Venture capital investment in European companies topped EUR4.56bn in 2007, the highest annual total since 2002, according to the quarterly European Venture Capital Report from Dow Jones Ve
Venture capital investment in European companies topped EUR4.56bn in 2007, the highest annual total since 2002, according to the quarterly European Venture Capital Report from Dow Jones VentureSource.
As in the US, the increase was due in part to investors putting more money into later-stage companies, resulting in a 2 per cent increase from 2006’s investment level. However, Europe’s deal count fell for the sixth year in a row with 897 deals completed, 10 per cent fewer than in 2006.
With fewer deals and more capital, the overall median round size climbed to EUR2.8m in 2007, the highest level seen since Dow Jones began compiling European data.
The fourth quarter saw EUR1.16bn invested in 221 deals, a nearly 4 per cent drop in investment compared with the same period in 2006, when EUR1.2bn was invested in 237 deals.
‘It’s just a sign of the times in Europe,’ says Jessica Canning, director of global research for VentureSource. ‘With a sputtering IPO market and mergers and acquisitions hard to come by, only the most viable of European companies are winning over venture capitalists. At the same time, investors are equipping these promising companies with the capital they need to compete globally and to best position them for a liquidity event.’
Larger deal sizes could be seen across the board in Europe as round medians set new records in every industry. Healthcare companies benefited the most, as the median round size jumped 76 per cent to EUR4.4m. The median for IT companies reached EUR2.6m and business, consumer and retail companies saw their median deal size climb to EUR2.4m.
Another sign that European venture capitalists are shifting their focus toward cultivating exit-ready companies was the allocations to later-stage financings in 2007. While the ratio of early to late-stage deals remained virtually unchanged from 2006, second and later-stage rounds posted big investment gains. Venture capitalists invested EUR1.04bn in second rounds, up 12 per cent, while later-stage rounds accounted for EUR2.07bn, up 13 per cent compared and the highest level of investment since 2001.
‘Our data shows that investors are still eager to tap the next wave of innovation in areas like energy production, medical devices and web-related services,’ Canning says. ‘But they’re also focusing more resources toward developing older portfolio companies in traditional spaces like software, biopharmaceuticals and communications and networks – the few areas that have been able to find exits in Europe’s tight liquidity markets.’
Investment in European healthcare companies dipped just 5 per cent to EUR1.46bn in 2007, even though the industry posted its worst year on record for deal activity with only 192 rounds. The medical device sector saw 58 deals completed, also the fewest on record, but venture capitalists put a record EUR381m into these deals.
Biopharmaceutical companies saw 115 deals completed in 2007, again a new low for the sector, and investments fell 21 per cent to EUR995m. One of the year’s largest healthcare deals was the EUR50m second round for biopharmaceutical company Novexe of Romainville in France.
Investment in other industries such as energy, advanced materials and agriculture saw continued growth in 2007. The energy segment posted three fewer deals in 2007 than the year before with 38 completed rounds, but garnered a record EUR234m in investment, including the EUR41m second round investment in Oslo-based electric vehicle manufacturer Think Global.
IT investment rose 2 per cent to EUR2.32bn, the highest total since 2002, but IT deal flow was down 3 per cent to 537 deals for the year. Within the IT category, the only segment to see a noteworthy jump in activity was information services, which includes most of today’s web-related companies. The segment posted a 46 per cent increase in deal flow and a 44 per cent jump in investment as 155 rounds raised EUR574m, the most since 2001. One of the year’s largest information services deals belonged to Luxembourg-based internet TV company Joost, which raised EUR30m in its first round.
The business, consumer and retail category was the only area to see strong growth with 89 deals garnering EUR452m, the most since 2002. While deal activity was roughly the same as in 2006, investment jumped by 33 per cent. Driving this growth was a boom in consumer and business services investments, which saw 49 deals close and more than EUR272m invested, more than double the EUR120m invested in 2006. One of the largest deals in this segment was the nearly EUR44m later-stage round for SiC Processing of Hirschau, Germany, which specialises in mechanical wet cutting.
Deal flow in the United Kingdom dropped 7 per cent from 2006 with 267 deals completed, while investment dipped 3 per cent to EUR1.42bn. By contrast, capital investment jumped 30 per cent in France to EUR1.02bn, its highest level since 2001, and its deal count climbed 26 per cent to 236.
Investment in Germany rose 7 per cent to EUR591m, but its 113 deals were down 9 per cent from the preceding year. In Sweden, capital investment fell 31 per cent to EUR190m and deal flow was down 51 per cent to 44 deals, while the Netherlands saw investment soar 130 per cent to EUR223m in 35 deals.
Deal flow dropped 28 per cent in Denmark to 42 deals and investment 22 per cent to EUR170m. Following a record year in 2006, investment in Belgium plummeted from EUR228m to EUR77m, the level seen 2004 and 2005. However, Switzerland saw six more deals (32) completed and garnered EUR277m in investment, 63 per cent more than in 2006.
