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European venture investment plummets in established regions but resilient in emergent markets

Venture capital investment plummeted in all major European markets in the first quarter of 2003 but emergent markets proved more resilient to depressive global conditions, according to new figures released by Ernst & Young and VentureOne.

The four largest European markets, Germany, France, UK and the Nordic region accounted for just 78 per cent of venture investment in Europe in the first quarter of this year, a dramatic drop from 92 per cent in the previous quarter. Conversely, the smaller and less developed venture capital markets of Belgium, the Czech Republic and Ireland all saw the value of investments rise on the previous quarter.

Total European venture investment plummeted from E1bn in the fourth quarter of
2002 to E639m in the first quarter of this year. UK venture investment suffered a particularly poor quarter with a 48 per cent decrease in investment from E365m to E191m.

The number of deals completed in the UK has also fallen from 71 in the last quarter of 2002 to just 49 so far this year. The UK share of the European market has fallen from 35 per cent in the fourth quarter last year to 30 per cent in 2003 but this still represents the largest share of any European country.

The US venture capital industry is faring no better with quarterly investment dropping below $4bn for the first time in five years. Just $3.4bn was invested in 404 deals, a decline of 21 per cent in value and 12 per cent in deal volume from the previous quarter.

‘These are very disappointing figures,' said Stuart Watson, who leads Ernst & Young's Venture Capital Advisory Group. ‘Deal flow appeared to have stabilised in the second half of last year after a poor run, but it is evident in the last quarter that the venture capital market was not immune from the impact of world events that other markets also experienced,' he continued.

Investment was down across all industries with the exception of the retail segment, the most dramatic fall hitting the biotech sector, down 54 per cent from E321m in the last quarter to E147m so far this year. The retail sector was saved by a single company, online grocer Ocado, which raised E48.5m of retail's E51m total.

Despite the almost unremitting negativity of these figures, Watson was keen to emphasise the importance of viewing this dramatic downturn in its wider context, commenting, ‘We should not read too much into one quarter, especially a quarter with a number of special one-off factors applying.

‘For the investor with genuine insight into the market opportunities their portfolio companies are addressing, good management teams to work with, and the ability to live with those companies until exit options become clearer, values are looking attractive and the next year or so should be a time in which to invest,' Watson continued.

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