Record Deal Sizes Push European Venture Capital Investment to Euro 1.14B in 2nd Quarter

Wednesday, September 5, 2007 General News
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LONDON and NEW YORK, Sept. 5 European venture capitalinvestment climbed to euro 1.14B in the second quarter, despite a decreaseddeal flow of 213. The 5% increase in amount invested over 1Q07, despite a 20%drop in deal flow, is primarily due to increased deal sizes in early-stageinvestments. Year-over-year, investment was up and deals were down in nearlyevery industry, the report found, with healthcare companies seeing the biggestchange, raising 10% more capital (euro 290 million v. euro 265 million) in 34%fewer deals (41 v. 62) than in the second quarter of 2006.

European information technology companies attracted the bulk of thecapital overall, raising more than euro 690 million in 138 deals. Despite ITdeals being down 12% from the 156 completed in the second quarter of 2006,this was a 3% increase over 2006 in euros invested and the largest quarterlyinvestment total for European technology companies in five years.

"The European venture capital market saw an explosion in early-roundinvesting as euro 600 million was poured into 126 early stage deals," saidJessica Canning, Director of Global Research for Dow Jones VentureOne. "Thedata shows the median amount invested in a first round during the quarter waseuro 3.2 million, by far the highest total on record. Add to that a continuedinterest in later-stage deals and the overall median for a deal done in Europejumped 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 Europeanchip companies completed 16 venture rounds in the quarter, raising over euro127 million in capital, the highest total since the third quarter of 2001.Accounting for the bulk of activity, nine later-stage chip companies raisedeuro 98 million in capital, a tenfold increase over 2006. One of the largerdeals was the euro 22.5 million later-stage financing of Swedish WLANchipmaker 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 raisedjust euro 127 million, 38% less than in the second quarter of 2006. Nearly74% of deals in this area were seed, first or second rounds. "Informationservices" include blogs, social networks, wikis and other Web 2.0technologies.

In the healthcare sector, biopharmaceutical companies accounted for 66% ofdeal flow, attracting euro 243 million in 27 deals. Like other investmentareas, 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 millionwas raised during 12 rounds.

"The record median round size in Europe this quarter is the continuationof a trend that we have observed over the last 18 months in which investorsare providing greater sums to fewer companies, allowing those companies tobetter compete globally and build critical mass for an IPO or M&A," said JohnDe Yonge, Research Director for the Ernst & Young Global Venture CapitalAdvisory Group. "During the same period, the proportion of deals and eurosdirected to early-stage investments has increased, indicating that Europeaninvestors are supporting a healthy pipeline of innovation in emerging sectorssuch as clean technology."

The report also found that European venture capitalists continued toinvest in energy companies as well. There were 12 energy deals in the secondquarter, up just slightly from the 10 deals in the same period last year, butinvestment in the segment rose to its highest level ever as euro 81 millionwas invested in energy companies.

European VCs Still Involved Early But Investing Just As Much in LaterRounds

Almost 59% of all venture rounds in Europe during the second qu

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