CONSUMER INTERNET COMPANIES FUEL GROWTH IN EUROPEAN VENTURE INVESTMENT

Consumer Services Make Strong Gains; Energy and Healthcare Fall; Early-Stage Investing Picks Up

Venture-backed companies based in Europe raised €1.3 billion through 273 venture capital deals during the second quarter of 2012, a 14% increase in capital raised but a 20% decline in deals from the same period last year, according to Dow Jones VentureSource.

“Deal activity fell but investment grew as the lacklustre exit environment kept companies private longer. As companies age, they often need larger financing rounds to continue, which boosts the amount invested,” said Anne Malterre, European research manager, Dow Jones VentureSource. “We saw deep declines in renewable energy, in part due to the U.K.’s feed-in tariff cuts, and in healthcare. There were some bright spots, however, as VCs increased the percentage of deals done for early-stage companies and interest in online start-ups remained strong.”

During the second quarter, 38 European venture-backed companies were acquired, a 34% drop in deals from the same period last year, and three companies went public, which was half the number of initial public offerings (IPOs) recorded in the second quarter of 2011.

Through the first six months of this year, venture capital investment totaled €2.2 billion for 550 deals, a 7% decline in capital and 10% decline in deals from the year-ago period.

The industry trends in the second quarter largely reflect the recently released U.S. investment figures, with Internet and software companies faring well but significant declines recorded in the healthcare and energy industries.

Investment in Consumer Internet Companies Remains Strong

Consumer services saw the greatest gains of any industry in the second quarter, raising €493 million through 72 deals, more than double the €239 million raised during the same period last year despite only one more deal being completed. Nearly two-thirds of the capital collected by the consumer services industry went to the consumer information services sector, which includes social media, online entertainment and search companies.

Energy & Utilities Drops by Two-Thirds

Energy and utilities companies raised €42 million through nine deals in the second quarter, a fall of 67% in investment and 63% in deal activity. Investment in renewable companies echoed the sector as a whole, falling to €35 million for seven deals, a 70% decline in investment and 65% decline in deals.

Healthcare Slips

Investment in healthcare companies fell to €237 million for 50 deals, a 24% decline in investment and 33% decline in deals. Investment in biopharmaceuticals increased 7% to €196 million for 31 deals, while investment in the medical devices sector fell 68% to €33 million for 17 deals.

Software Investment Makes Strong Gains

The information technology (IT) industry raised €215 million for 73 deals during the second quarter, an 18% decline in investment and a 17% drop in deal activity compared with the same period last year. The software sector – traditionally the most popular investment area in IT – fared well, raising €136 million through 54 deals, a 24% increase in investment despite an 8% drop in deals.

Deal Flow Falls for Business & Financial Services

Business and financial services companies raised €144 million for 35 deals during the second quarter, a 58% increase in investment despite a 27% decline in deals. The business support services sector, which is driven by interest in marketing, advertising and data management companies, raised €108 million through 26 deals during the second quarter, double the amount invested in the same period last year despite a 28% drop in deal flow.

Early-Stage Deals Capture a Larger Slice of Deal Flow

Sixty-two percent of deals in the second quarter went to early-stage companies, up from 58% in the same period last year. Early-stage companies also accounted for 32% of capital invested, on par with the second quarter of 2011. Second-round deals accounted for 19% of deal flow and 18% of capital invested, down from 25% and 28%, respectively, in the year-ago period. Later-stage deals accounted for 19% of deals, up from 17% a year earlier, and 49% of capital invested, a significant increase from the year-ago period when 39% of capital went to later-stage companies.

Country Perspectives

* The U.K. consolidated its position as the favored destination for venture capital investment in Europe during the second quarter. Companies in the U.K. raised €504 million in 71 deals, representing a 75% increase in investment from the same period last year despite a 15% decline in deals.
* Germany moved to second place as companies raised €185 million for 51 deals, a 47% jump in investment and a 31% increase in deal flow compared with the same period last year.
* France placed third as companies raised €169 million for 65 deals, a 26% decline in investment and a 17% drop in deals from the same period last year.