- Venture capital funding in Europe fell to €781 million ($NZ1500 million) in the third quarter, the seventh consecutive quarterly decrease in the money invested by venture capitalists in European technology companies, according to a new study .
Software and biopharmaceutical companies received 58% of overall investment in Europe, and investment in semiconductors actually grew marginally, according to a study by VentureOne and Ernst & Young.
Last year, European companies received €2.7 billion in venture capital in the third quarter, already down sharply from €4.6 billion in the same period in 2000, says Steve Harmston, director of European research at VentureOne, a San Francisco venture capital research company.
The downward trend in Europe mirrors that in the US, where venture capital investment reached a four-year low at $US3.9 billion in the third quarter. The fall in Europe has been steeper, but the European venture capital market has always been much smaller than in the US, says Harmston.
"At the moment, venture capitalists are concentrating on existing portfolio companies. These companies tend to have products that have already been developed and are either profitable or getting close to profitability," says Harmston. "Venture capitalists are very reluctant to finance startups. Those are much riskier and harder to build to the point of profitability. They actually have to build and prove the technology."
Companies that have already received funding in the past and in which investors already hold stakes may only need some money to develop a sales team or to expand in another country. When the economy recovers, these companies could go public or be bought by others, which means the investor can cash out.
In the third quarter,only two venture capital-backed companies went public in Europe; Theolia, a French alternative energy company, and Bright Futures, a UK web portal for the disabled community, says Harmston, who believes the decline in the venture capital market should be at its end.
"We are probably towards the bottom in Europe, although there might be a little bit further to go," he says.