European VC activity continues downward slide

Venture capital investment in Continental Europe slowed to E616m in the third quarter, although UK activity showed signs of a recovery.

Unable to match the recent increase in US venture capital activity, European VC investment has continued to fall, according to the latest results published in the Ernst & Young/VentureOne Global Venture Capital Survey.

 

Third quarter investment activity declined 20 per cent in Euros and 25 per cent in deals from the second quarter of the year, with a total of E616m invested in 191 transactions. By contrast, US venture capital investment maintained momentum in the third quarter of 2003, with $4bn invested, the same level as in Q2.

 

The European trend of declining venture capital investment was bucked by the UK figures, which showed a 52 per cent increase in total investment to E277, accounting for almost half of Europe’s third quarter activity. Investments in information technology, which declined 12 per cent overall in Europe this quarter, climbed in the UK, which had a 54 per cent increase in IT investment.

 

In the third quarter, the two largest deals were Arrow Therapeutics, a drug developer based in London, which raised E30m, and Ardana Bioscience, a developer of reproductive health products based in Edinburgh, which raised E29m. Biopharmaceuticals was the most active sector for investment, with E195m.

 

The level of investment is also down more than 20 per cent on the figure for Q3 2002, when a total of E781m was invested across 206 deals. The Q3 total in 2002 was, in turn, less than 30 per cent of the Q3 2001 total.

 

Despite the contrasting fortune of venture capital activity in Europe and the US, Dave Cabral, Pan-European Leader of Ernst & Young's Venture Capital Advisory Group, said he believed there were grounds for optimism. “Venture capital activity in Europe historically lags the US by at least two quarters. With investment holding steady in the US in the most recent quarters, we can expect to see the European market following suit in the first half of next year.”

 

Seed and first round financings accounting for 27 per cent of total deals, an increase of 5 per cent on the second quarter. Also, the median amount raised in a round of venture capital financing rose from E1.75m in the second quarter to E2m in the third quarter, its highest level in two years.