"Much like in the U.S., the Europe's IPO market is virtually nonexistent and the turmoil in the broader economy is keeping many corporations from acquiring venture-backed companies," said Jessica Canning, Director of Global Research for Dow Jones VentureSource. "This is putting pressure on venture capitalists who are being very selective in the number of deals they're doing and kinds of companies they're backing. The pullback in the European IT industry is a trend that is being mirrored closely in the U.S., where IT deal activity also reached its lowest point in more than a decade during the third quarter."
Traditional Investment Areas See Losses
Within Europe's IT industry, the data showed that just three semiconductor deals accounted for euro 48 million in funding, down 60% from the euro 119 million put into 12 similar deals during the same period. In the Web-heavy information services sector, only 16 deals were completed with euro 61 million invested, a 52% drop from the euro 126 million put into 24 deals in the third quarter of 2007. European software companies saw investment climb 24% to euro 166 million in the most recent quarter from euro 133 million in the third quarter of 2007 despite seeing the number of deals completed drop to 44 from 51.
According to VentureSource, health care investment in Europe fell 13% from euro 360 million in the third quarter of 2007 to euro 312 million in the most recent quarter with 58 deals completed, just slightly behind the 61 completed last year. Investment in biopharmaceutical companies remained totally flat at euro 261 million even though 39 deals were completed, 10 more than last year. Conversely, medical device sector saw its deal count drop to 14 in the most recent quarter from 26 in the third quarter of 2007 with investment down 49% to euro 40 million from euro 79 million.
Business & Financial Services Up, Energy Continues to Boom
Europe's energy and utilities industry saw record investment during the third quarter with euro 192 million put into 14 deals - euro 187 million of that capital went to 13 deals in the renewable energy sector. The largest deal of the quarter was the euro 120 million later-stage round for wind turbine maker WinWind of Helsinki, Finland.
"Once again, we're seeing a trend in the United States carried over in the European markets as renewable energy investment is setting new records in both regions," added Ms. Canning. "While venture capitalists are being extremely selective about the companies they invest in at this time, they clearly have not abandoned their core values of investing in emerging markets and backing innovative technologies."
Elsewhere, the report showed that Europe's Business & Financial Services industry posted its best quarterly investment total in nearly six years with euro 207 million put into 27 deals during the third quarter, an 18% increase over the euro 176 million invested in 26 deals during the same period last year.
Shift to Later-Stage Investments
In the third quarter, the bulk of capital investment was directed to second and later rounds. Later-stage rounds accounted for 52% of Europe's total quarterly investment with euro 616 million put into 66 deals, up from a proportion of 49% last year. Second rounds accounted for 22% of the total with euro 255 million put into 46 deals, flat compared to last year. Seed and first rounds accounted for 24% of investment in the most recent quarter with euro 284 invested in 96 deals, down from last year when euro 342 million (or 28% of total capital investment) went to 102 seed and first round deals.
Boosted by the number of larger later-stage deals, the overall median deal size ticked up slightly to euro 3 million in the most recent quarter from euro 2.9 million in the third quarter of 2007.
Geographic Perspectives
- In the United Kingdom, venture investment fell 27% to euro 315 million in the most recent quarter from euro 431 million in the third quarter of 2007 with the number of deals completed dropping to 62 from 80. The U.K. accounted for 30% of Europe's quarterly deal total.
- Due to a strong health care investment, France saw overall venture investment climb 13% to euro 212 million in the third quarter while deal activity dropped slightly to 52.
- Venture investment in Germany was down 18% compared to the third quarter last year with euro 132 million invested in 30 deals.
- Capital investment in Sweden tripled to euro 54 million in the most recent quarter from euro 18 million in third quarter of 2007, with 10 deals completed.
- Driven by WinWind's euro 120 million deal, Finland saw its venture investment total skyrocket to euro 126 million for the quarter with just two deals completed in total.
