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Growth returns to European venture investment

Venture investors put EUR1.1bn into 289 deals for European companies during the second quarter of 2010, a 50 per cent increase in investment from the year-ago period, which saw record-low investment levels.

The statistics from industry-tracker Dow Jones VentureSource show that in the second quarter of 2009, 252 deals raised EUR735m.

“It’s reassuring to see European venture investment beginning to bounce back after the record lows of 2009,” says Arno Castanet, research manager, Dow Jones VentureSource. “After the debt crisis, cautious optimism is emerging about the economic outlook in Europe for investment buoyed on by a number of good returns on portfolio investments for venture firms through trade sales and the re-emerging IPO market. Investors are refocusing their goals, going back to what they know and investing in areas and industries where they have seen previous success including information technology, software and healthcare.”

In the second quarter, every major industry recorded year-over-year increases in investment and deal flow, with the exception of business and financial services, which saw a slight decrease in deal flow.

The IT industry, which bore the brunt of the venture market’s losses during the economic downturn, was the star performer in the most recent quarter. IT witnessed a 69 per cent jump in investment from the second quarter last year to EUR334m, as well as a 13 per cent increase in deal flow to 90 completed deals. For the first time in two years, IT was Europe’s largest industry for venture investment, taking 31 per cent of overall investment.

Taking 30 per cent of overall investment, the healthcare industry grew by 57 per cent to EUR317m from the same period last year, with deal flow increasing by 27 per cent to 65 completed deals.

The energy and utilities industry, fuelled by interest in renewable energy companies, likewise followed the upward trend. In the second quarter, the industry garnered EUR103m for 23 deals, a 62 per cent increase in investment and 28 per cent increase in deal flow from the year-ago period.
 
Business and financial services companies raised EUR120m for 36 deals, a 31 per cent increase in investment but a modest drop in deal flow from 40 deals in the year-ago period. One of the notable deals in this sector was UK-based business services company InterResolve Holdings, which raised EUR33.76m (GBP30m).
 
Investment in the consumer services industry garnered EUR145m for 48 deals in the most recent quarter, a slight increase from the EUR140m raised for 40 deals in the same period last year. The industry was driven by investments in the Web-heavy consumer information services sector, which saw 29 deals collect EUR77m in the most recent quarter.
 

The median size of European venture capital deals increased by 25 per cent from EUR1.65m last year to EUR2.07m in the most recent quarter.
 
The UK remained the favourite destination for venture capital in Europe. Venture capitalists put EUR338m into 67 deals, up 70 per cent from the EUR199m put into 59 deals during the same period last year. The UK saw its share of total European investment increase from 27 per cent to 32 per cent.
 
France was the second most popular destination in Europe for venture investment as investment rose by 17 per cent to EUR221m. Deal flow was down six per cent to 73 completed deals and France’s share of total European investment was down from 26 per cent to 21 per cent.
 
Germany was in third place as investment increased by 138 per cent from the same period last year to EUR186m.
 
The main Nordic markets, including Sweden, Norway, Denmark and Finland, recorded increases in investment. Sweden was up 28 per cent to EUR79m, placing fourth among tracked European countries, Norway was up 175 per cent to EUR60m in fifth place, Denmark rose 57 per cent to EUR35m, and Finland rose 187 per cent to EUR11m – albeit from its lowest quarterly total on record of EUR4m a year earlier.

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