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Tornado Insider Reports: 2004 Showed Solid Increase in European Tech Funding
Three-year dip reverses as high-tech investment in 2004 rises 34%. Early-stage funding grows,

Amsterdam, The Netherlands, February 24, 2005 – After three years of solid decline, 2004 posted positive growth in European venture capital investment. Tornado Insider Research’s Deals Database recorded total investment in 2004 of €3.6 billion into 787 high-tech companies. This level of financing represents a 34.1% increase compared to 2003, with the number of deals increasing by 8.6%. The first half of the year accounted for the bulk of the growth; Q1 2004 recorded the most activity with 233 deals, which was the highest since Q1 2002. The total amount of funding was highest in Q2 2004, where 213 companies secured €1.1 billion - the only quarter in the past 2 years with over a billion euros of investment. The venture capital market cooled slightly in the second half of 2004, with Q3 dropping 22.3% quarter-on-quarter, followed by a 3.2% decline in Q4. Technology companies in Europe raised €813 million in Q4 2004. The number of deals did increase slightly (4%) in Q4 2004 to 174. After 3 consecutive years of decline, the average deal size increased in 2004 to €4.6 million, up 24% compared to the previous year.

Sector breakdown: Energy investment up, biotech funding spree stabilizes

All technology industries, except Materials & Nanotechnology and IT Services, pulled in more venture capital in 2004 than the previous year. In addition, all industries, apart from Software and IT Services, showed a higher deal flow. Energy & Agriculture reached an all-time high in 2004, with its €172 million raised by 23 companies representing a 180% increase on 2003. Biotechnology & Healthcare companies again managed to attract the largest slice of venture capital with €1.3 billion raised, 29% up compared to the previous year. This represents 37% of total European high-tech investment, a notch lower than the 38% in 2003. Biotechnology & Healthcare’s 215 deals showed a 17% increase in deal activity. Software funding came second place with €683 million raised, slightly higher (4.6%) than the previous year, with its relative share of financing decreasing from 24% to 19%. Software companies secured 7% less deals, although the 216 investments still places the industry first for deal flow. Both Communications (third with €539 million raised in 123 deals) and Computers & Electronics (fourth with €461 million raised in 113 deals) revealed a substantial increase in funding and deals.

“In Tornado Insider’s 2003 VC investment report, we anticipated a steady increase in European technology venture capital raised in 2004, and predicted a stabilization of biotech funding as well as a boost in energy-related deals,” said Niels Valkering, Head of Research at Tornado Insider. “However, the swiftness of the recovery in technology investment was a surprise, as well as the related surge in exits. The spectacular number of trade sales and increasing valuations mean that investors are regaining confidence to invest as exit routes become clearer.”

Country breakdown: France boasts funding boost

Most European countries experienced a substantial increase in technology funding. Among the major markets, only Denmark, Netherlands, Belgium and Finland reported less venture capital raised. UK again pulled in most funding (€1.2 billion) with the highest number of deals (271) in 2004. Although this level of funding represented an increase of 28% compared to 2003, the relative contribution to total tech funding in Europe dropped slightly from its more traditional levels of 34.6% in 2003 to 33.0% in 2004. German companies attracted 25% more funding, with 109 companies securing a total of €553 million. Still it saw its relative amount compared to the European total drop below the 16% mark to 15.2%. The star of the top 3 countries was France, closing in on Germany’s second place with €521 million (an increase of 60% compared to 2003), representing 14.4% of total tech funding in Europe. Normally Fran

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Tornado Insider Research Group
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