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London (pte009/17.02.2003/09:20) - After five consecutive quarters of steep decline, European venture investment was flat in the fourth quarter of 2002, according to a survey by Ernst & Young and VentureOne. The glass is half-full, says the report, as the debris caused by the internet investment fiasco is slowly clearing. http://www.alternativeinvestor.info
With E878m invested in 223 transactions, the fourth quarter of 2002 was just 1 per cent less than the level of the previous quarter - although the number of deals was a full 13 per cent down. The report sees this as long-awaited encouragement for European venture-backed companies.
The past three years have seen a radical shift to later-stage investment, which has tended to mean larger, if fewer, recipients. In 2000, 70 per cent of all venture capital rounds were seed and first-round financings. By 2001, allocation had balanced out somewhat, and seed and first rounds constituted 46 per cent of the rounds. With investors leery of new commitments, pickings were slim for early-stage companies in 2002: Just 35 per cent of the venture capital transactions completed in Europe were seed and first rounds; 65 per cent were second and later, as venture capitalists concentrated on stabilizing existing portfolio investments.
The legacy of the dot.com years is beginning to weigh less heavilly on the troubled venture captial industry. According to Steve Harmston, VentureOne Director of European Research: "The substantial decline in investment into young innovative unlisted firms by venture capitalists in 2002 is part of the wider post-bubble shake-out in capital markets. Those firms that raised small first-time funds in the late 1990s and early 2000 lost heavily in the Internet-led investment boom and now face significant challenges. Pension funds and other institutional investors are unwilling to provide them with new funds to invest, and they can't exit existing investments."
Today it is another IT sector that is feeling the heat: fourth quarter's relatively good news is all the more surprising in light of a significant fall-off in the amount invested in software companies. Only E135m were invested in 56 venture capital deals, declines of 45 per cent and 27 per cent respectively, from 3Q'02. Healthcare and products and services companies picked up the slack. Led by the biopharmaceuticals segment, healthcare investment rose 33 per cent, to E385m for the quarter, and products and services gained 25 per cent, to E142m. Nevertheless, for the year as a whole, software shared the limelight with biopharmaceuticals: Together, the two segments attracted 53 per cent of all euros invested in venture-backed companies, with totals of E1.2bn and E1.1bn, respectively.
From a regional perspective, the UK, France, Germany, and Sweden continued to dominate European venture investment throughout 2002, with investment in these countries accounting for roughly three quarters of the total amount. The UK is far and away the strongest country in both transactions and amount invested, but the number-two position, held in 2000 and 2001 by Germany, has shifted to France. UK-headquartered entrepreneurial firms accounted for E1.5bn of the total European investment in 2002-more than the amount invested in France (E732m) and Germany (E575m) combined.
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