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Pool of European venture-back companies dwindles in 2003

Market conditions have continued to cause the pool of European venture-backed companies to contract, according to the annual Ernst & Young and VentureOne Insight study. Over the course of 2003, ten per cent of European venture-backed companies had ceased operations, and another four per cent exited the venture-backed space via liquidity events.

The year started with almost 4,500 companies, representing E30bn in venture investments. By the end of the year, even taking into account 228 new additions, the pool had reduced by nine per cent to about 4,100 companies with E28bn in investments. About ten per cent of IT companies went out of business in 2003, and nearly four per cent were acquired or merged. The greatest contractions were experienced in the communications and information services industries. In healthcare, nearly eight per cent went out of business and about two per cent were acquired or merged.

'Even with the recent pick up in investment activity, the rate of entrepreneurial firms going out of business means that the overall pool of European venture-backed firms is likely to continue to contract for some time,' said Steven Harmston, VentureOne's director of European research. 'This will be painful for the industry in the short-term but will bring eventual relief as there is still an overhang of companies funded during the bubble economy.'

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