European venture-backed companies raised EUR2.2 billion through 447 deals in the first half of 2011; a 28% decline in deal activity from a year earlier, according to Dow Jones VentureSource. Capital invested remained flat.
Capital raised and the number of European venture-backed initial public offerings (IPOs) were up slightly on last year, reaching their highest six-month level since the first half of 2007. However, the nine flotations which raised a total of euro 611 million in the first six months of this year were still some way off the 27 IPOs that raised euro 723 million in the first six months of 2007.
Consumer Web companies proved to be the star sector during this period, with a year-on-year increase in investment of nearly 150%. On the other hand, the information technology (IT) industry recorded its lowest ever half-year deal count this period, with deal flow down by 35%.
"With the ink barely dry on a second bailout for Greece, it’s clear that the sovereign debt crisis in Europe is far from over, either for individual economies or in terms of contagion risk," says Anthony Sheldon, research manager, Dow Jones VentureSource. "Worries about Europe’s sluggish and uneven economic recovery are key reasons for caution among venture capital investors. In such a febrile atmosphere, venture investors may look for a smaller number of de-risked later-stage investments in core industries, leaving less for investments in new enterprises."
The healthcare industry, which was one of the most active and largest investment areas for venture capital throughout most of the past decade, now appears to be losing favour with VCs. In the first half of this year, investors put euro 628 million into a record low deal count of 92 deals.
Within the healthcare industry, biopharmaceutical companies took the lion’s share of investment with 53 deals collecting EUR449 million. This marks a 44% decline in deal flow and 24% decline in investment.
IT recorded its lowest ever half-year levels for deal count and capital raised during this period. Deal flow declined by 35% to 122 completed deals and capital raised declined 40% to euro 384 million compared with the same period last year.
Software maintained its position as the largest IT segment, attracting 69% of deals and 55% of investment. However, software investment fell by 21% from euro 271 million to EUR213 million and deal flow declined by 27% from 115 to 84 completed deals compared with the same period last year.
The consumer services industry was the star performer over this period as EUR629 million was raised for 103 deals; a 148% increase in capital raised and a 2% increase in deal flow. Compared with the first half of 2010, the industry saw its share of European investment rise from 12% to 29% and its total share of deals rise from 16% to 23%.
The lion’s share of capital invested into the consumer services industry went to Web companies, including social media, entertainment and search start-ups. Consumer Web start-ups raised euro 522 million for 72 deals, more than triple the capital raised and a 13% increase in deal flow compared to the same period last year. This marks the sector’s best half-year for investment since the first half of 2000.
The UK remained the favourite destination for venture capital investment in Europe, taking 35% of overall investment in the first six months of 2011. UK-based companies raised EUR766 million through 119 deals; a 4% decline in capital invested and 29% decline in deal flow compared with the same period last year.
France came in at second place, yet it also witnessed a decline in investment and activity in the first half of this year. Investment declined 18% to EUR315 million and deal flow fell 16% to 114 deals.
Due in large to the online private sales club Privalia deal in the first quarter of 2011, Spain came third by investment but fifth by deal flow. Investment increased threefold to EUR139 million and deal flow rose 32% to 25 deals.
Germany came in fourth by investment but third by number of deals despite recording a decline in investment. German companies raised EUR240 million through 54 deals; a 27% decline in investment and 41% decline in deal flow on the same period last year.
