UK venture capital investment slows in second quarter of 2007

Leisure Report, Oct, 2007

The UK continues to lead the rest of Europe in terms of venture capital deals and investment, although the number of completed transactions fell in the second quarter, according to the Quarterly European Venture Capital Report from Ernst & Young and Dow Jones VentureOne.

There were 58 deals and 317.6m [euro]] (212.8m [pounds sterling]) invested in the UK, representing declines of 11% and 28% respectively, and although this was the greatest number in Europe, it was nevertheless down 15% and 20% respectively, year on year.

Information Technology companies attracted the bulk of the capital, while Biopharmaceutical companies also fared well.

VCs are still seen to be displaying a healthy appetite for early-stage investments, with 59% of fundings either seed, first or second rounds.

"The continued growth in round size, especially in second and later rounds, indicates that investors are providing the most promising portfolio companies with the resources needed to progress along the path to exit," said John de Yonge, global research director of Ernst & Young's Venture Capital Advisory Group. "Last year saw the most venture-backed initial public offerings in Europe in six years and steady acquisition activity. Investors are focusing greater capital and attention on the subset of companies with the most potential to take advantage of the supportive exit climate in the near term. The European venture capital market saw an explosion in early-round investing as 600m [euro] was poured into 126 early stage deals," added Jessica Canning, director of global research for Dow Jones VentureOne. "The data shows the median amount invested in a first round during the quarter was Eu3.2m, by far the highest total on record. Add to that a continued interest in later-stage deals and the overall median for a deal done in Europe jumped 41% during the second quarter to a record 3.1m [euro]."

De Yonge said that the record median round size in Europe in the quarter represented the continuation of a trend. "Over the last 18 months ... investors [provided] greater sums to fewer companies, allowing those companies to better compete globally and build critical mass for an IPO or M&A. During the same period, the proportion of deals and dollars directed to early-stage investments has increased, indicating that European investors are supporting a healthy pipeline."