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Venture investment in Europe drops by almost half in H1 2002

European venture capital investment in the first half of the year dropped 46 per cent from the second half of 2001 to just E2.4bn, according to a survey by Ernst & Young and VentureOne.

The fall was even sharper than in the US, where investment in venture capital fell 36 per cent in the same period.

Gil Forer of Ernst & Young's Venture Capital Advisory Group said the main reason for the sharp drop was the lack of exit opportunities and warned the ongoing fall in early-stage investment could have serious long-term consequences.

‘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 unfavourably impact entrepreneurial activity going forward.'

Only seven companies have successfully floated in the first half of 2002, raising E70.8m in total. In the same period last year, 21 companies raised E692m.

Denmark's investment industry had good news this year. The amount invested in Danish companies increased by 35 per cent, mostly due to three unusually large deals. The decline in venture activity was most severe in Germany, where deal value fell 75 per cent to E220.4m and deal flow fell 93 per cent to 81 deals.

On a sectoral breakdown, the biotech industry was almost alone in escaping the gloom. Although the value of deals made has decreased, biotech gained ground in terms of percentage of investment to record a record share of 33 per cent of total venture investment.

Speculation continues as to whether or not the fashion for biotech is, or will become, a bubble, but today's report suggests that investors are still too wary of venture investment in general to risk burning their fingers by ploughing enormous amounts into early-stage deals.

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