European venture capital activity continued to decline sharply in the first half of 2002, according to the joint global venture capital survey by Ernst & Young and VentureOne.
At €2.4 billion, the amount invested was down 46% from the second half of 2001; deal flow dropped 41% during the same period. Europe has been harder hit this year than the US, where investment and deal flow fell 36% and 29%, respectively, in 1H02. The median amount raised by European venture-backed companies remained steady, while the median pre-money valuation fell slightly, from €6.5 to €6 million.
Gil Forer, Global Leader of Ernst & Young’s Venture Capital Advisory Group, notes, ’The uncertainty associated with the liquidity markets is having an adverse effect on venture investment in Europe, as well as the US. In both cases, our concern is the same: that the lack of new company formation today could unfavorably impact entrepreneurial activity going forward.’
Indeed, European liquidity opportunities have remained negligible this year. Thus far, only seven companies have entered the public market, raising a total of €70.8 million. While these figures stand in sharp contrast to the first half of 2001, when 21 companies raised €692 million, they are comparable to the second half of that year.
Without public financing options, later-stage companies are returning to their private investors for additional financing, and younger companies are suffering as a result. According to Steve Harmston, VentureOne Director of European Research, ’Investor focus in Europe has continued to shift toward more mature companies, much as it has in the US. At the peak in the first half of 2000, seed- and first-round companies received 58% of all venture investment. That allocation has now shrunk to 25%.’
From a regional perspective, the UK, France, Germany, and Sweden continued to account for the majority of European investment. Their share, however, fell from three-fourths of investment in 2H01 to 68% in 1H02. All four countries saw large drops in venture capital activity, but the decline of venture capital in Germany was most severe. The €220.4 million invested in 81 deals represents a 76% decline in Euros and a 93% decline in deal flow. Denmark, however, was something of a bright spot: with the help of three unusually large deals, the amount invested in Danish venture-backed companies actually rose 35% during the first half of the year.
The four dominant industries receiving venture capital in Europe-software, biopharmaceuticals, consumer and business services, and communications-accounted for 75% of the amount invested in the first half of 2002. And although the absolute amount of investment decreased across all four industries, the percentage of investment in software and biopharmaceuticals grew.
The investment figures included in this release are based on aggregate findings of VentureOne’s proprietary European research. This data was collected by surveying professional venture capital firms, through in-depth interviews with company CEOs and CFOs, and from secondary sources. These venture capital statistics are for equity investments into early-stage, innovative companies and do not include companies receiving funding solely from corporate, individual, and/or government investors. Copyright © 2002, VentureOne.
About VentureOne/The Private Equity Analyst
VentureOne/The Private Equity Analyst is the premier provider of data, news, and analysis to private equity professionals. Our databases, publications, conferences, directories, and customized research offer investors and industry service providers the comprehensive information they need to make informed investment decisions and stay abreast of industry trends and events.
The company combines the research strengths of VentureOne with the editorial expertise of The Private Equity Analyst to supply a broad spectrum of information products for the private investor. Flagship products include The Private Equity Analyst newsletter, covering private equity fundraising and invest
