Venture capital funding in Europe fell to €781m (£498m) in the
third quarter, the seventh consecutive quarterly decrease in the
money invested by venture capitalists in European technology
companies, according to a study released yesterday.
Software and biopharmaceutical companies received 58% of overall
investment in Europe and investment in semiconductors actually grew
marginally, according to the study by VentureOne and Ernst &
Young.
Last year, European companies received €2.7bn (£1.72bn) in venture
capital in the third quarter, already down sharply from €4.6bn in
the same period in 2000, said Steve Harmston, director of European
research at VentureOne, a venture capital research company.
The downward trend in Europe mirrors that in the US, where venture
capital investment reached a four-year low at $3.9bn 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.
"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," said 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," he
added.
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, said Harmston, who believes the decline in the venture
capital market could be near its end.
"We are probably towards the bottom in Europe, although there might
be a little bit further to go," he said.