In lockstep with the pullback seen in the US, venture capitalists invested 50 per cent less capital in the international markets during in the first quarter of 2009, according to Dow Jo
In lockstep with the pullback seen in the US, venture capitalists invested 50 per cent less capital in the international markets during in the first quarter of 2009, according to Dow Jones VentureSource.
Investors put USD1.87bn to work in 250 deals for emerging companies in Europe, Israel, China and India in the first quarter, compared to the USD3.65bn invested in 430 deals in these regions during the same time last year. The US saw 477 completed deals and USD3.89bn invested in the first quarter though it too recorded a 50 per cent decline in capital investment.
"This is the first time we’ve seen such a collective pullback in worldwide venture investment, and it points to a deeper trend within the industry for VCs to conserve fund capital, make very selective investments and focus on existing portfolio companies," says Jessica Canning, director of global research for Dow Jones VentureSource.
"VCs are faced with challenges on both ends of the investment lifecycle, as liquidity markets are virtually shut down in the face of the economic crisis and cash-strapped limited partners are reluctant to back new venture funds without a clear promise of returns. While none of this is good news for the industry as a whole, it is seed and early-stage companies that are likely to suffer the most."
According to the data, Europe saw 170 deals garner USD1.18bn in the first quarter, down 35 per cent from the USD1.83bn put into 281 deals during the same period in 2008. This marks the lowest deal count for Europe since VentureSource began reporting on the region in 2000.
Like the US, Europe’s information technology industry is bearing the brunt of the downturn. The industry saw USD362m invested in 82 IT deals in the first quarter, down 44 per cent from the USD643m put into 129 such deals last year and the industry’s worst quarter on record. Within IT, the information services sector fared better than most as it accounted for 46 per cent of all IT investment in the quarter with USD167m put into 28 deals, which is down 16 per cent from the year-ago period but on par with investment levels the sector has seen over the last two years.
Investment in the European healthcare industry outpaced that of IT in the first quarter as venture capitalists put USD406m into 42 healthcare deals. Even so, this marks a 39 per cent decline from the first quarter of 2008 when USD671m was put into 70 deals.
According to VentureSource, Europe’s energy and utilities industry was the only area to see investment actually increase, up 82 per cent to USD289m in ten deals from USD159m in 18 deals a year ago. This growth was due to a large round raised by NorSun of Oslo, Norway, which landed USD192m in first-round financing.
"For the first time since 2005, we’ve seen the Europe region outpace the US in terms of energy-related investment," adds Canning. "While there was a dramatic increase in renewable energy funding in the U.S. in recent years, especially when oil prices spiked last year, European investors remained relatively restrained in their enthusiasm, a testament to the region’s well-established and long-running dedication to developing green and alternative energy technologies."
VentureSource found that the cost of doing venture capital deals also fell throughout much of the world in the first quarter of 2009. In Europe, the median size of venture capital deal ticked up over eight per cent to USD3.9m from USD3.6m. In Israel, the median deal size fell 40 per cent from USD5m a year ago to USD3m in the most recent quarter. The median size of a deal in India was just over USD4.2m in the quarter.
The US saw its median deal size drop 18 per cent from USD6.7m to USD5.5m in the first quarter. China represents the most expensive destination for venture capital with a median deal size of USD8m.
