The downward spiral of European venture capital investment activity has slowed. Recently published fourth quarter data indicates a drop in investment of just per cent drop compared with the previous quarter.
According to figures published by Ernst & Young and VentureOne, E878m was invested in 223 transactions in the final three months of 2002, against a total of E886m in the previous quarter. The steadying of investment levels comes despite a 13 per cent drop in deal activity, which produced an increase in average deal size to just under E4m.
However, when taken as a whole, 2002 was a poor year for VC investment. European start-ups raised E4.4bn in 2002, compared with E10.5bn in 2001, a near 60 per cent drop. Evidence of the decline in valuations was highlighted by a five per cent drop in average investment size to just E2m.
The numbers also evidence a significant shift to later-stage investment. At the height of the tech boom in 2000, 70 per cent of all venture capital rounds were seed and first-round financings. By 2001, this figure had fallen to 46 per cent. In 2002, just 35 per cent of venture capital in Europe went to seed and first round investment.
Fundraising has also been hard hit by the market’s move away from venture capital. Only E3.4bn was raised for VC investment in Europe in 2002, against the E13.5bn and E10.6bn raised in 2000 and 2001, respectively. According to data from the NVCA and Venture Economics, 108 US venture funds raised $6.9bn last year, an 80 per cent drop on 2001 when 331 venture funds raised $40.7bn. As yet, Europe is yet to encounter the level of fund cutbacks seen in the US.
France, recently identified as Europe’s second largest market for buyout activity, has replaced Germany as the key market for venture capital investment behind the UK. UK-headquartered entrepreneurial firms accounted for E1.5bn of the total European investment in 2002 – more than France (E732m) and Germany (E575m) combined.
Liquidity opportunities for venture-backed companies remained scarce in 2002. Just 12 venture-backed companies completed initial public offerings, raising E85m – a significant decline even from the E774m raised by 27 firms in 2001, and cataclysmic when compared with the E11.3bn raised in 172 venture-backed IPOs in 2000.