Tornado Insider Reports: European High-Tech Venture Capital Remains Robust in Q1 2004

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Venture capital figures for the first quarter of 2004 revealed that investments in European technology companies are still on the rise. According to Tornado Insider ResearchÂ?s deals database, 193 fundings were secured in Europe, amounting to a total of Â?837 million in venture capital investment in Q1 2004.

Venture capital figures for the first quarter of 2004 revealed that investments in European technology companies are still on the rise. According to Tornado Insider Research’s deals database, 193 fundings were secured in Europe, amounting to a total of €837 million in venture capital investment in Q1 2004. This figure represented an 8% incline compared to the €774 million raised in the strong last quarter of 2003, continuing the upward trend that began in early 2003. In Q1 2004, companies in the Biotechnology & Healthcare space again attracted the most funding, while Communications investments rebounded to rank second. The average deal size, meanwhile, climbed almost 6% to €4.3 million. 307 investors were active in the European technology arena, 27 more than in Q4 2003.

The robust figures for Q1 2004 were largely the result of an impressive start in January, with 70 technology companies pulling in €311 million. In February, both the number of deals (54) and the amount invested (€280 million) plunged significantly. March showed a surge in investment activity (69 deals), although the amount of funding again decreased to €246 million.

“Our recently launched report on European venture capital trends of the past four years revealed strong stabilization of the market in 2003” said Niels Valkering, Head of Research at Tornado Insider. “We expected the revival of the industry to hold strong in 2004. That Q1 2004 outperformed the previous quarter by this extent is surprising, since first quarter figures on venture capital investment are notoriously low. This is yet another sign of the health of the current market.”

Sector breakdown: Biotechnology & Healthcare leads… but is losing ground

The boom in Biotechnology & Healthcare funding cooled considerably in Q1 2004. Although the reported €263 million was the largest sum raised by any industry in Tornado Insider’s database, it represented a 23% drop compared to the previous quarter and its contribution to total funding decreased to 31% – versus 44% in Q4 2003. Noteworthy was that the number of Biotechnology & Healthcare investments in Q1 2004 (57) ranked highest of all industries. This breaks a series of 13 successive quarters where Software scored the highest number of deals (Q3 2000 reported more Internet investments than Software investments). Moreover, Software dropped to the third rank for amount raised (€163 million), surpassed by Communications (€185 million, a 109% increase compared to Q4 2003). After plummeting to a mere 11% in Q4 2003, Communications investment rebounded to 22% of total funding in Q1 2004. Additionally, investors are finally warming up to Energy & Agriculture investments (4 deals totaling €33 million; 4% of total funding in Q1 2004), an industry seeing a slow but steady increase in funding over the past years.

Country breakdown: Strong performance in France, Ireland and Spain

The United Kingdom once again attracted the most venture capital in Europe in Q1, although a moderate decline of 3% was recorded compared to Q4 2003. The €263 million raised by 58 technology companies in the UK accounted for 32% of all technology deals in Europe (35% in Q4 2003). France more than doubled its investment to €152 million in Q1 2004 (31 deals), representing 18% of total funding and placing it second. Germany came third, dropping one rank, but still showing an increase of 10% with €125 million. Best of the rest was Switzerland (20% drop to €54 million), while Ireland climbed up to fifth place with a 172% increase compared to Q4 2003 (€48 million raised by 13 companies). Tripling its investment in Q1 2004, Austria cracked the top 10, ranking sixth with 8 deals totaling €42 million. Spain (twelfth on the list) secured €13.6 million (11 deals), up from €2.9 million (5 deals). Scandinavian technology investments, meanwhile, faced a strong decrease compared to Q4 2003. Denmark dropped 6 places and 71% to ninth spot, while Sweden came in eighth with €29 million, representing a 42% decline.

Stage breakdown: Recovery in early-stage investments

The upturn in seed and first round investment that started halfway 2003 persisted during the first quarter of this year. Q1 2004 saw 39 seed and first round deals – an increase of 1% compared to the previous quarter. This number represented 20.2% of the total number of investments for the quarter, up from 19.8% in Q4 2003 and 19.1% in Q3 2003. Total funding for these rounds amounted to €135 million, an increase of 9% compared to Q4 2003. This level of funding represented 16.2% of overall Q1 2004 investment – up from 14.8% in Q4 2003 and 12.8% in Q3 2003.

Markets drivers: Exit climate continues surge

Q1 2004 saw an encouraging exit climate, with high-profile listings such as Cambridge Silicon Radio* and Opera Software*, and numerous announcements of IPO plans. The IPO window quickly clouded as stock market weakness cooled investor appetite for new paper. Expectations for IPOs in 2004 have since dimmed, with any recovery now unlikely before the second half of 2004, or even 2005. The M&A market, meanwhile, has proved a more reliable exit for investors, with venture-backed startups such as Kelkoo, Magic4*, Webwasher*, and SuSE Linux* all being acquired for notable sums by NASDAQ-listed companies. This supports the increase in early-stage investing, as investors are enabled to free up time and resources to source new quality deals. "The lack of a vibrant IPO market still dogs investors," says Timothy Weeks, senior editor of Tornado Insider, "but the recent burst of M&A activity in Europe's tech sector can't help but boost VC morale."

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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.

More information on venture capital deals in Europe can be requested for via the contact below, or on http://www.tornado-insider.com/research.

For additional information, please contact:

Tornado Insider:

Ruud Kaitjily

Tel:    +31 20 462 1942

Fax:    +31 20 462 1961

rkaitjily@tornado-insider.com

http://www.tornado-insider.com

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Ruud Kaitjily