Europe’s venture capital firms are still sweating it out in the aftermath of the technology meltdown, with investment dropping significantly by both number of companies invested in and the amount invested.
In the second quarter of 2002, just €304.3m found its way to 344 start-up companies compared to €412.1m invested in 437 companies in the first quarter, according to the European Private Equity and Venture Capital Association’s Quarterly Activity Indicator.
The average investment dropped by €60,000 between first two quarters of 2002.
Buy-outs by contrast have enjoyed a surprisingly robust quarter, buoyed by high-ticket deals and a flurry of activity towards the close of the second quarter. €5bn of private equity funds’ cash found a home in the second quarter, up from €3.6bn in the first quarter, an increase of nearly 40 per cent. But it was the buy-out players’ performance at the top end of the market, with such deals as Cinven's acquisition of NCP that bolstered the numbers.
The data also revealed that insolvencies have soared and are the second most common route to exit across the board, rising to €418m in the second quarter, representing almost a third of all exits compared to €177m and 17 per cent in the first three months of the year.
Funds raised are also down by 70% to €1.6bn in the second quarter, as many investors continue to monitor rather than commit to the asset class. Many are also wary of building an exposure in a class that some regard as having a telling correlation with public equity markets.
Gilian Middleton, the European research manager at Thomson Venture Economics, which alongside PricewaterhouseCoopers conducted the survey for EVCA, said: “The more we show how private equity is linked to the equity markets, the more it becomes a vicious circle.”
The closure of the IPO markets as well as the low level of trade sales have also helped stifle returns from private equity and venture capital funds further encouraging investors to watch amd wait. Keith Arundale, PwC’s European Venture Capital Leader, said: “2001 was not a great year and 2002 is probably worse for VC returns. That might put some pension funds off investing in the asset class.”
Arundale said that the industry should have written off the worst of its portfolio by the end of 2002 after two years of seemingly relentless write-downs. He said: “Hopefully by the end of the year all the medicine has been taken and the managers can start next year with a clean sheet.”