Recently some research from Dow Jones came out which showed the number of venture capital investments in Europe declining dramatically.
The third quarter of 2010 saw the lowest quarterly deal count for venture in Europe since DJ began tracking the region ten years ago. According to the data, the European VC industry seemed to be focusing on a smaller number of key deals in core industries such as health care and on later-stage deals, leaving less for investments in startups, according to Arno Castanet, a research manager at Dow Jones VentureSource. In the UK, VCs put €200 million into 55 deals, but this was a fall of a third in investment and deal flow from the same period last year. Deal flow in IT dropped 29%, although ‘software’ increased to 55%.
However, I don’t think this is really telling the picture today and it seems to me that this data is pretty much behind the curve in terms of what is happening and has been happening on the ground in the last 18 months.
That bigger VC funds have steered away from early stage deals is self evident. Startups find it hard to pique the interest of those guys. Ironically however, as they’ve done so, VCs have, in the last few months, often found themselves locked out of the bigger deals they would like to be in, because, by not being in on the seed round they don’t get first bite of the cherry on the follow-on round. Suddenly a few are waking up to this prospect that they need to get back into early stage to create a feeder to the bigger rounds.
I asked some leading figures in the venture community to comment on the Dow Jones research. Here’s what they had to say.
Sean Seton Rogers of PRO Founders Capital says everything in the report “could have been said 18 months ago (the fundraising trouble, the funds in ghost mode, the slowed pace of investment). To fill that equity gap, we have seen the market self-adjusting [with the entry of new early stage funds]: PROfounders, Index Seed, Notion Capital, Kima, ASAI, HackFWD, Jaina Capital, Lifeline, Team Europe.”
Alastair Mitchell, CEO of Huddle says “I hope this is the equivalent of a forest fire; burning out the dead wood to let young growth come through. It could be the best thing to happen to European VC, but it does depend a lot on how well the buoyant early-stage funds and start-ups translate into later stage investment and exits on the global stage. What is true (to-date) is that we have struggled to do this in Europe alone, so we need to go West (or East) in order to get to truly big scale, simply due to the smaller size of the homogeneous home-grown markets. Could the UK be a great focal point for early stage tech across Europe making the jump across the Atlantic? I certainly think so.”
Alex van Someren of Amadeus Capital: “Have some US names retreated? Yes. Does this spell the start of a new Ice Age? No. Amadeus Seed has cash to invest right now, and I am actively working the dealflow. I don’t feel lonely, in fact I am being competed with in live deals. Great problem.”
Sonali de Ryker of Accel: “Sensationalist stuff. Fortunately our business is never about the macro numbers but much more about the micro i.e. great entrepreneurs, interesting technology/consumer/buying trends and specific niches that then grow to make room for large businesses. We are a bottoms-up business not top down. Separately, the ‘super angel’ market is not replacing VC – they are symbiotic and need to co-exist. This is because unlike the US where the super angels are able to frequently sell their businesses to the likes of GOOG, AOL, FB, YHOO, EBAY etc even as pure technology deals and then recycle the cash and keep going, this is still a rare phenomena in Europe. Mostly because these exits are about development talent and thats tougher to justify in Europe. Hence M&A happens once the companies are much larger and real commercial entities. This typically needs a lot more funding including from VCs. So.. we need angels and they need us and thank goodness it works well in EU. We have never been busier, things are super competitive for great entrepreneurs and/or great companies and absolutely believe companies like Wonga, Gameforge, Check24, Qliktech validates the $1B+ market oppty for European VC”.
So there you have it. What’s your view?