IT startups mark bright spot amid Europe's VC gloom

IT startups mark bright spot amid Europe's VC gloom

Summary: Fewer exits in Europe are holding back venture capital in the region, despite larger inflows to Europe's ICT networking firms and social-media startups, according to research.

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Tech companies may have got a slight boost in VC funding, but the overall picture for European venture capital investment was far from bright in 2012.

VC activity and mergers and acquisitions (M&A) in Europe remained light in the fourth quarter of the year, according to the latest figures by Dow Jones VentureSource.

VC funding for European businesses declined 26 percent year on year to 967 million euros (US$1,304 million) in the last quarter of the year. The funding came in the form of 233 deals, down 9 percent on last year.

A small highlight for European businesses was its tech sector, which attracted just under a quarter of the 4.4 billion euros (US$5.9 billion) invested into Europe last year. Through 305 deals made during 2012, investments in the IT sector grew 5 percent to 965 million euros (US$1,301 million), buoyed by a 40 percent uptick in investments in "communications and networking" businesses to 156 million euros (US$210 million).

For the quarter, however, IT sector investments were down 24 percent year on year to 169 million euros (US$227 million) off the back of 75 deals, which was 7 percent less than last year.

Throughout 2012, European companies attracted 4.4 billion euros (US$5.9 billion) in funds in 1,074 deals, down 9 percent and 11 percent, respectively.

Despite seeing the amount of funding it received fall in the last quarter by 5 percent, the UK remained the preferred destination for VC funds in Europe, attracting raising 1.4 billion euros (US$1.9 billion) in 295 deals. However, Germany was the rising star in Europe, with 822 million euros (US$1,108 million) raised in 189 deals, marking a 48 percent year-on-year rise in investment.

Exits

Venture-backed exits were similarly soft during the quarter, with Europe seeing 33 acquisitions in the fourth quarter, down from 45 in the same period last year.

"With M&A at its lowest since VentureSource started tracking data in Europe, investors appear trapped in their current investments, needing to wait longer to recoup their financial returns while at the same time lacking funds to fuel new ventures," said Anne Malterre, European research manager, Dow Jones VentureSource.

During 2012, 145 companies exited via a merger or acquisition, which VentureSource noted was the lowest count since it began tracking the region in 2000. The value of M&As in 2012 was almost halved compared with 2011, dropping from 8.6 billion euros (US$11.6 billion) to 4.7 billion euros (US$6.3 billion).

The biggest falls in VC funding, however, were in the healthcare and energy and utilities sectors, while social media, online shopping, and entertainment helped deliver the consumer services sector its largest allocation of VC funds since 2000.

Consumer services attracted 1.3 billion euros (US$1.75 billion) for 283 deals during 2012, up 13 percent and 8 percent, respectively, on 2011, with online, social, and entertainment businesses raising the bulk of that at 779 million euros (US$1,050 million) for 186 deals in the year.

"The renewed trust in early-stage companies and the consumer services industry are positive signs. Due to the growing interest in social media, online shopping, and entertainment, the industry should remain attractive in 2013 provided it can transform that appetite into revenues," said Dow Jones VentureSource's Malterre.

Topics: Emerging Tech, Start-Ups, EU

Liam Tung

About Liam Tung

Liam Tung is an Australian business technology journalist living a few too many Swedish miles north of Stockholm for his liking. He gained a bachelors degree in economics and arts (cultural studies) at Sydney's Macquarie University, but hacked (without Norse or malicious code for that matter) his way into a career as an enterprise tech, security and telecommunications journalist with ZDNet Australia. These days Liam is a full time freelance technology journalist who writes for several publications.

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