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European Technology VC Bulletin - December 2006
28/02/2007. Source:Go4Venture.
 European venture capital finished 2006 with €103m worth of investments recorded in December in Go4Venture's Headline Transaction Index, bringing the total to €1.5bn for 2006 HTI Transactions. On a cumulative basis, 2006 is 20 per cent ahead compared to the year before.
December 2006 was also newsworthy in terms of funds announced, with a couple of interesting trends emerging:
First of all, the better first-time funds of the early 2000s are finally raising their next fund, adding to the number of new fund announcements of the last 18 months, which in turn is feeding the renewed interest in Series A investments. This is healthy for the market, and we predict that 2007 will be the first year since 2000 when European venture capital markets will be fully functioning with a healthy supply of funds for brand new projects. An example of first-time funds coming for an encore is 360 Capital (the former Net Partners team) which went through its first closing at EUR 50 million.
Secondly, cleantech funds are getting in full swing. According to data provider Venture Business Research, close to EUR 600 million has been invested in European cleantech companies (a third in renewable energy alone), more than double the amount invested in 2006. A number of announcements in December confirmed the momentum in this new investment segment. Amongst others:
Environmental Technologies Fund (ETF) held its first close at EUR 50 million, a third of its targeted EUR 150 million. Among the executives are Patrick Sheehan, who used to invest in IT for 3i, and David Quysner (as Chairman), who is also Chairman of Abingworth, one of Europe's foremost life sciences VC funds.
Zouk Ventures, seems to be making good progress with its cleantech fund focused on expansion stage capital. In December, it announced that it had recruited Robert Grubbs, a Nobel laureate winner, to its advisory group.
Hg Capital closed its EUR 300 million Renewable Power Partners cleantech fund.
Another key trend which was illustrated during December is the growing influence of large private equity funds (typically referred to as buyout funds) and other alternative investment vehicles (the so called hedge funds):
For a more detailed discussion of the growing role of buyout funds in venture capital, refer to the excellent article in Mercury News. To put things in perspective, buyout funds now represent approximately a quarter of all IT companies' acquirers. VCs (and their bankers) have obviously taken notice and we now see VC-backed companies being sold to buyout funds. For an example of such a transaction, see 3i's Empruntis transaction (reported in the October 2006 issue of our VC Bulletin). Buyout funds bring two or three key features to the market:
First of all, they do not compete as such with VC funds, so it is easier for VCs to sell to them than to a competitor, in case the company does really well under new ownership (many of these transactions don't offer necessarily a fantastic return to original investors).
Buyout funds have lower investment return requirements. There are no hard and fast figures here, but orders of magnitude are 20-30% annual return for a buyout fund vs. 40-60% for a VC fund (targeted!).
And of course buyout funds have much deeper pockets. This opens new avenues for development strategies, particularly for rolling up companies which are doing ok but will never have the size or momentum to build the distribution network their product or service merits. For examples of such strategy, see Warburg Pincus with Nuance, or Francisco Partners with Webtrends.
Hedge funds are also becoming slowly involved with venture capital. In December 2006, we had one example of such a transaction with Tudor Ventures investing in Passado together with DFJ. No doubt we will see more of these transactions in the coming months.
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About Go4Venture:
Go4Venture is a London-based independent corporate finance advisory firm focused on providing equity private placement and mergers & acquisition (M&A) services to Europe’s leading technology companies and their investors. Our clients include: Growth companies; VC funds; Buyout funds; and IT corporates. More details can be found at http://www.go4venture.com
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