Venture Capital Investment in Europe Fell 14% in 2011

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Venture capitalists put €4.4 billion into 1,012 deals for European companies in 2011, a 14% decline in investment and 19% decline in deal flow from 2010, according to Dow Jones VentureSource. This marks the lowest annual deal count for Europe since VentureSource began tracking the region in 2000.

The fourth quarter was the weakest of the year in terms of deal activity as 194 deals collected €1.1 billion, a 43% drop in deals and 38% decline in investment over the same period in 2010. Weakness in the fourth quarter is notable as it is traditionally one of the most active quarters for deals.

“Venture capitalists are having difficulty raising funds as the Euro crisis weighs on limited partners’ minds and fewer companies are finding exits. This has naturally led to a slowdown in investment. With less capital flowing into venture firms, there’s less to invest in start-ups,” said Anthony Sheldon, research manager, Dow Jones VentureSource. The median size of a European venture capital deal was €2 million in 2011, on par with 2010.

Exits Mirror Fourth-Quarter Drop in Investment

The fourth quarter’s weakness in investments mirrored the exit environment. The fourth quarter of 2011 was the year’s weakest for mergers and acquisitions (M&As) and initial public offerings (IPOs) as 30 European venture-backed companies were acquired and two companies went public.

In all of 2011, 148 companies exited via an M&A, raising €7 billion, a 12% decline in deals and 7% increase in capital raised. Companies that got acquired, however, recorded the highest median raised on record. The median paid for an acquisition in 2011 was €5.1 million.

In all of 2011, 14 venture-backed companies went public, raising €695 million, a drop in IPOs but an increase in capital raised from 2010 when 18 IPOs raised €438 million.

As VCs Focus on Web, Consumer Services Investment Passes IT for First Time Since 2001

For the first time since 2001, the Web-heavy Consumer Services industry raised more capital than the Information Technology (IT) industry. Consumer Services companies raised €1.1 billion for 223 deals in 2011, a 63% increase in investment despite a 6% drop in deals from 2010. It was the industry’s strongest year for investment since 2001. IT companies raised €812 million for 270 deals in 2011, a 50% decline in investment and 25% decline in deals.

More than half of the capital collected by the Consumer Services industry went to the social media, entertainment and shopping companies in the Consumer Information Services sector. Those companies raised €691 million for 192 deals, a 79% increase in investment despite an 8% decline in deals.

Within the IT industry, Software remained the most popular investment area, driven by interest in business applications software and communications software. The Software sector raised €467 million through 194 deals in 2011, a 14% decline in investment and 13% decline in deal activity.

Medical Devices Offers Some Stability in Healthcare

As deal activity and investment fell in all areas of Healthcare, the Medical Devices sector offered moderate stability, seeing a drop of just 7% in both deal activity and investment. Medical Devices companies raised €323 million for 91 deals in 2011, a mild decline from the €348 million raised for 98 deals in 2010.

As usual, Biopharmaceuticals took the lion’s share of the industry’s investment as 121 deals raised €856 million, a 29% decline in deals and 20% decline in investment.

Uptick in Deals for Advertising, Data Companies

The Business Support Services sector, which includes companies developing technologies and services for data management, advertising and marketing, was the only sector to see an uptick in both deals and investment in 2011. The sector raised €479 million for 90 deals, a 62% increase in investment and 5% increase in deals.

The broader Business and Financial Services industry, which includes the Business Support Services sector as well as financial services and engineering companies, raised €614 million for 132 deals, a 15% increase in capital invested despite a 12% decline in investment.

Companies Focused on Renewables Capture Most Energy Investment

In 2011, 56 deals in the Energy & Utilities industry raised €253 million, a 26% decline in deals and 25% decline in investment. Renewable Energy companies accounted for most of the industry’s investment, raising €238 million for 49 deals.

Country Perspectives

Europe’s four major countries for venture investment – the U.K., France, Germany and Sweden – witnessed record-low deal activity in 2011.

- The U.K. remained the favorite destination for venture capital investment in Europe in 2011. Companies in the U.K. raised €1.2 billion for 274 deals, a 36% decline in investment and 17% decline in deals.
- France came in second place as companies raised €728 million for 217 deals, a 15% decline in investment and 18% decline in deals.
- Germany came in third as companies raised €475 million for 120 deals, a 23% decline in investment and 26% decline in deals.
- Sweden came in fourth as companies raised €299 million for 67 deals, a 7% increase in investment despite a 36% decline in deals.