European venture capital investment climbed 5 per cent to EUR 1.14bn in the second quarter, despite a 20 per cent drop in deal flow to 213, as big early-stage deals pushed the median round
European venture capital investment climbed 5 per cent to EUR 1.14bn in the second quarter, despite a 20 per cent drop in deal flow to 213, as big early-stage deals pushed the median round size past EUR3m for the first time, according to the quarterly European Venture Capital Report from Ernst & Young and Dow Jones VentureOne.
Year on year, investment was up and deals were down in nearly every industry, the report found, with healthcare companies seeing the biggest change, with capital-raising growing 10 per cent from EUR265m to EUR290m even as the number of deals fell to 41 from 62 in the second quarter of 2006.
European information technology companies attracted the bulk of the capital overall, raising more than EUR690m in 138 deals. Despite IT deals being down 12 per cent from the 156 completed in the second quarter of 2006, this was a 3 per cent increase over 2006 in terms of capital invested and the largest quarterly investment total for European technology companies in five years.
‘The European venture capital market saw an explosion in early-round investing as EUR600m was poured into 126 early stage deals,’ says Jessica Canning, director of global research for Dow Jones VentureOne. ‘The data shows the median amount invested in a first round during the quarter was EUR3.2m, by far the highest total on record. Add to that a continued interest in later-stage deals, and the overall median for a deal done in Europe jumped 41 per cent during the second quarter to a record EUR3.1m.’
The IT sector saw the resurgence of semiconductor investing as European chip companies completed 16 venture rounds in the quarter, raising more than EUR127m in capital, the highest total since the third quarter of 2001. Accounting for the bulk of activity, nine later-stage chip companies raised EUR98m in capital, a tenfold increase over 2006. One of the larger deals was the EUR22.5m later-stage financing of Swedish WLAN chipmaker Nanoradio.
Also of note was an 11 per cent increase in deals for information services companies, which completed the most deals since 2002 with 42 rounds but raised just EUR127m, 38 per cent less than in the second quarter of 2006. Nearly 74 per cent of deals in this area were seed, first or second rounds. Information services include blogs, social networks, wikis and other so-called Web 2.0 technologies.
In the health care sector, biopharmaceutical companies accounted for 66 per cent of deal flow, attracting EUR243m in 27 deals. The number of biopharmaceutical deals was down 13 per cent year on year while the investment volume was up 24 per cent. By contrast, medical devices saw a 48 per cent decline in deals and a 28 per cent drop in capital invested with only EUR45m was raised during 12 rounds.
‘The record median round size in Europe this quarter is the continuation of a trend we have observed over the past 18 months, in which investors are providing greater sums to fewer companies, allowing those companies to better compete globally and build critical mass for an IPO or M&A,’ says John de Yonge, research director for the Ernst & Young global venture capital advisory group.
‘During the same period, the proportion of deals and euros directed to early-stage investments has increased, indicating that European investors are supporting a healthy pipeline of innovation in emerging sectors such as clean technology.’
The report also found that European venture capitalists continued to invest in energy companies. There were 12 energy deals in the second quarter, up slightly from 10 in the same period last year, but investment in the segment rose to its highest level ever with EUR81m.
Almost 59 per cent of all venture rounds in Europe during the second quarter were seed, first or second rounds. Investments into these rounds surged to EUR600m, a 15 per cent increase over the second quarter of 2006. Investors made fewer deals in the second quarter of 2007, but each deal was significantly larger than previous quarters.
The median amount invested in a first round was EUR3.2m, almost equal to the EUR3.29m level of later-stage deals, 55 per cent higher than the second quarter of 2006 and 113 per cent higher than the first quarter of this year.
Overall deal sizes jumped in the second quarter to EUR3.12m, a 42 per cent increase from EUR2.2m in the same quarter of last year. This was also the first time in more than six years that the overall median deal size exceeded EUR3m.
Round allocations varied by industry. Health care saw just 20 early stage deals, including 13 biopharmaceutical deals, but they raised EUR108m, 25 per cent more than in 2006. Later-stage health care investments attracted just 1 per cent more capital in the second quarter.
Conversely, IT companies saw a 24 per cent pickup in later-stage investments with EUR288m invested, while early-stage financings only raised 6 per cent more capital than last year with EUR368m.
France experienced 15 per cent more deals (54) and 20 per cent more capital (EUR206m) invested during the second quarter compared with the same period of 2006. France’s six-month investment total of EUR513m was the country’s highest since 2001.
The UK attracted the most deals and highest investment volume in Europe for the second quarter, but its 61 rounds and EUR299m in capital invested represented declines of 15 per cent and 20 per cent respectively from the second quarter of 2006. Deal numbers also declined by 16 per cent in Germany to 27 in the second quarter, but capital investment rose 7 per cent to EUR161m.