Private Equity News & Analysis

Venture doldrums

Figures for the third quarter show a sharp decline in venture fundraising.

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European venture capital firms are closing funds at a slower pace in 2006 and raised just half as much capital in the third quarter compared to last year, according to Dow Jones VentureOne, the publisher of VentureSource.

In total, five venture capital funds raised €451.7 million in the third quarter. That compares to 10 venture capital funds which raised €903.8 million in the third quarter of 2005.
         
Year to date through the third quarter of 2006, €1.62 billion has been raised among 27 funds, off the pace of 39 funds and €2.86 billion raised at the same point last year. However, the median size of funds raised in Europe this year has grown, to €37.3 million, up from €32.2 million in 2005. The record was set in 2000 when the median fund size was €50 million.
           
“While European venture capital fund raising has significantly decreased, the total amount of venture capital raised to date this year still exceeds the total funds raised during both 2003 and 2004,” said Steven Harmston, director of global research for VentureOne.

The European venture capital market is much more diversified than in the US, with more participation by buyout and other private equity firms in the investments, which is why VentureOne tracks a broader range of funds in Europe.
           
Among the largest venture capital funds that closed in Europe in the third quarter were Scottish Equity Partners’ €234.9 million SEP III fund in the United Kingdom and Life Sciences Partners BV’s  €150 million Life Sciences Partners III Fund in the Netherlands.

In the US, by contrast statistics for this year thus far show that 2006 has seen a significant shift in where venture capital dollars are flowing, and they’re showing a distinct preference for first-time funds.

According to data compiled by the National Venture Capital Association, 52 firms were founded in the first nine months of this year, compared with just 23 last year. These new firms have raised a total of $4.4 billion (€3.4 billion) from January to September.