European Venture-Capital Investment Climbs in First Quarter Of 2005; E

    Business Editors/Financial Editors

    LONDON & NEW YORK--(BUSINESS WIRE)--May 16, 2005--In the first quarter of 2005, venture-capital investment into European companies reached EUR 880.3 million--a 19% increase over the amount invested in the first quarter of 2004. However, deal flow dropped to less than 200 deals--a 27% decline from the same quarter a year ago--according to the European Venture Capital Report released by Ernst & Young and VentureOne. VentureOne is a unit of Dow Jones Newswires and the publisher of VentureSource.
    In comparison, both deal flow and investment in the U.S. declined this quarter. Europe's positive investment trend--which is the largest amount invested in the first quarter in Europe since 2002--indicates investors selectively are willing to back the most promising start-ups and technologies.
    Among the bright spots: The overall median deal size in Europe reached its highest level in more than six years at EUR 3 million, compared to EUR 1.5 million in the same quarter of last year. Much of that increase was related to larger investments in first-round deals--a median EUR 2.6 million, also the highest amount since 1999, when VentureOne began tracking the data. The median size of later-round deals grew to EUR 4 million, compared to EUR 2 million in the first quarter of last year. This is the highest median for later rounds since the third quarter of 2000.
    "Clearly, venture capitalists are directing their investments into those companies that seem to have the brightest future potential, as we are seeing fewer deals but larger amounts invested into those deals," said Steve Harmston, director of international research for VentureOne. "In addition, the fact that first-round deals are also getting larger shows that the VCs are optimistic about the growth potential of the current wave of new start-ups in Europe."
    By industry, the amount invested into European information-technology (IT) companies climbed upward, reaching EUR 407.3 million--a 16% increase over this quarter a year ago. However, IT deal flow was down 21%. Within the technology industry, semiconductor companies fared well this quarter with deal flow that was fairly steady compared to the first quarter of 2004, and an investment level that tripled to EUR 121.9 million. With 53 deals, software activity declined 30% but the investment level held steady at EUR 160.4 million. Deals for communications companies declined 25%, while investment in this segment dropped 37%. The electronics and information-services segments each posted one more deal than occurred this quarter last year. In addition, the capital invested in the information-services segment nearly doubled from the first quarter of 2004 to reach EUR 40 million.
    "The majority of information-services companies are Internet-related, so the investment trend in this segment could indicate we are entering Internet 2.0--with a resurgence of interest in online businesses," said Gil Forer, global venture capital advisory group leader for Ernst & Young. "There was particular attention for Internet-related companies in mergers and acquisitions in Europe last year, representing 10% of all venture-backed M&A deals last year, including two of the year's largest--which may be the reason this segment is garnering more investment activity."
    By industry, the median-round sizes also were at their highest level on record, with EUR 3 million for IT deals and EUR 3.3 million for health-care deals this quarter.
    Mr. Forer added, "The larger amount invested per deal is evidence of the need for European companies to go global much earlier in their life cycle."
    Meanwhile, venture-capital investment in health-care companies grew considerably, while deals declined in a first-quarter comparison. For example, deal flow was down 18% for health-care companies overall, but investment was up 42% to EUR 377 million. Deal flow also was down 18% for the category's largest segment: biopharmaceuticals. However, the capital invested in biopharmaceutical companies increased by 44% over the first quarter of last year. The category was responsible for one of the quarter's largest deals--the EUR 26.3 million later-round deal for Zealand Pharma of Glostrup, Denmark--a developer of drugs for cardiovascular and metabolic diseases. The medical-devices segment posted 21 deals this quarter--the same number as a year ago--and EUR 43.1 million invested, a 58% increase.
    By country, France held steady in terms of venture-capital activity, with 38 deals this quarter--the same as occurred in the first quarter of 2004. But investment in French companies decreased slightly--by EUR 5 million--to EUR 106.5 million. In the United Kingdom, deal flow fell by one-third to 68 deals, but investment grew to EUR 270.1 million--a 5% increase. In Germany, investment was steady at EUR 141.8 million, while deal flow decreased 28% to 26 deals. The other European countries most active in venture capital include Sweden, which had 17 deals and EUR 61.4 million invested this quarter, and Ireland, which posted eight deals and EUR 42.1 million invested.
    One venture-capital trend that appeared to grow in 2004 fell back this quarter: the investment activity in seed- and first-round deals. While such deals represented one-third of the investments made in the first quarter of 2004 and continued to grow throughout last year, they accounted for only 29% of the deal flow this quarter. They also accounted for only 20% of the capital invested, compared to 25% this quarter a year ago. However, they still represented slightly more deals than second-round financings.

    The investment figures included in this release are based on aggregate findings of VentureOne's proprietary European research. This data was collected by surveying professional venture capital firms, through in-depth interviews with company CEOs and CFOs, and from secondary sources. These venture capital statistics are for equity investments into early-stage, innovative companies and do not include companies receiving funding solely from corporate, individual, and/or government investors. No statement herein is to be construed as a recommendation to buy or sell securities or to provide investment advice.

    Copyright (C) 2005, VentureOne.

    About VentureOne

    VentureOne (www.ventureone.com), a unit of Dow Jones Newswires, has been the leading provider of finance and investment data to the venture capital industry for almost 20 years. VentureSource, a sophisticated electronic database on the venture capital industry, is published by VentureOne.

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CONTACT: Dow Jones VentureOne Michelle Jeffers, 415-538-2658 michelle.jeffers@dowjones.com OR Dow Jones & Co. Kate Dobbin, +44-20-7842-9684 or +44-77-4832-3628 kate.dobbin@dowjones.com OR Ernst & Young Global William Mutton, +44-20-7980-0532 william.mutton@uk.ey.com

KEYWORD: NEW YORK DENMARK SWEDEN IRELAND GERMANY UNITED KINGDOM FRANCE INTERNATIONAL EUROPE INDUSTRY KEYWORD: SOFTWARE INTERNET E-COMMERCE PUBLISHING BANKING PRODUCT EARNINGS SOURCE: VentureOne

Copyright Business Wire 2005