PRINT THIS PAGE Half of European venture capital directed at later stage rounds in second quarter of 200514/09/2005. Source: Ernst & Young and VentureOne.
In the second quarter of 2005, venture capital investment into European companies slowed, with €735.6 million invested in 203 financing rounds according to the European Venture Capital Report released by VentureOne and Ernst & Young. Although later stage investment grew considerably, the totals represent a 20.1% decrease over the amount invested in the first quarter of 2005 and an 11% decline in deal flow. When compared year-on-year, the decline represented a 34% decrease over the amount invested in the second quarter of 2004.
As occurred in the U.S., investors in Europe were directing a greater percentage of their capital investment into later stage financings. There was €371.6 million directed toward later rounds in Europe—50% of the total capital invested in the second quarter, compared to 43% of the total investment in the same quarter of 2004.
Investors also continued to invest more sizeable sums into fewer financings, as median deal sizes have increased—a trend that was also apparent last quarter. The overall median deal size was €2 million in the second quarter, up from €1.6 million last year. While the median deal size for later rounds held steady with a year ago, the median deal size for second rounds climbed to €2.8 million, the highest level for that round class since 2000.
“The considerable percentage of capital being invested into later-stage companies, and the larger sums directed toward second round deals in Europe is a clear signal that portfolio consolidation is diminishing,” said Stuart Watson, leader of Ernst & Young’s Venture Capital Advisory Group in the UK. “European investors are demonstrating confidence in the prospects of the high quality entrepreneurial companies that remain in their portfolio
The increased attention for later stage investing may also be related to the liquidity environment in Europe, particularly for initial public offerings.”
“With 14 venture-backed IPOs occurring in the second quarter, it was the most active quarter for public market exits since 2001,” noted Stephen Harmston, director of international research for VentureOne. “Investors are focusing a limited number of investments on those companies with the most potential for a profitable exit.”
By industry, €361.1 million was invested into 114 information-technology (IT) companies—a 22% decrease in investment and 33% decline in deals from this quarter a year ago. However one segment—the semiconductor industry—posted slight increases with one more deal and a more than three-fold increase in investment bringing the total to €81.7 million.
The largest IT deal in the second quarter was for semiconductor company Level 5 Networks of Cambridge, U.K., which received €24.7 million. The electronics segment also drew a considerable amount of activity with 20 deals and €51.7 million invested, the largest quarterly amount of capital invested in this segment since 2002.
Venture capital investment in health care companies held steady with the first quarter of this year, but declined when compared to the second quarter of 2004. There were 65 deals and €343.6 million invested in the category this quarter, declines of 32% in both deals and capital.
The biopharmaceutical segment remains the category’s stronghold with €277.9 million invested in 46 deals. The segment also accounted for the largest deal in the second quarter, the €46.2 million later stage investment in Oxagen of Abingdon, U.K., a provider of genetic analyses for diseases.
By country, France was the only major country in Europe to hold steady with investment levels from 2004 with €159.6 million invested in 53 deals in the second quarter. This is seven fewer deals for France but €5.5 million more invested than this quarter a year ago. The number of deals in France resulted in the French market being tied in first position with the U.K. in terms of deal flow.
With 18 deals, Germany had only half the number of a year ago, and a decrease of 32% in investment, or €97.6 million for the quarter. In the United Kingdom, deal flow and investment both fell by more than one-third to 53 deals and €206.5 million invested.
The other European countries most active in venture capital include Sweden, which had 20 deals and €62 million invested in the second quarter, Denmark, which had 17 deals and €64.9 million invested, and Ireland, which posted seven deals and €27.4 million of investment.
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