Venture capital investment in European companies topped euro 4.56 billion in 2007, the highest annual total since 2002, according to the quarterly European Venture Capital Report released on February 5 by Dow Jones VentureSource. As in the United States, the capital increase was due in part to investors putting more money into later-stage companies, resulting in a 2 percent increase over 2006's investment level. However, Europe's deal count fell for the sixth year in a row with 897 deals completed, 10 percent fewer than in 2006.
Not surprisingly, with fewer deals and more capital, the overall median round size climbed to euro 2.8 million in 2007, the highest median seen since Dow Jones VentureSource began compiling European data.
The fourth quarter saw euro 1.16 billion invested in 221 deals, a nearly 4 percent drop in investment compared to the same time in 2006 when euro 1.2 billion was invested in 237 deals.
"It's just a sign of the times in Europe," said Jessica Canning, director of Global Research for VentureSource. "With a sputtering IPO market and mergers and acquisitions hard to come by, only the most viable of European companies are winning over venture capitalists. At the same time, investors are equipping these promising companies with the capital they need to compete globally and to best position them for a liquidity event."
Larger deal sizes could be seen across the board in Europe as round medians set new records in every industry in 2007. According to the report, healthcare companies benefited the most, as the median round size jumped 76 percent compared to 2006 to euro 4.4 million. The median for information technology (IT) companies reached euro 2.6 million and business, consumer and retail companies saw their median deal size climb to euro 2.4 million.
Another sign that European venture capitalists are shifting their focus toward cultivating exit-ready companies was the allocations to later-stage financings in 2007. While the percentage of early v. late-stage deals remained virtually unchanged from 2006, second rounds and later-stage rounds posted big investment gains. Venture capitalists invested euro 1.04 billion in second rounds, up 12 percent over 2006, while later-stage rounds accounted for euro 2.07 billion, up 13 percent compared to last year and the most investment since 2001.
"Our data shows that investors are still eager to tap the next wave of innovation in emerging areas like energy production, medical devices and Web-related services," said Ms. Canning. "But they're also focusing more resources toward developing older portfolio companies in traditional spaces like software, biopharmaceuticals and communications and networks – the few areas that have been able to find exits in Europe's tight liquidity markets."
Record Year for Energy & Medical Device Investment
The report showed that investment in European healthcare companies dipped just 5 percent to euro 1.46 billion in 2007, even though the industry posted its worst year on record for deal activity with only 192 rounds. The medical device sector saw just 58 deals completed, the fewest on record, but venture capitalists were still able to put a record euro 381 million into these deals. Biopharmaceutical companies saw 115 deals completed in 2007, also a low for the sector, and investments fell 21 percent from 2006 to euro 995 million. One of the year's largest healthcare deals was the euro 50 million second round for biopharmaceutical company Novexe of Romainville, France.
Investment in other industries such as energy, advanced materials and agriculture, continued to grow in 2007. The energy segment specifically posted three fewer deals in 2007 than in 2006 with 38 completed rounds but garnered euro 234 million in investments, a record for the sector. Among the largest energy-related deals in 2007 was the euro 41 million second round investment in electric-maker Think Global of Oslo, Norway.
Info Services & Consumer/Business Services Also Up Big
According to the report, investment in IT was up 2 percent in 2007 to euro 2.32 billion, its highest total since 2002. However, IT deal flow was down 3 percent to 537 deals for the year. Within the IT category, the only segment to see a noteworthy jump in activity in 2007 was the information services sector, which includes most of today's Web-related companies. The segment posted a 46 percent increase in deal flow and a 44 percent jump in investments in 2007 as 155 rounds raised euro 574 million, the most since 2001. One of the year's largest information services deals belonged to Luxembourg-based Internet-TV company Joost, which raised euro 30 million in its first round.
The business, consumer and retail category was the only industry in Europe to see strong growth in 2007 with 89 deals garnering euro 452 million, the most since 2002. While the report showed deal activity to be roughly the same as last year, investment jumped 33 percent over 2006. Driving this growth was a boom in consumer/business services investments. The sector saw 49 deals close in 2007 and more than euro 272 million invested – easily double the euro 120 million put into the space last year. One of the largest deals in this segment was the nearly euro 44 million later-stage round for SiC Processing of Hirschau, Germany, which specializes in mechanical wet cutting.
Geographic Perspectives
– Deal flow in the United Kingdom dropped 7 percent compared to 2006 with 267
deals completed, while investments dipped 3 percent to euro 1.42 billion.
– Capital investment jumped 30 percent in France to euro 1.02 billion, its
highest level since 2001, as its deal counted climbed up 26 percent to 236.
– Capital investment in Germany ticked up 7 percent to reach euro 591 million,
but its 113 deals were down 9 percent from the preceding year.
– In Sweden, capital investment fell 31 percent to euro 190 million and deal
flow was down 51 percent with only 44 deals completed.
– The Netherlands saw investment skyrocket 130 percent as euro 223 million was
invested in 35 deals.
– Deal flow dropped 28 percent in Denmark to 42 deals and capital was down 22 percent
to euro 170 million.
– Following a record year in 2006, Belgium saw investment plummet from
euro 228 million to euro 77 million, putting its annual investment back
on par with 2004 and 2005.
– On a bright note, Switzerland saw six more deals (32) completed in 2007
and garnered euro 277 million in investment, 63 percent more than last year.
The investment figures included in this release are based on aggregate findings of Dow Jones proprietary European research. This data was collected by surveying professional venture capital firms, through in-depth interviews with company CEOs and CFOs, and from secondary sources. These venture capital statistics are for equity investments into early-stage, innovative companies and do not include companies receiving funding solely from corporate, individual, and/or government investors. No statement herein is to be construed as a recommendation to buy or sell securities or to provide investment advice.
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