Venture capital in Europe on the rise

CMA Management, Nov, 2006

For the second quarter in a row, renewed interest in early-stage investments boosted overall venture capital investment in European companies. In the second quarter of 2006, a total of 962.4 million Euros was invested in 213 deals, according to the quarterly European Venture Capital Report released by Ernst & Young and Dow Jones VentureOne, the publisher of VentureSource. This is 13% more capital invested than in the second quarter of 2005. Deal flow was down by 30% from a year ago, but steady with the first quarter of the year.

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Among the trends in the second quarter were the significant size of first- and second-round deals, the dominance of early-stage activity in overall deal flow and the rekindled interest in select technology and services segments.

"A very strong initial public offering market in Europe in the second quarter is providing investors with the exits needed to enable them to support the next wave of start-up companies," said Steve Harmston, director of global research for VentureOne. "Despite a tightening of the reins around deal flow, we are seeing the most interest in initial financings, in proportion to the total activity, since 2001."

"With increased globalization as well as the emergence of new innovation centers and markets around the world, it is vital for early-stage companies to be properly equipped to compete in this new landscape. The fact that the median size of early-stage financing rounds is the largest it's been in at least seven years is clear evidence that European start-ups are receiving the recognition and resources that they need from their investors," said Gil Forer, global director of Ernst & Young's Venture Capital Advisory Group.

The information technology segment as a whole had capital investment increase 45% to 583.6 million Euros in the second quarter; although deal flow was down by 50 financings. Still, this was the most capital investment to the IT category since the second quarter of 2002, boosted in particular by increased activity for the Internet-heavy information services segment.

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