Venture capitalists put EUR916m into 198 deals for European companies in the third quarter in 2010, according to Dow Jones VentureSource.
This is the lowest quarterly deal count for Europe since Dow Jones VentureSource began tracking the region ten years ago.
Despite a 25 per cent drop in deal flow from 263 deals in the third quarter of 2009, investment rose six per cent from EUR866 m.
In the third quarter, every major industry recorded a year-on-year decrease in investment and deal flow except healthcare, which maintained its position as the largest sector, and consumer services, which overtook information technology as the second largest sector.
“Fears about long-term sustainability, coupled with uncertainty surrounding the European Union’s new Alternative Investment Fund Managers directive — expected to be rubber-stamped by the European Parliament this month — have focused the European venture capital industry on a smaller number of key deals in core industries such as healthcare and on later-stage deals, leaving less for investments in new enterprises,” says Arno Castanet, research manager, Dow Jones VentureSource.
Healthcare remained the largest industry, taking 41 per cent of the region’s venture investment. The industry’s investment grew 60 per cent to EUR378m for 45 deals, compared with the same period in 2009. Deal flow, however, was down 21 per cent.
As usual, the biopharmaceuticals sector took the lion’s share of healthcare investment, attracting EUR293m for 27 deals. Compared with the third quarter of 2009, investment increased 183 per cent but deal flow decreased four per cent.
The IT industry, which bore the brunt of the venture market’s losses during the economic downturn, saw a significant decline in investment and deal flow. In the third quarter, 60 IT deals garnered EUR186m, a 29 per cent drop in deal flow and 11 per cent drop in investment compared to the same period last year.
Software strengthened its position as the largest player in the IT industry, attracting a 55 per cent share of IT investment with EUR103m put into 38 deals in the third quarter. This compares with a 36 per cent share in the third quarter of 2009.
The consumer services industry attracted EUR225m for 42 deals, a 24 per cent increase from EUR182m collected for 40 deals in the same period last year.
The consumer information services sector, which includes web and social networking companies, acted as the driving force for the consumer services industry’s growth as companies raised EUR149m for 28 deals.
Investment in energy and utilities companies reached its lowest level since the fourth quarter of 2005 as the industry raised EUR32m for eight deals. This is a significant drop from the same period last year when 27 deals garnered EUR125m.
Investment in business and financial services fell 26 per cent to EUR46m and deal flow declined by 46 per cent to 20 deals.
The median size of European venture capital deals rose by 36 per cent to EUR2.02m in the most recent quarter from EUR1.48m in the third quarter of 2009.
Although the UK remained a favourite destination for venture capital in Europe, it saw its lowest recorded deal count in the third quarter. Venture capitalists put EUR200m into 55 deals, a 32 per cent and 28 per cent decrease in investment and deal flow, respectively, when compared to the same period last year.
France was a close second, where EUR191m was put into 47 deals. Investment rose by 32 per cent but deal flow declined by 42 per cent.
Germany came in third as its investment rose by 55 per cent to EUR107m but deal flow declined by 46 per cent to 22 deals.
Spain took the fourth spot with a fivefold increase in investment from the previous year, raising EUR82m for six deals. This was mainly due to the deal involving Privalia Venta Directa, a consumer information services company, which raised EUR70m.
The main Nordic markets – Sweden, Norway and Finland – recorded a decline in capital investment when compared with the third quarter of 2009. Sweden was down by 17 per cent to EUR52m, Norway was down by 72 per cent to EUR14m and Finland was down by 30 per cent to EUR7m.
