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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.