European VC investment falls by half

European venture capital investment has been harder hit than its US counterpart, reporting a 46 per cent drop against the figures for the second half of 2001.

European venture capital activity continued to decline sharply in the first half of 2002, according to the joint global venture capital survey by Ernst & Young and VentureOne.

European investment fell to E2.4bn in the six months to June 30, down 46 per cent on the figures for the second half of 2001. Europe has been harder hit this year than the US, where investment and deal flow fell 36 per cent and 29 per cent respectively, against a 41 per cent drop in European deal flow.

The UK, France, Germany, and Sweden continued to account for the bulk of European investment, although all four countries saw large drops in venture capital activity. The decline of venture capital in Germany was the most severe, with only E220.4m invested in 81 deals – a 76 per cent decline in investment and a 93 per cent drop in transactions.

The four dominant industries receiving venture capital in Europe – software, biopharmaceuticals, consumer and business services, and communications – accounted for 75 per cent of the amount invested in the first half of 2002.

The starkest evidence of a lack of investor confidence is provided by the absence of viable exit routes for venture investors. So far this year, only seven companies have entered the public market by way of a floatation, raising a total of E70.8m. This is a 90 per cent fall on the figures for the first half of 2001 when 21 companies raised E692m.