Wednesday, May 9, 2012


Dow Jones VentureSource: Deal activity continues steady decline; sharp drop-off in investment in first quarter

During the first quarter of 2012, the drop in venture capital deal activity for European companies was slight compared to the sharp drop in the amount of capital invested over the same period last year, according to Dow Jones VentureSource.

Venture-backed companies based in Europe raised €762 million for 241 deals, a 41% decline in capital raised and a 7% decline in deals over the same period in 2011. The first quarter’s deal figure of 241 matches the fourth quarter of last year as the weakest since VentureSource began tracking the region in 2000.

“The difficult fund-raising environment and shrinking number of exits means less money is flowing into venture firms and, therefore, less is flowing out,” said Jessica Canning, global research director, Dow Jones VentureSource. “But there are some positive signs. European venture fund-raising rose 8% in the first quarter and financing deals didn’t drop as significantly as investment which means VCs are still finding companies they want to support.”
The first quarter’s weakness in investments mirrored the exit environment, which was the weakest for venture-backed exits since the first quarter of 2000. During the first quarter, 27 European venture-backed companies were acquired, a 46% drop in deals from the same period last year, and two companies went public, down from three initial public offerings (IPOs) in the first quarter of 2011.

Consumer Services Deal Flow Up but Investment Declines

Consumer services companies raised €167 million for 67 deals in the first quarter of 2012, a 60% decline in investment despite a 10% rise in deals over the same period last year. More than 64% of the capital collected by the consumer services industry went to the consumer information services sector, which includes social media, online entertainment and search portals, but it was the retail and media companies that showed the most consistent growth over the same period last year. Both the retail and media sectors grew 100% in deal flow to 10 deals each; media showed a 90% growth in investments as €10 million was raised while investment in retail companies more than doubled to €39 million.

IT Sector Buoyed By Communications and Networking

Within the information technology industry, the software sector remained the most popular investment area, raising €105 million through 50 deals in the first quarter of 2012, a 30% decline in investment and 6% decline in deals. Although at smaller volume, the communications and networking sector showed strong gains as 10 deals raised €60 million, a 25% increase in deals and more than triple the capital raised in the same period last year thanks to a €30 million deal for Amplitude Systemes SA, a provider of lasers based in France.
Healthcare Down Across the Board

Healthcare, which is generally one of the two strongest investment areas along with IT, saw a dramatic drop in investment and placed third behind consumer services this quarter. Healthcare companies completed 40 deals that raised €137 million in the first quarter, a 25% drop in deals and a 67% decrease in investment. Deal activity and investment fell in all sectors of the industry. Biopharmaceuticals accounted for the majority of the industry’s investment with 26 deals raising €108 million, a 16% decline in deals and 66% decline in investment.

Enterprise Start-Ups Fare Well

The business and financial services industry fared moderately well this quarter, with a 3% increase in investment against a 9% decline in deals. The business support services sector, buoyed by interest in advertising and marketing companies, was the most active investment area as 23 deals raised €80 million.

All Energy Investment Goes to Renewables

Renewable energy companies accounted for all of the capital raised in the energy & utilities industry as these companies collected €46 million for seven deals, a 36% decline in deals but a 11% increase in investment.
Country Perspectives

There was a change to the line-up of major European countries for venture investment this quarter, with Belgium replacing Sweden in fourth place. Highlights include:
• The U.K. remained the favorite destination for venture capital investment in Europe during the first quarter of 2012. Companies in the U.K. raised €261 million in 71 deals, representing a 44% decline in investment from the same period last year despite a 3% increase in deals.
• France came second as companies raised €168 million for 50 deals, a 34% jump in investment compared with the same period last year, but a 9% decline in deals. More significantly, French companies received 22% of all venture investment in Europe during the quarter compared with just 10% during the first quarter of 2011.
• Germany came in third as companies raised €70 million for 29 deals, a 55% decline in investment and 17% decline in deals from the same period last year.
Belgium was the surprise in fourth place as companies raised €40 million in 6 deals, a 42% rise in investment and a 20% increase in deals from the same period last year.

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