Venture capital investment falls by 70 per cent

European venture capital investment has fallen by over 70 per cent in the past twelve months as investors remain hesitant and exit opportunities continue to dwindle.

European venture capital investment has fallen for the seventh consecutive quarter, according to latest Q3 figures published by Ernst & Young and VentureOne.


A total of E781m was invested during the three months to September 30, a quarter-on-quarter fall of 33 per cent. The number of deals completed fared little better, down 26 per cent at 206. The figures mean that venture investment now stands at less than 30 per cent the levels for Q3 2001.


Investors are continuing to commit to software and biopharmaceuticals businesses, accounting for 58 per cent of total investment in Q3. “Venture capitalists are looking for companies that require comparatively minimal investment to develop and market a product,” says Gil Forer, Global Leader of Ernst & Young's Venture Capital Advisory Group. “Software exemplifies that model.”


UK, France and Germany continue to dominate European venture capital investment, with UK dealflow holding steady during the quarter. German investment picked up after a poor first half, amounting to E134m compared with an average of E110m in the first two quarters.


As with previous quarters, the lack of exit opportunities remains the primary deterrent for investment. Only two venture-backed initial public offerings were completed in the third quarter, compounding already poor data for Q1 and Q2. Steve Harmston, director of European research at VentureOne, believes the trend is set to continue. “With no exit options in sight, venture capitalists are unwilling to commit large sums, and many are waiting on the sidelines.”