Europe’s venture capital industry recorded another dismal showing in the second quarter of 2008 with just 167 deals completed-the lowest quarterly total in at least nine years-and EUR 858 million i
Europe’s venture capital industry recorded another dismal showing in the second quarter of 2008 with just 167 deals completed-the lowest quarterly total in at least nine years-and EUR 858 million invested, a 35% drop from the EUR 1.33 billion invested in 286 deals over the same period last year, according to the latest Quarterly European Venture Capital Report from Dow Jones VentureSource.
However, early stage rounds accounted for 44% of all deals done in Europe during the first half of the year, indicating that region may be nearing the bottom of its decline as more entrepreneurial companies are starting to enter the venture capital lifecycle.
‘Much like in the U.S., the European venture industry is experiencing great softness in the IPO and M&A markets, and this is putting a damper on deal flow,’ says Jessica Canning, Director of Global Research for Dow Jones VentureSource. ‘In particular, health care companies, which have seen the pipeline of IPOs dry up over the last year, posted their worst quarter on record. We’re seeing a similar downward trend for health care companies in the U.S., where investment has fallen off 31% in the first six months of the year.’
According to the report, information technology (IT) saw deal activity fall 46% with 86 deals in the second quarter of 2008 compared to the same period last year, which saw 158 deals completed. Investments dropped 40% from EUR 726 million last year to EUR 435 million in the most recent quarter. The software sector, in particular, suffered the most as it posted its lowest deal count on record with just 34 deals and EUR 168 million invested during the quarter.
Health Care investment in Europe fell 55% from EUR 364 million in the second quarter of 2007 to EUR 164 million in the most recent quarter with 32 deals completed, well behind the 58 deals done during the same time last year. Hit hardest was the biopharmaceuticals sector, which saw investment drop 59% to EUR 117 million, the lowest amount on record, with just 17 deals completed, also a record low.
After posting very strong investment in the first quarter of 2008, Europe’s medical device sector came back to earth during the second quarter, as it saw only 13 deals completed and EUR 44 million invested, 43% below the EUR 77 million put into 17 deals during the same time last year.
The reported showed that even Europe’s Business & Financial Services industry, which had seen five consecutive quarters of year-over-year growth, couldn’t escape the malaise as only 13 deals (another record low) were completed and EUR 36 million invested, down 66% from the EUR 105 million invested in the space during the second quarter of 2007.
Europe’s Consumer Services industry fared better, however. It saw 13 deals garner EUR 45 million during the second quarter, a nearly two-fold increase over the EUR 23 million invested in nine similar deals during the same period last year.
Elsewhere, the data showed that Europe’s Energy & Utilities industry saw record investment during the second quarter with EUR 147 million put into 10 deals-making it the third-largest industry in Europe in terms of investment for the first time, just behind Health Care. The largest deal of the quarter was the EUR 85 million later-stage round for solar photovoltaic cell-maker Sulfurcell Solartechnik of Germany. For the first time since 2001, Germany topped the list of European countries that received venture capital investment
‘There is a silver lining in this quarter’s figures and it’s that we are seeing early-stage deals make up a greater percentage of deal activity in Europe,’ added Ms. Canning. ‘Venture capitalists are being very selective about the companies they back but they’re by no means abandoning the European market. In the first six months of the year, 44% of venture deals in Europe were seed or first rounds-we haven’t seen this level of early-stage interest since the first half of 2001.’
Even so, the bulk of capital investment was still directed to second and later rounds during the second quarter, according to the data. Later-stage rounds accounted for 53% of Europe’s total quarterly investment with EUR 452 million put into 54 deals, while second rounds accounted for 20% of the total with EUR 172 million put into 34 deals. With EUR 201 million put into 75 seed and first rounds, early stage deals accounted for 23% of Europe’s quarterly investment.
Boosted by the number of larger later-stage deals, the overall median deal size ticked up slightly from EUR 2.9 million in the second quarter of 2007 to EUR 3 million in the most recent quarter.
Geographic Perspectives:
• Venture capital investment in Germany rose 29% compared to the second quarter of 2007 to EUR 264 million in 29 deals, making the country the European leader in terms of investment for the first time since 2001.
• The normally strong United Kingdom market saw venture investment fall 49% to EUR 193 million invested in 48 deals. The U.K. saw the most deals completed in the quarter and accounted for 29% of Europe’s quarterly deal total.
• In France, investment fell 59% to EUR 100 million while deal activity dropped46% to 34.
• Likewise, capital investment in Sweden dropped 49% to EUR 55 million with 11 deals completed in the second quarter.
• There were only six deals completed in Denmark, which saw investment drop 22% to EUR 45 million.
