EUROPE - Venture: resilient, and proving lucrative

mareen
11 December 2009

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While 2009 was a grim year indeed for European buyouts, venture and growth investing has proven more resilient. By Mareen Goebel

While European buyouts plummeted by about 75% by value, venture's losses were slightly less dramatic. And as the year draws to a close, a handful of strong exits vindicate the continued pace of the VC community.

According to unquote", there were 586 venture and growth transactions in Europe, with a total value of over EUR 4.1bn in the first 11 months of 2009. While the value has fallen off a cliff (in the same period last year, about EUR 11bn was invested in European venture and growth), the number of transactions has decreased far less dramatically, at less than a fifth.

As the figures suggest, the average funding round has decreased, pointing towards a strong cost discipline. Investors are more likely to fund firms that are already generating turnover and help them grow rather than investing in business models that might make money 'some day'.

Purely advertising-based online revenues seem largely dead, too. The days are over when any specialised online community received a seven-figure sum. The ideal business to invest in nowadays already generates cash or will do so very soon. The downside of this risk aversion was to diminish seed investing, since this year saw a marked shift towards 'later early stage' deals.

However, the success of 360 Capital Partners and Balderton Capital in Italy lend hope. The venture firms backed online fashion retailer Yoox's EUR 104m IPO in the Star segment of the Milan Bourse, marking the first IPO on the Italian market since May 2008.

In the UK, Index Ventures, Accel Partners and Stanhope Capital have sold social gaming portfolio company Playfish to Electronic Arts (EA) for up to $400m in November, including a $100m earnout - showing the strong appetite for the gaming sector and the online gaming specifically.

There was also considerable activity in the life sciences sector: In Germany, Ventizz Capital Partners sold medtech company innovatis AG to Roche Diagnostics for EUR 15m, and HBM Partners sold Brahms Diagnostica in an all-cash transaction to Thermo Fischer Scientific, generating 21.6x on the invested equity or an IRR of 122%.