Where do Venture Capitalists invest? Case of Latvia

The paper presents the study of Latvian Venture Capital (VC) funds’ investment trends in particular industries. The literature analysis reveals five main factors influencing VC funds’ managers preferences towards particular industries: three external factors (existing clusters in the investment region; high growth industries; availability of other funding for companies from specific sectors) and two internal (factors driven by VC funds’ limited partners profile; possession of specific industry related knowledge). The results of the practical part of the study show that 52% of Latvian VC funds’ investments (total amount) went to Services sectors, 45% to Manufacturing and 3% to other industries. From the total amount invested in Services according to the classification of Eurostat, investments in High-tech knowledge-intensive sectors account for 46%, Knowledge-intensive services - for 10% and less knowledge-intensive sectors – for 44%. Breakdown of investments in Manufacturing is as follows: 26% in High-technology firms, 24% in Medium-high technology; 15% in Medium-low technology and 35% in Low technology. Investment patterns of different Latvian VC funds’ managers vary substantially. For example, investments in High-technology and High-tech knowledge-intensive sectors were made only by three of five Latvian fund managers. Other two invested heavily in Low Technology and Less knowledge-intensive sectors. Industry-related knowledge and experience accumulated in particular fund management team presumably is an explanation of the variances in the patterns.