Time to find your passport

The U.S. venture capital business went international in a big way in 2006 and all signs are that it will continue to look abroad.

Sequoia Capital, the subject of this month’s cover story, moved aggressively into both China and India. It invested a total of $145 million in nine startups in China and another nine in India. That’s an average of $8 million per deal.

Sequoia can expect lots of competition going forward. The National Venture Capital Association surveyed 212 VCs in December and found that more than 90% expect venture investments in China and India to increase more than in any other country in 2007.

Venture capitalists also expect to do more IPOs overseas. That’s not terribly surprising when you consider that just 57 VC-backed companies went public on U.S. exchanges in 2006. That was one more than 2005, but well below the 93 recorded in 2004.

Bob Pavey of Morgenthaler saw the writing on the wall at the end of 2005. He said: “Unless the SEC figures out how anti-growth and anti-jobs the impact of SOX is on young growth companies considering an IPO, we will see U.S. venture-backed companies doing what until now has been unthinkable: going public on foreign stock exchanges like the Toronto Exchange or AIM.”

Most of Pavey’s colleagues now agree with him. More than half of those surveyed by the NVCA said they expect foreign exchanges to become an “increasingly attractive option for U.S.-based portfolio companies looking to IPO in 2007.”

If you haven’t used your passport in a while, now’s the time to look for it.