Flow of investment and growth of venture capital industry: Experience from Asia Pacific countries

There are three aspects of venture capital behavior which can affect the growth of venture capital industry: (a) the source of venture capital and the type of venture investment; (b) the flow of venture capital; and (c) the mechanism of venture investment. Our study focuses on the relationship between the flow of venture investment and the growth of venture capital industry. According to its life-cycle, we divide venture investment into CVC-type investment (Classic Venture Capital) and DC-type investment (Development Capital). The two investment types can be distinguished by their different levels of return for invertors either financially or strategically. We further define the ratio between CVC-type investment and DC-type investment as CVC-DC portfolio. After studying the development of venture capital industry in Asia Pacific, we argue that the CVC-DC portfolio will positively influence the growth of venture capital industry in a given country. For example, the higher the percentage of the CVC-type investment, the faster the growth of that country's venture capital industry. Based on the analysis of the industry data from 17 Asia Pacific countries, we conclude that the increase of CVC-type investment will generally improve the growth of the venture capital industry, especially in aspects such as the number of venture capital funds, venture capital professionals, and investment portfolio.