Tornado Insider Reports - Traditional Third-Quarter Dip in 2004 European Tech Funding
Q3 2004 high-tech investment up 32% compared to same period last year and hits a five-year low for dealflow.
Amsterdam, The Netherlands (PRWEB) October 23, 2004
After 3 consecutive quarterly increases in European venture capital investment, the third quarter of 2004 showed a seasonal dip. Tornado Insider Research’s Deals Database recorded total investment of €817 million for Q3 2004. This figure represents a 21.2% drop compared to last quarter, but a strong 32.3% higher than Q3 2003. The decline was mostly due to the traditionally slow month of August, just €162 million for 37 companies. The quarter ended very strongly with a September funding spree of €393 million invested in 67 companies, which is the second highest monthly total in 2004. 148 companies successfully closed financing in Q3 2004, which is the lowest number of deals recorded in the last five years. Average deal size continued to creep up, with Q3 2004 hitting €5.5 million, a 5% increase on the previous quarter.
Sector breakdown: Communications investment robust
Venture capital raised by European Communications companies revealed a strong recovery in Q3 2004 as the amount raised more than doubled to €178 million (or 21.8% of all deals). There were 28 deals recorded, which was slightly less than the 30 in the previous quarter. However, the larger size of the rounds puts this sector up to second from fourth place in the rankings. The Biotechnology & Healthcare industry remains in pole position, yet with €213 million total investment in 33 companies it is at 55.6% of its high last quarter, but still pulled 26.1% of total financing in Europe. Software companies closed the most funding rounds in Q3 2004 (48 or a staggering 32.4% of all deals). Software investment totaled €143 million, down 19.3% on the previous quarter, and the industry ranked third for total funding raised. Computers & Electronics dropped a place to third, despite raising 20.6% more than the previous quarter, with the €141 million (17.3% of total funding) netted by 22 companies. Best of the rest was Media & Entertainment which regained fifth place, with €73 million raised.
Country breakdown: Slow quarter in Germany, UK flies
Technology investment in Germany plummeted in Q3 2004. The country usually comes in second in the country rankings, but a 59.5% decrease in the total investment (€91 million) dropped it down to third. This represents the lowest amount invested in German technology companies in the past five years and just 11.1% of total funding raised. Of the larger markets, only UK and France showed upward trends in Q3 2004. 49 UK companies raised 13.4% more cash than the 66 investments in Q2 2004. The €325 million total represents an impressive 39.8% of total funding raised in Europe. These levels have not been reached in the UK since Q3 2002 and the year-to-date total for the country is now €894 million. With only a single extra deal in the quarter, high-tech investment in France soared 23.7% compared to the previous quarter, totaling €128 million. As a result, the capital raised in France during the first three quarters of 2004 totaled €394 million, already a significant rise compared to 2003’s full-year total of €314 million. Switzerland regained fourth position (€49.1 million raised), with 42.1% drop compared to Q2 2004, outranking Austria (€48.9 million), Sweden (€34 million), Spain (€32 million), Netherlands (€29 million) and Ireland (€23 million).
Stage breakdown: High-tech investors less risk-averse
Investor appetites for early-stage companies started to increase in 2003 and this trend continued in Q3 2004. 29.7% of all deals in this quarter were first rounds with 25.5% of the capital going into early-stage companies (21.2% in Q2 2004). The Computers & Electronics sectors had a particularly good quarter for early-stage funding with 45.5% of investments (22 in total) being seed and first rounds, amounting to 53.2% of the total capital injected into the sector. In Q2 2004, 25.7% of the investments in Computers & Electronics were early stage compared to a 2003 average of 19.2%. Biotechnology & Healthcare also took a shift towards early-stage funding in Q3 2004, representing 33.3% of the deals compared to 20.7% in Q2 and an average of 21.2% in 2003.
"Dealflow always slows down in August, but the surprisingly low level of investment in Q3 2004 is largely accounted for by poor performance in July," said Niels Valkering, Head of Research at Tornado Insider. "In particular, the life sciences sectors and the German market took a severe beating. However, activity in September points to market resilience, in particular with regard to first-time investments, and as this is combined with a healthy M&A climate we continue to be upbeat in our expectations for the remainder of the year."
About Tornado Insider
Founded in 1999, Tornado Insider is the only true pan-European technology media company serving the technology industry, providing entrepreneurs, investors, service providers and other participants with a single-source view of high-tech Europe featuring primary research, editorial coverage, startup awards and events. Core to all of Tornado Insider’s activities is the most extensive database available – focused on European private technology companies, their funding deals and key decision makers. Through its products and services Tornado Insider offers valuable insight into the technology trends in Europe, its investment climate, as well as qualified sales leads, competitive intelligence, and support for due diligence activities.
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