Armed with large amounts of capital and access to their parents' global networks, bank venture capital units are taking the venture business overseas.
Chase Capital Partners, the largest bank venture capital group, plans to invest more than $200 million outside the United States this year-twice its international investment last year. And BancBoston Capital plans to make $150 million worth of investments abroad in 1997.
For bank venture capital units, a pioneering role in taking the venture business global is a return to glory of sorts. Banks were the founders of the venture capital business in the 1960s.
But, by the 1970s, they had lost significant ground to private partnerships, most of which were formed by people who had cut their teeth at banks.
"People got to play with the banks' capital and learn the business, and then leave," said one New York-based venture capitalist. The highly regarded Welsh, Carson, Anderson & Stowe, for instance, was spun out from Citicorp.
Now, bank venture capital firms are using their banking ties to lead the way in a global expansion. Most private firms do not have the geographic access and knowledge that bank units such as Chase Capital Partners and BancBoston Capital have through their parent companies.
"The key in this new world is being more knowledgeable and having unique access to deal flow," said Jeffrey C. Walker, managing partner at Chase Capital Partners.
Part of the reason banks can break foreign ground is the advantages they have over private, venture capital partnerships. The main one: access to their parents' capital.
Burt Alimansky, managing director of New York-based venture capital firm Alimanksy Capital Group Inc. and chairman of New York Venture Group, said bank units have an immense advantage in that in order to raise capital, they merely put in a request at their banks.
Private firms, by contrast, must seek out limited partners willing to put up money to fund their deals. They then have to make sure these investors get fat returns.
"Most funds have ten-year lives," said Mr. Walker. "Venture capitalists typically invest in all of their investments in the first four of five years. And they tend to sell them off because they have to give cash to their limited partners before they can raise another fund."
Since the banks fund their own private equity and venture capital units, there is no pressure to divest investments.
Chase Manhattan Corp.'s Chase Capital views overseas investing as an opportunity to leverage off of the bank's foreign relationships, resources and local knowledge.
The group, which is comprised mostly of the venture capital group from Chemical Banking Corp., has offices in Europe, Asia and Latin America, with the majority of growth taking place in Asia and Latin America.
"These are areas that the institution (Chase Manhattan Corp.) is expanding in and has had a very long term presence in," said Mr. Walker.
"We knew we had a competitive advantage going into those markets compared to most independent funds, which would have had to spend a lot of money setting up an office and building relationships."
Some of Chase's foreign investments include a growth equity investment in Magyar Telecom BV, a provider of local telephone services in Hungary and a venture capital investment in Timber Products, a manufacturer of medium density fiberboard in China.
Chase Capital Partners lists its return on common equity at 35.8% for 1996, an increase from the 29.5% the previous year. The return on common equity Chase Manhattan Corp. overall was 18.4% for 1996.
BancBoston Capital has also followed the global philosophy of its parent, BankBoston Corp.
BancBoston Capital has had a regional office in London for fifteen years, a Hong Kong office for a year and a half, and recently set up shop in Buenos Aires and Sao Paolo, Brazil.
Frederick M. Fritz, president of BancBoston Capital, said the unit's move toward global-scale investment reflects its view that the world economy is becoming more integrated.
Some of BancBoston's foreign investments include a co-investment in privatization of Ferrovia Centro-Atlantico, a regional Brazilian railroad; and mezzanine lending for Sorex, a European rodenticide manufacturer.
