European venture activity up, says research

01 September 2004

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European venture capital activity saw marked improvement in Q2 2004 with EUR 967.3m invested. This was the highest quarterly amount invested since 2002, according to the European Venture Capital Report released by Ernst & Young and VentureOne. The number of completed financing rounds fell 20% from Q2 2003, but rose by 10% over the Q1 this year. In the UK venture capital activity in Q2 2004 remained flat with 69 deals compared to 71 deals in Q1, although the value increased to EUR 317.6m in Q2 compared with a value of EUR 239.4m in Q1 2004, an increase of 33%. In Q2 2003 the number of deals in the UK amounted to 66 and the value was EUR 178.5m.

The increase in European investment was boosted in part by a significant increase in healthcare investing, particularly for biopharmaceutical and medical devices companies. The EUR 93.7m invested in medical devices companies was the most directed to this industry segment since Q2 2001, although the deal count was relatively flat with Q1 2004. For biopharmaceuticals, the EUR 322.1m was the highest investment in this segment in two years, with deals increasing 23% from Q1. The biopharmaceutical category was also home to the second quarterâ€™s largest deal, the EUR 38.1m investment in PowderMed, a developer of DNA vaccines for use in the treatment of chronic viral diseases and cancer.

For the first time on record, the total amount invested in European healthcare companies exceeded the amount invested in information technology: EUR 426.2m to EUR 420.9m. Along with healthcare investing, the information-technology category also realized increases this quarter. The communications segment posted substantial gains, with EUR 146.7m invested in 30 deals - the highest amount and the largest number of deals for this segment since Q1 2002. For software, there were 70 deals and EUR 201.2m invested, increases of 19% and 39%, respectively, from Q1 this year.

Overall, 32% of the deals this quarter were directed at seed- and first-round financings, which is the highest percentage for such early-stage rounds in two years. The slight improvement in the liquidity market in Europe - enabling investors to finally reach an exit for longstanding portfolio companies - may be contributing to the increased investment in seed- and first-round deals, allowing investors to seek out the most promising start-ups. In the first half of the year, there were 14 initial public offerings (IPOs) of venture capital backed companies completed in Europe, raising EUR 412.1m. That compares with eight IPOs in total in 2003, and 13 in 2002. Acquisitions of venture-backed companies, however, have been relatively flat with previous yearâ€™s amounts. So far, 64 companies were acquired in the first half of this year.

By country, the UK generated most of the venture-capital activity this quarter with 69 deals and EUR 317.6m invested. It was the highest amount invested in the UK since Q3 last year, although dealflow was flat. Interestingly, four countries saw a significant rise in venture-capital activity, making up almost a third of the total European investment this quarter. Denmark, Norway, Sweden, and Switzerland all saw increased deal counts, and substantial investment levels, reaching a combined total of EUR 305m. Of note, the EUR 88.1m invested in Denmark this quarter was the highest amount invested there in a single quarter since 2000. In France, deals rose slightly to 38, from 35 last quarter, but investment fell 18% to EUR 106.0m. In Germany, deals dropped by two to 31 this quarter, but investment rose by 3% to EUR 137.4m.