Two prominent international Business Schools, the EISE in Barcelona and the EM in Lyon ranked 125 countries of the world on the ninth occasion according to how attractive they are for investments by VC and PE companies. (The study can be downloaded here.)

It is not difficult to guess the first ten countries: (1) the United States of America; (2) the United Kingdom; (3) Canada; (4) Hong Kong; (5) Japan; (6) Singapore; (7) Australia; (8) Germany; (9) New-Zealand; (10) Demark. However, some countries further down the list may make you wonder. The good position of Israel (17) or Ireland (19) can be taken for granted. Quite a surprise is Austria at rank 22 or Poland in the 26th position. The 52nd place of Hungary cannot be regarded as good – especially compared to other countries in the region – but it is nothing to feel shame about.

As is the case with all similar rankings, this one also raises methodological questions, still it can be seen that the makers of this list proceeded with the utmost care. Thus, the concrete positions – even if disputable – probably show the trends accurately.

The researchers made a unique composite measure, which is based on six fundamental criteria: (1) economic activity; (2) depth of the capital markets; (3) taxation; (4) level of investor protection and corporate governance; (5) the human and social environment; (6) entrepreneurial culture and deal opportunities.

The definition of these criteria is based on an extensive review of academic literature, on a survey conducted among institutional investors and on their own econometric model.

As these six criteria are no accurate indicators in themselves, the authors of the study use proxy variables to realistically assess each country.

As a result of the work that moved a huge mass of data, a country ranking and a profound analysis was produced that details the strengths and weaknesses of the particular nations.

The index serving as a basis of the ranking reliably presents the activities of the venture capital and private equity (VC and PE) companies and excellently tracks the historic country performance also retroactively. However, it does not qualify as a crystal ball for investment advisers.

Still, we managed to find a solution that helps to reliably compare the attributes of various countries.

There is considerable dispersion with respect to the six key drivers. Many countries attract investors with tax allowances. Many countries show strong entrepreneurial culture and many deal opportunities. There is also great dispersion in terms of economic activity, especially with respect to emerging markets as well as the human and social environment. However, two criteria proved to be dominant: the depth of capital markets and the level of corporate governance.

These work well in countries where there is a common legal system. We can observe well that strong investor protection and corporate governance rules favour deep and liquid capital markets.

(You can check here the variables and the comparison of countries and regions.)

If the key drivers are in place, the capital market professionals can provide the VC and PE funds with continuous deal and exit opportunities. This favourable operation provides the conditions that attract VC and PE investors.

The study explores that several basic conditions are missing in numerous countries. In the lack of proper entrepreneurial culture and in a rigid labour market there is a lower demand on VC and PE investments and the invested capital produces lower returns. This is especially true in countries where bribery and corruption is an everyday phenomenon.

The contradiction lies in the fact that rare is the balance between various conditions, and this represents a major challenge to the decision-makers of VC and PE investments. Unrivalled growth potentials emerge where the investor-protection conditions are unfavourable and the capital market is less liquid, which makes exit more difficult. Or, on the other hand, the country’s innovative ability is less developed and the perceivable corruption is high. This all largely increases the risk factor.

Since the ranking has been issued on the ninth occasion, there were plenty opportunities to track the upcoming economies, and the index well illustrates the changes in the investment conditions.

The ranking makes it easier for the institutional investors to make decisions. On the other hand, the politicians can draw conclusions on where to make changes in order to attract more VC into their country. The reason is that the lively VC market enhances corporate innovation and entrepreneurial activities in general, the economic growth and the employment rate, as well as the competitive edge and ultimately the well-being of a country.

The study has focused on three current issues.


Analysts claim that – as a result of the Brexit – the United Kingdom will go back in the ranking at least four places, from the current second place, which has been held steadily for a long time. A new regulation will be needed for VC investments in order to enter the unified EU market, which will involve additional costs, and this will exert tough impacts on Great Britain’s economic growth with regard to external trading with the EU. It also affects London’s dominant role played as a European financial centre. Numerous economists have estimated the impact of the Brexit on the UK’s economic growth and employment rate. They all agree that a considerable long-term GDP loss can be expected compared to the status quo: the estimates are very dispersed but – according to the London School of Economics and the British Finance Ministry – it may even reach 10% by 2030.


