March 17, 2005 VCs challenge tech rankings Is the U.S. falling behind in global IT infrastructure? Not yet, say Silicon Valley VCs. The World Economic Forum created a stir last week when its annual technology ranking dropped the United States from first place to fifth. Yet many Silicon Valley venture capitalists believe it's premature to write off the U.S. as the top market for investment in information and communication technology. Singapore finished first in the report, which ranked "networked readiness." Iceland, Finland, Denmark, and Sweden moved into the second, third, fourth, and sixth spots, respectively. "Those rankings don't make sense," said Warren Weiss, general partner at Foundation Capital, a Menlo Park, California, firm that invests almost exclusively in America and whose portfolio companies sell globally. "The United States is still the number-one place you want to sell and market your IT products." The U.S. is also--by far--the top place for VCs to invest in information and communication technology companies. Of the $21 billion invested in private U.S. companies in 2004, over $11 billion went to IT startups, according to VentureOne. Even the venture investments in Asia are dwarfed by the U.S. numbers. The entire Japanese private equity market reached $7 billion, according to Asian Venture Capital Journal, and VCs invested barely $1 billion in the "hot" China market last year, according to Beijing VC research firm Zero2IPO. WEF, a non-governmental organization based in Geneva, acknowledged the continuing strengths of the U.S. when it released its findings, saying: "the loss in rank is due less to actual erosion in performance with respect to its past history and more to continuing improvements by its competitors. "The United States maintains global leadership in the business readiness component of the rankings as well as in variables such as the quality of its scientific research institutions and business schools-which have no peer in the world-and the availability of training opportunities for the labor force as well as the existence of a well-developed venture capital market, which has spurred innovation," the organization said. Nevertheless, the disparity between the WEF rankings and the current investment and sales realities isn't cause to ignore the report altogether. The WEF highlights several areas, including the financial regulatory environment and IT infrastructure, where the U.S. is behind, and the situation could hamper the country's economic competitiveness in the future. "[America's] lead is slipping for a variety of reasons, many under our control, and we should face up to it," said Sam Jadallah, general partner at Mohr Davidow Ventures in Menlo Park, California. "Our investments in innovations, patent policy, immigration policy, and our technology infrastructure are all declining relative to the top 10 nations. The U.S. has enjoyed being the best place in the world to innovate and to create a new business. That is changing... it is a wake-up call we need to heed." Mr. Jadallah said that the policies of several Nordic countries at the top of the WEF list have contributed to their becoming important markets for MDV's wireless startups. But it will probably be a long time before, say, Iceland is dominating the global IT economy. Article URL: Click here