UK bears brunt of VC downturn

The first quarter of 2003 saw venture capital investment in the UK fall by 48 per cent, with France and Germany not far behind.

The fall in European venture capital investment shows little sign of levelling off, as new figures from Ernst & Young and VentureOne evidence. A total of E639m was invested in European early-stage companies in the first three months of 2003, down from E1.05bn in the final quarter of 2002.

 

The UK suffered the largest decline in VC investment during the period, down 48 per cent at just E191m. Despite this, it remains the largest European market ahead of Germany (E121m) and France (E97m).

 

The number of deals completed also declined from 71 in Q4 2002 to 49 in Q1 2003.

 

The four largest markets, Germany, France, UK and the Nordic region, accounted for 78 per cent of VC investment in Europe in Q1 2003, down from a 92 per cent market share in Q4 2002 as less developed markets proved more resilient to macro– economic pressures.

 

Investment was down across all industries throughout Europe. The most dramatic fall was in the biopharmaceutical sector, down 54 per cent from E321m in the last quarter to E147m in the three months to March. Other sectors, including IT and telecommunications, performed slightly better, but were still down on the previous quarter. The biggest investment during the three-month period went to online grocer Ocado which raised E48.5m from UBS, John Lewis and an undisclosed investor.

 

In the United States, quarterly venture investment dropped below $4bn for the first time in five years, with $3.4bn invested in 404 deals in the first quarter of 2003, declines of 21 per cent in value and 12 per cent in deal volume from Q4 2002.

 

Stuart Watson, who leads Ernst & Young's Venture Capital Advisory Group in the UK, said: “These are very disappointing figures. Deal flow appeared to have stabilised in the second half of last year after a poor run, but it is evident in the last quarter that the VC market was not immune to the impact of world events that other markets also experienced. The global economic uncertainly has had a major impact on investor's confidence.”