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Tornado Insider Reports: European High-Tech Venture Capital Drops 36% in Q2 2005
Funding activity slows in the traditionally strong second quarter. UK pulls in 38%.


Amsterdam, The Netherlands, August 8, 2005 – The first quarter of 2005 revealed a promising rise in the level of activity among European venture capitalists. Tornado Insider Research’s Deals Database shows a reversal in the trend for the second quarter, which is usually a seasonally strong period. In Q2 2005, 178 deals for European technology companies were recorded, a total of €666 million of financing. This represents a 36% decrease in the amount invested compared to the previous quarter and brings high-tech funding back down to 2003 levels. The number of reported deals declined 13% compared to Q1 2005. The average deal size plunged 27% to €3.6 million; the lowest average since Q2 2003.

Sector breakdown: Software and Materials & Nanotechnology funding robust

Materials & Nanotechnology was the only sector to receive more funding in Q2 2005 than the previous quarter with €32.9 million raised by 12 companies. This is the sector’s largest quarter since Q1 2003 and an 82% increase on Q1 2005. The sector moves up 3 steps to fifth place in the industry rankings. Although still in pole position, Biotechnology & Healthcare investment dropped 40% to €269 million (still 40% of total tech funding raised). The 46 Biotechnology & Healthcare deals in Q2 2005 places the sector second in terms of dealflow, trailing Software by a single deal. In Q2 2005, Software managed 9% more deals, but there was a 2% decrease in the total amount raised. The €121 million raised means Software reclaims second position. Communications drops to third with 15% of total funding in Q2 2005, down from 22% in Q1 2005. Communications showed a 58% quarter-on-quarter drop, reaching €97 million in 28 deals. 21 Computers & Electronics companies raised €93 million in Q2 2005 (down 16% on Q1 2005) placing the sector fourth. In sixth place came Energy & Agriculture (€24.8 million in 7 deals), followed by Internet (€14.8 million over 7 deals), Media & Entertainment (€12 million in 9 deals) and IT Services (1 deal at €1.5 million).

Country breakdown: Mixed results across the continent

Venture capital funding in Q2 2005 plummeted in most European countries. The UK posted stable figures, showing a decrease of 9% for amount raised (€253 million) and 18% growth in dealflow (79 investments). With 38% of total European funding in Q2 2005 raised by UK companies, the country reaffirmed its pole position in the country rankings. Germany remained second with 23 companies netting €112 million (17% of total European funding), 34% down on Q1 2005. Denmark climbed a position to third as 12 companies reported funds raised totaling €70 million (down 28%). Denmark’s rise up the rankings came to the expense of France, which netted €69 million. However, France outpaced both Denmark and Germany in dealflow, with 24 deals in the quarter. The only countries to report quarter-on-quarter increases for amount raised in Q2 2005 were Belgium, Portugal and Austria.

Stage breakdown: Early-stage funding stabilizes

The severe drop in early-stage funding in the first quarter of 2005 bottomed out in Q2 2005. Investor interest in young companies was moderate as seed and first-round investments accounted for 28% of disclosed venture capital rounds in Europe – up a notch on the 23% in Q1 2005, but lower than the 2004 average of 29%. The €113 million raised by 43 companies showed a decrease of 31% in the amount of funds raised, while dealflow grew 13% compared to the previous quarter.

ENDS

About Tornado Insider

Founded in 1999, Tornado Insider is the only true 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 d


Publisher Contact Information:

Tornado Insider Research Group
+31 20 462 1942
cdobbs@tornado-insider.com

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