European Venture Capital halves in 2002
2003 brings some hope of recovery
London (pts013/05.03.2003/10:20) Figures released recently by Ernst & Young and VentureOne reveal that European venture capital investment fell by 58% in 2002 to 4.4bn euros, 79% lower than the 20.6bn euros raised in 2000. Deal flow also dropped by 49% over the year. However investment in Q4 2002 remained relatively flat, with 877m euros invested in 223 transactions, down only fractionally on the previous quarter of 883m euros.
Stuart Watson, head of Ernst & Young's Venture Capital Advisory Group in London, explains, "To put these figures into perspective, what we are seeing in venture capital activity across Europe is a return to normality after the extraordinary events of 1999 and 2000 in some countries, and a probable overreaction in others. VCs with a pan European reach will be looking for bargains in those countries which have fallen furthest. 2001 and 2002 have both been years in which venture capitalists have been concentrating hard on sorting out their existing portfolios.
The reduction in the amount of invested money and the challenges facing the venture capital industry has been reflected throughout Europe. Despite a slight pick up at the end of the year Germany experienced a painful 70% decrease in investment levels from 1.9 billion euros in 2001 to 575m euros in 2002 and a 53% fall in deal activity. France showed a fall of more than 50% to 731m euros and a 45% decrease in level activity (380 deals in 2001 to 209 in 2002). Sweden was down 68% to 364m euros, and Ireland illustrated a similar negative story, down 49% from 378m euros to 193m euros. The Netherlands reported deals of 113m euros in 2002, 10% of the value of 2000.
Although the UK VC market more than halved again in 2002 from 3.2bn euros to 1.5bn euros (2000 figure 7.1bn euros) it remains the largest VC market in Europe accounting for 34% of the total amount of funds invested.
One of the bright spots in the European VC market in 2002 was healthcare investing, which was largely ignored during the boom and which constituted 33% of 2002 investment, up from 21% in 2001.
Despite the dramatic decline in activity in the IT sector the software industry still (just) remains the most important area for VC activity throughout Europe, accounting for 27% of investment, worth 1.2 billion euros, although the size of the deals was on average far lower than the healthcare sector.
Stuart Watson adds, "Looking ahead we are going to see some interesting activity in the IT industry particularly around wireless technology companies. 2003 will see only a modest shift in allocation towards seed and first round companies, as VCs will concentrate on looking for attractive valuations in later stage companies, as long as they can see an exit route over the next few years. There is still a 'wall of money' and the larger VCs are under pressure to put their funds to work."
For more information please contact:
Eve Titchener, Ernst & Young, 020 7951 0868 or 07855 488667, etitchener@uk.ey.com
Will White , Ernst & Young, 0207 951 3264, wwhite@uk.ey.com
Steve Harmston, VentureOne, 020 7405 7555, sharmston@ventureone.com
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