cultural fit and the alignment of values and expectations between you and your potential portfolio companies and co-investors in the region. You want to look for markets that have a similar or compatible business culture, communication style, work ethic, and negotiation approach. You also want to understand the local customs, norms, preferences, and behaviors of the entrepreneurs and consumers in the region, and how they may affect your relationship and decision making.

6 Risk and return

A sixth factor to evaluate is the risk and return profile of the VC market in the region. You want to look for markets that offer a high potential return on investment, measured by the internal rate of return (IRR) or the multiple of invested capital (MOIC), and a low probability of loss, measured by the failure rate or the downside protection. You also want to consider the volatility and uncertainty of the market, the currency and inflation risks, and the diversification benefits of investing in different regions.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?