First year of positive worldwide growth in investing since the VC bubble, yet Europe remains constrained by US investment transfer

Venture-capital activity in 2004 is expected to complete the year on a positive note says Ernst & Young and VentureOne. This good news was due to the modest return in the liquidity market for venture-backed companies and the subsequent bullishness on the part of investors who regained focus on company formation investments. Worldwide, venture capital financing has increased 13% so far in 2004, over the comparable period in 2003. In total, $18.99bn has been invested in 2,369 transactions in the US, Europe and Israel. Valuations crept upward for venture-backed companies receiving investments this year in Europe. German companies were the most highly valued this year, but valuations were up for UK companies as well, compared to last year. However, although there has been an improved level of financing this year, European investment activity remains constrained by the transfer of investments into the US 'European investors participated in almost 200 financing rounds in the US through the first three quarters of the year, yet US investors were active in only 142 rounds in Europe, creating a disproportion of international transfers', said Stephen Harmston, director of international research at VentureOne. ‘The majority of the European investment into the US came from the UK and Germany, but on the other side, US investors were much more active in financing UK companies, followed by French companies, than investing in German startups'.

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