The BRICS countries (Brazil, Russia, India, China and South Africa) have received substantial attention and VC and PE flows in recent years.

China is among the top active countries world-wide, India and Brazil do not rank far behind either. China and India improved in their rankings by five positions in the 2014-2018 comparison, while South Africa and Russia gained two ranks. South Africa was already high ranked, due to its ties with the UK and the establishment of a similar legal framework and capital market oriented culture. However, Brazil has lost 12 ranks over the same period and this is mainly related to a strong drop in economic activity and a deterioration of several other indicators.

Apparently, investors meanwhile look beyond the BRICS and search for new emerging markets. Similar to the experiences with the BRICS, the race winning countries will probably be those with large populations and strong economic catch-up potential, notably Mexico, Indonesia, the Philippines, Nigeria and Turkey.

These countries provide many investment opportunities and have strong financing requirements for their expected economic growth. However, it is more challenging in several emerging countries to get access to high-quality deals because of the relative immaturity of the institutional deal-supporting environment. Where corruption is present, it might be the case that the most promising transactions are negotiated among small groups of local elites while lemons are broadly auctioned. Hence, deal flow could be cumbersome and costly. Furthermore, if the protection of investors is insufficient and if bribery and corruption are high, then the net returns to investors can suffer.

Limited partners should carefully consider the advantages and disadvantages of the emerging opportunities as the exceptional growth comes at a certain cost.


Authors of the ranking specified 8 worldwide regions: (1) North America; (2) Australasia (Australia, New Zealand, New-Guinea and the neighbouring Pacific islands); (3) Western Europe; (4) Asia; (5) Middle-East; (6) Eastern Europe; (7) Latin America and (8) Africa.

As can be seen, our region ‒ the eastern European group including the Visegrád four, Romania and Bulgaria, the Balkans, the Baltic countries, Ukraine, Moldova and Belorussia, and even Turkey and Georgia – took the rather low sixth rank out of the eight regions. Only the favourable taxation system of this region is competitive with the more developed regions, but it is mid-ranked in all other respects.

Hungary was 52nd with 57.7 points in 2018. This was a decrease of 5 compared to the previous four years. It is preceded by several countries in the region: Poland 26, Czech Republic 33, Russia 39, Estonia 43, Lithuania 44, Romania 47, Latvia 49.

It is worth checking why Hungary got behind the similarly categorized Slovenia, Romania, Bulgaria, Lithuania, Latvia and Georgia along the main indexing criteria.

We look good in terms of economic activity: we are only preceded by Romania. We are not behind with the entrepreneurial culture either: only Slovenia and Lithuania are ahead of us. In this country group we take a mid-position with regard to the development of the capital market, taxation, human and social environment. The only criterion that ranks us behind the other countries (basically at the same place as Bulgaria) is the level of investor protection and corporate governance.

It cannot be said that the authors of Index have done a superficial job. They compiled the quality indexes of corporate governance from five different rankings. The calculations are mostly based on the World Bank Doing Business report, but for instance the efficacy of corporate boards was assessed on the basis of the World Economic Forum’s Global Competitiveness Report. The current state of investors’ protection is examined partly on the basis of the security of property rights and partly on the quality of legal enforcement, on the basis of a total of 8 sub-criteria, all of which were compiled on the basis of the Economic Freedom of the World report by Fraser Institute and the World Economic Forum’s Global Competitiveness Report.

Over the past years, we have also experienced many times about corporate governance that the success of an enterprise often depends on the founder’s professional and controlling abilities rather than on the skills of a consciously elaborated management team. The separation of management tasks and the organizational structure set up next to the competences are missing on many instances. Accumulated scopes of tasks and centralized control may sooner or later be an obstacle if the managing director is simultaneously the manager of HR, sales and technology, as well.