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European venture investment drops 58 per cent in 2002

Further evidence of the drastic slowdown suffered by the private equity industry in 2002: European venture-backed companies raised just E4.4bn in 2002, a 58 per cent fall from 2001 when venture investment in Europe totalled E10.5bn, according to new figures released by Ernst & Young and VentureOne.

But the fourth quarter did provide some evidence of a mild upturn in activity. After five consecutive quarters of steady decline, E878m was invested in 223 transactions in Q4 2002, only one per cent behind the third quarter's total.

In terms of stage allocations, 2002 saw just 35 per cent of venture investment going to seed and first-round companies, a significant drop from the 46 per cent allocation of 2001.

‘The substantial decline in investment into young innovative unlisted firms by venture capitalists in 2002 is part of the wider post-bubble shake-out in capital markets. Those firms that raised small first-time funds in the late 1990s and early 2000 lost heavily in the internet-led investment boom and now face significant challenges,' said Steve Harmston, director of European research at VentureOne.

‘Pension funds and other institutional investors are unwilling to provide them with new funds to invest, and they can't exit existing investments,' he added.

In terms of geographical differentiation, the UK remained the strongest performer for European investment. UK companies gained some E1.5bn of the total venture investment in 2002, which amounted to more than that invested in France and Germany combined.

Liquidity remained difficult to find in 2002, with just 12 venture-backed IPOs raising E85m. In 2001 E747m was raised in this manner by 26 firms, and in 2000 the total raised by 170 venture-backed IPOs was E11.2bn.

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