PRINT THIS PAGE Larger, later deals drive European venture capital investment up 22 per cent to €1.18bn in 3rd quarter21/11/2007. Source: AltAssets. 
European venture capital investment climbed to €1.18 bn in the third quarter of 2007, with half of this capital flowing exclusively to later-stage deals, according to the Quarterly European Venture Capital Report by Ernst & Young and Dow Jones VentureOne. This was a 22 per cent increase over amounts invested during the third quarter last year, despite there being 28 fewer deals. The 210 deals completed during the third quarter of 2007 was the lowest quarterly deal volume for Europe in at least six years.
UK and Ireland lead the way in Europe
The United Kingdom once again attracted the most deals and euros in Europe; investments climbed 38% over last year to €384 million, although it’s the third quarter volume of 62 rounds was off from the 73 raised in the same period last year. Ireland saw its biggest quarter of venture investment in 18 months with €30 million invested in five rounds.
France experienced its third consecutive quarter with deal volume surpassing 55 rounds. In fact the third quarter saw 5% more capital (€233 million v. €222 million) flow into 26% more deals (58 v. 46) in France than in the same period in 2006. The country is on pace to see its biggest year for venture capital investment since 2001. The amount of venture capital invested in Germany in third quarter grew 25% over last year to €136 million, despite seeing nine fewer deals.
Later stage investments and services-focused deals lead
“The growth in European venture capital investment this quarter comes from later stage investments and services-focused deals. While European seed and first round investment remained stable, later stage investment grew. Contributing factors include a lengthening time to from a company’s initial VC financing to an M&A or IPO, requiring investors to fund operations for a longer period, and the need to provide European portfolio companies with the resources to compete globally.
“An increasingly supportive exit environment for venture-backed companies also encourages investors to provide additional resources to high potential later-stage companies,” said John de Yonge, Research Director for the Ernst & Young Global Venture Capital Advisory Group.
“The growing emphasis on services deals is part of a global trend in which investors are attracted by the relatively low capital requirements of services companies, their ability to acquire customers rapidly, and the strong exit valuations they are receiving, particularly in corporate acquisitions.”
The report also showed that Europe’s business/consumer/retail industry saw the most dramatic upswing with €214 million invested in 31 rounds during the third quarter. That was more than four times the amount invested in the space over the same period last year and the industry’s highest quarterly total since the first quarter of 2002. The bulk of investments, some €126 million, went into 12 rounds for consumer/business services companies.
“For the second quarter in a row, the median deal size of a European venture capital reached a record €3 million,” said Jessica Canning, Director of Global Research for Dow Jones VentureOne. “The data shows that while venture capitalists are participating in fewer deals than in previous years, they are putting more capital to work and especially in later-stage deals, which saw a 44% increase in euros invested during the third quarter compared to the same period last year.”
Information services the hot IT sector; medical devices drive health care’s growth
European information technology (IT) companies attracted the bulk of the capital overall in the third quarter with nearly €557 million invested in 108 deals. And, even though IT deals were down 19% from the 133 completed in the third quarter of 2006, this was a 17% increase over the €477 million put into the space last year and the eighth straight quarter of year-over-year increases in investment.
According to the report, the quarterly growth in IT investments came solely in the information services sector, which includes most of today’s Web-based innovations. Investments in this sector were up more than three-fold, as €161 million was put to work in 29 deals compared to just €49 million invested in 19 deals in the third quarter of 2006. Over half of this capital, some €88 million, was invested in 11 second round deals. The information services sector overall is on pace to see its greatest investment total since 2001.
Overall, health care companies saw 26% fewer deals (48 v. 65) and 12% less capital (€324 million v. €368 million) invested overall compared to the third quarter last year. Even so, medical device companies posted substantial gains, with €115 million invested in 20 deals. That’s a 100% increase over the €57 million invested in the same number of medical device deals in the third quarter of 2006. Nearly 67%, or €77 million, of this capital went into seven later rounds.
Biopharmaceutical deals once again attracted the majority of venture investments in European health care companies with €192 million invested in 22 deals, down sharply from the €299 million put into 38 deals during the same period last year.
The report also found that European venture capitalists continue to invest in energy companies. There were six energy deals in the third quarter, one off from the same period last year, but investment rose 38% to €36 million. In just nine months, €189 million has been invested in Europe’s energy sector, on pace to best last year’s annual record of €197 million.
European early-stage investments up but later rounds see more capital
Almost 65% of all venture rounds in Europe during the third quarter were seed, first or second rounds. Investments into these rounds grew 18% over the third quarter of 2006 to reach €588 million. However, later-stage rounds accounted for nearly 50%, roughly €593 million, of all venture capital invested in Europe in the quarter. The report found that, through the first nine months of 2007, an unprecedented 49% of all venture investments Europe went to later rounds.
The median amount invested in a first round was €2.94 million, almost equal to the €3.0 million median size for second and later rounds. As said, the overall deal median held steady from the second quarter of the year at a quarterly record of €3.0 million.
VentureOne, a unit of Dow Jones Newswires, is a provider of finance and investment data to the venture capital industry . VentureSource, a sophisticated electronic database on the venture capital industry, is published by VentureOne. For more information visit www.ventureone.com
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