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European venture investment continues to fall in Q4

Investment into European companies continued its year-over-year decline during a weak fourth quarter of 2012, as Europe-based companies raised EUR967m from 233 venture capital deals, according to Dow Jones VentureSource.

The drop represents a 26 per cent decrease in capital and a 22 per cent decrease in deals from the same period in 2011.
During 2012, venture capitalists put EUR4.4bn into a total of 1074 deals, a slight drop of nine per cent in capital invested and 11 per cent in the number of deals completed in 2011.
“With M&A at its lowest since VentureSource started tracking data in Europe, investors appear trapped in their current investments, needing to wait longer to recoup their financial returns while at the same time lacking funds to fuel new ventures,” says Anne Malterre, European research manager, Dow Jones VentureSource. “However, the renewed trust in early-stage companies and the consumer services industry are positive signs.  Due to the growing interest in social media, online shopping and entertainment, the industry should remain attractive in 2013 provided it can transform that appetite into revenues.”
The median size of a European venture capital deal in 2012 was EUR1.9m, an increase on the EUR1.6m median of 2011.
A total of 33 European venture-backed companies were acquired during the fourth quarter of 2012, compared with 45 during the same period in 2011.  Over the whole of 2012, 145 companies exited via M&A, a drop of 30 per cent from the 2011 figure and the lowest count for Europe since VentureSource began tracking the region in 2000. M&As garnered EUR4.7bn over the course of the year, a fall of 45 per cent from the EUR8.6bn amassed during 2011.

In 2012, 16 venture-backed companies went public compared with 15 in 2011 and EUR379 million was raised during the year, down 46 per cent on the EUR699m raised during 2011.

Two-thirds (67 per cent) of deals in the fourth quarter went to early-stage companies, up from 55 per cent in the same period last year. Early-stage companies also accounted for 35 per cent of capital invested, up from 31 per cent in the same period last year.

Second-round deals accounted for 19 per cent of deal flow and 24 per cent of capital invested, down from 20 per cent and 27 per cent, respectively, in the year-ago period.

Later-stage deals accounted for 14 per cent of deals, down from 24 per cent a year earlier, and 41 per cent of capital invested, matching that of the year-ago period.

In 2012, the consumer services industry registered its largest allocation of investment in a year since 2000. The industry surpassed healthcare in receiving the most investment capital over the course of the year, with EUR1.3bn for 283 deals during 2012, an increase of 13 per cent and eight per cent respectively from 2011.

Although healthcare registered its lowest allocation of investment for the industry on record, it still managed to pip the information technology (IT) industry to second position in terms of capital invested. The healthcare industry collected EUR983m for 186 deals, a decline of 29 per cent and 30 per cent from 2011 respectively.

The uptick in IT industry investment during 2012 was largely down to increased capital directed into companies operating in the communications and networking sector. The sector pulled in EUR156m across 30 deals during the year, a 40 per cent increase in investment.

The business and financial services industry failed to post growth over the past year, despite a boost from financial services companies. These companies attracted EUR132m for 30 deals during 2012, up 43 per cent in both investment and deal activity from 2011. However, a 22 per cent drop to EUR379m for the business support services sector offset any industry gains.
The energy and utilities industry suffered sizeable drops in deals completed and capital invested for the year. The industry garnered EUR172m across 38 deals, representing a drop of 52 per cent and 37 per cent from 2011 respectively.
The UK retained its standing as the favoured destination for venture capital investment in Europe during 2012. Companies in the UK raised EUR1.4bn for 295 deals, a five per cent decline in investment and a 10 per cent drop in deals from 2011.

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