Venture Investment Slides in Third Quarter of 2011 as Europe Reports Lowest Deal Count on Record

Dow Jones VentureSource: Investors put €951 million into European venture companies;
Consumer Web and enterprise start-ups buck downward trend

Venture capitalists put €951 million into 219 deals for European companies in the third quarter of 2011, a 12% drop in investment and 13% decline in deal flow over the same period last year, according to Dow Jones VentureSource. This marks the lowest quarterly deal count for Europe since VentureSource began tracking the region in 2000.

“The ongoing European debt crisis, drop in consumer and business confidence and general uncertainty surrounding global economic conditions continue to affect levels of venture capital financing activity in the region significantly,” said Anthony Sheldon, research manager, Dow Jones VentureSource. “With no clear indication of an improving global economic environment, it remains to be seen whether the small gains made this quarter in the consumer and business sectors are a genuine cause for optimism looking forward to 2012.”

The median size of a European venture capital deal was €2 million in the third quarter of 2011, on par with the same period in 2010.

Consumer and Enterprise Service Industries Buck Downward Trend

Consumer Services companies raised €274 million for 39 deals in the third quarter, a 12% increase in investment despite a 26% drop in deal flow.

Within the Consumer Services industry, Consumer Web companies saw a steep decline in deal flow and investment. Consumer Web companies, which include social networking and online entertainment start-ups, raised €104 million for 21 deals, a 33% drop in capital raised and 34% decline in deal activity.

The Business and Financial Services industry also saw an increase in investment despite a drop in deal flow as 26 deals raised €143 million. This represents a 13% decline in deal activity but more than double the capital collected in the same period last year.

Medical Devices Sector Offers a Bright Spot in Healthcare

As more deals for Healthcare companies went to seed and first rounds, which are less capital-intensive than later-stage rounds, investment in the industry declined 27% despite a 10% increase in deal flow. In the third quarter, 56 Healthcare deals raised €262 million.

Within Healthcare, investment in the Medical Devices sector more than doubled to €93 million as deal flow rose 71% to 24 deals.

“In the U.S., medical device investors have been voicing concerns over the clarity of theFood and Drug Administration’s requirements for the approval of devices. This could be pushing some investors to look for opportunities overseas and Europe may be benefiting from that,” said Mr. Sheldon.

As usual, the Biopharmaceuticals sector took the largest share of Healthcare investment, attracting €163 million for 29 deals, a 44% decrease in investment and 9% decline in deal flow.

IT Industry Records Lowest Quarterly Deal Count

The Information Technology industry recorded its lowest quarterly deal count as 63 deals raised €183 million, a 13% drop in deal flow and 31% drop in capital invested. The Software sector continued to be the most popular investment area within IT as 45 deals raised €107 million.

Country Perspectives

The U.K. remained the favorite destination for venture capital investment in Europe, taking 35% of overall investment and 33% of deals. Companies in the U.K raised €336 million for 73 deals, a 4% drop in deal count but a 45% increase in capital raised.
France came in second place in terms of both investment and deal flow as 39 deals raised €189 million, a 36% decrease in deal flow and 38% decline in investment.
Germany came in third as 24 deals raised €81 million. This marks a 26% decline in investment, but deal activity was nearly on par with the same period last year when 23 deals were completed.