"The European venture capital market saw an explosion in early-round investing as euro 600 million was poured into 126 early stage deals," said Jessica Canning, Director of Global Research for Dow Jones VentureOne. "The data shows the median amount invested in a first round during the quarter was euro 3.2 million, by far the highest total on record. Add to that a continued interest in later-stage deals and the overall median for a deal done in Europe jumped 41% during the second quarter to a record euro 3.1 million."
Chips, Info Services Shine for IT; Biopharmaceuticals Dominate Health Care
The IT sector saw the resurgence of semiconductor investing as European chip companies completed 16 venture rounds in the quarter, raising over euro 127 million in capital, the highest total since the third quarter of 2001. Accounting for the bulk of activity, nine later-stage chip companies raised euro 98 million in capital, a tenfold increase over 2006. One of the larger deals was the euro 22.5 million later-stage financing of Swedish WLAN chipmaker Nanoradio.
Also of note was an 11% increase in deals for "information services" companies, which completed the most deals since 2002 with 42 rounds but raised just euro 127 million, 38% less than in the second quarter of 2006. Nearly 74% of deals in this area were seed, first or second rounds. "Information services" include blogs, social networks, wikis and other Web 2.0 technologies.
In the healthcare sector, biopharmaceutical companies accounted for 66% of deal flow, attracting euro 243 million in 27 deals. Like other investment areas, the year-over-year totals for biopharmaceutical deals were down (13%) while euros invested were up (24%). In contrast, medical devices saw a 48% decline in deals and a 28% drop in capital invested as only euro 45 million was raised during 12 rounds.
"The record median round size in Europe this quarter is the continuation of a trend that we have observed over the last 18 months in which investors are providing greater sums to fewer companies, allowing those companies to better compete globally and build critical mass for an IPO or M&A," said John De Yonge, Research Director for the Ernst & Young Global Venture Capital Advisory Group. "During the same period, the proportion of deals and euros directed to early-stage investments has increased, indicating that European investors are supporting a healthy pipeline of innovation in emerging sectors such as clean technology."
The report also found that European venture capitalists continued to invest in energy companies as well. There were 12 energy deals in the second quarter, up just slightly from the 10 deals in the same period last year, but investment in the segment rose to its highest level ever as euro 81 million was invested in energy companies.
European VCs Still Involved Early But Investing Just As Much in Later Rounds
Almost 59% of all venture rounds in Europe during the second quarter were seed, first or second rounds. Investments into these rounds surged to euro 600M, marking a 15% increase over the second quarter of 2006. Investors made fewer deals in the second quarter of 2007, but each deal was significantly larger than previous quarters. The median amount invested in a first round was euro 3.2M, almost equal to the euro 3.29M of later-stage deals. The euro 3.2M for first-round investments is 55% higher than 2Q2006 and 113% higher than 1Q2007.
Overall deal sizes jumped in the second quarter of 2007 to euro 3.12M, 42% higher than the same quarter last year (euro 2.2M). This was also the first time in over six years that the overall median deal size broke the euro 3M mark.
Round allocations varied by industry. Healthcare saw just 20 early stage deals-13 of which were biopharmaceutical deals-but they raised euro 108 million, or 25% more than in 2006. Later-stage health care investments attracted just 1% more capital this quarter. Conversely, IT companies saw a 24% pickup in later-stage investments with euro 288 million invested while early-stage financings only raised 6% more capital than last year with euro 368 million.
European Activity by Country
- France experienced 15% more deals (54) and 20% more capital (euro 206 million) invested during the second quarter compared to last year. France's six-month investment total of euro 513 million was the country's highest since 2001.
- The United Kingdom attracted the most deals and euros in Europe for the second quarter; however, its 61 rounds and euro 299 million in capital invested represented declines of 15% and 20%, respectively, from the second quarter of 2006.
- Deals declined 16% in Germany to 27 for the second quarter while capital investment rose 7% over 2006 to euro 161 million.
