Venture Capital Investment Still Lacking in Europe

Posted by: Mark Scott on October 27

Figures can be misleading. Take the stats released on Oct. 27 by data provider DowJones Venture Source, which tracks venture capital investment worldwide. During the third quarter of 2009, VCs invested $998 million in 201 deals in Europe, a 23% jump over the previous quarter. That’s pretty good news. But here’s the rub. The third-quarter figure represented a 48% decline vs. the $1.9 billion (split across 312 deals) invested between July and September, 2008.

So what does this all mean? For one, venture capitalists are tentatively putting their toes back into the water, though many remain cautious. According to DowJones Venture Source’s Arno Castanet, “investors [are] spending less, but spending wisely.” Smaller investments focused on well-recognized growth markets is a trend. The top three European sectors garnering VC interest: IT ($425 million invested), Healthcare ($216 million), and energy/utilities ($296 million).

And without hyping the global recovery too much, the uptick in investment, particularly among start-ups, may bode well for the broader European economy. British companies, for instance, pocketed $393 million over 67 deals in the third quarter. Sure, that was just over 6% less than the same period last year, but still suggests investor appetite may be returning.

Yet problem areas remain. France, Switzerland, and Israel — three countries that typically garner a lot of VC interest — all reported a roughly 50% year-on-year drop in investment during the third quarter. So until investors return to these major European markets, talk of the Great Recession now being behind us is probably premature.