European venture capital activity saw a marked improvement in the second quarter of 2004, according to the latest Venture Capital Report released by Ernst & Young and VentureOne, the Dow Jones subsidiary. With total investment of €967.3 million, the quarter was the most productive since 2002. The number of completed financing rounds rose ten percent over the previous quarter, but was 20 percent down on the second quarter of 2003.
The UK showed the most dramatic increase in terms of volume of activity. While the number of deals fell to 69 from 71 in the previous quarter, the value of those deals increased to €317.6 million, compared with €239.4 million in quarter one: a jump of some 33 percent. In the same period last year, total investment was €178.5 million.
Stuart Wilson, head of Ernst & Young’s venture capital advisory group in the UK, said: “Although the number of deals in the quarter has remained static, the boost in values must be seen as encouraging. For the values to have jumped by a third in the space of three months, the VCs must be confident in the future, especially as they are keeping a firm eye on exit routes.”
As well as the UK, there was cause for celebration in the Nordic region and Switzerland. Denmark, Norway, Sweden and Switzerland all saw increased deal numbers, posting a combined quarterly total of €305 million. The €88.1 million invested in Denmark was the highest amount invested in the country in a single quarter since 2000.
In France and Germany there was mixed news. France saw deals rise slightly from 35 to 38, but their total value fell 18 percent to €106 million. In Germany, the number of deals showed a marginal fall from 33 to 31, but investment showed a small three percent increase to €137.4 million.
In sector terms, European healthcare recorded a seminal breakthrough in the second quarter by receiving more capital (€426.2 million) than information technology (€420.9 million) for the first time on record. “The increased appetite in healthcare investments by European investors is partly influenced by the active life sciences IPOs in the US in the last three quarters and by recent life science IPOs in Europe,” said Gil Forer, global leader of the Ernst & Young venture capital advisory group. The biopharmaceuticals segment saw €322.1 million invested in Q2, up 23 percent on the first quarter.
Part of the explanation for renewed faith in European venture appears to lie in a more promising IPO environment. In the first half of 2004, there were 14 initial public offerings of venture capital-backed companies in Europe (raising €412.1 million), compared a total of eight in the whole of 2003 and 13 in 2002.
The positive developments appear to have continued into the third quarter, with a number of prominent deals completed this week alone. They include the £29 million (€43 million; $52 million) third-round financing of speciality pharmaceutical business Arakis, which was jointly led by the UK’s Scottish Equity Partners and Denmark’s Novo Ventures; and the $12 million (€10 million) first-round funding of Jaluna, a software virtualisation company, led by Atlas Venture and Index Ventures.
Other deals have included: the €9 million ($11 million) first-round funding of Dropshop, a provider of retail drop-off sites to aid eBay and Amazon’s selling services (Benchmark Capital and Index Ventures); the €2 million ($2.4 million) first-round financing of Sensitive Object, a “fingertip-command device” developer, by Sofinnova Partners of France; and a £2 million (€3 million; $3.5 million) investment in SESI, a developer of telecom software, by the UK’s Quester.