In the second quarter of 2005, 178 deals for European technology companies were recorded, a total of Euros666 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 EUROS3.6 million; the lowest average since Q2 2003, according to Tornado Insider Research’s Deals Database.
Materials & Nanotechnology was the only sector to receive more funding in Q2 2005 than the previous quarter with EUROS32.9 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 EUROS269 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 EUROS121 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 EUROS97 million in 28 deals. 21 Computers & Electronics companies raised EUROS93 million in Q2 2005 (down 16% on Q1 2005) placing the sector fourth. In sixth place came Energy & Agriculture (EUROS24.8 million in 7 deals), followed by Internet (EUROS14.8 million over 7 deals), Media & Entertainment (EUROS12 million in 9 deals) and IT Services (1 deal at EUROS1.5 million).
Venture capital funding in Q2 2005 plummeted in most European countries. The UK posted stable figures, showing a decrease of 9% for amount raised (EUROS253 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 EUROS112 million (17% of total European funding), 34% down on Q1 2005. Denmark climbed a position to third as 12 companies reported funds raised totaling EUROS70 million (down 28%). Denmark’s rise up the rankings came to the expense of France, which netted EUROS69 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.
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 EUROS113 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.