European venture capital firms are backing the fewest companies on record. They reduced their bets to just 897 companies last year, the lowest number since 1999 when research group VentureSource began tracking investments there.
When they do invest, however, European venture capitalists are putting in more money than previously. Last year, they invested EUR 4.56 billion, a two percent rise from 2006, and the fourth year of consecutive increase.
One reason for the reduced activity is the relatively lackluster market for mergers and IPOs in Europe. It is more difficult to bring a company to a stage where it returns profits, which explains why larger amounts of money are invested to get them there. They need staying power to turn into successes. This contrasts with the U.S., where last year the merger market was strong.
The number of European venture-backed companies going public dropped to 38 from 89, while M&A deals fell 38 percent to 136, the lowest figure this decade, according to VentureSource. See all the stats in this Excel spreadsheet (downloads file), by the way. Also in Europe, hedge funds don’t invest in start-ups like they do here. Biopharmaceutical investments have taken a particularly strong hit, according to VentureWire, which is owned by Dow Jones, the company that also owns VentureSource. Lately, U.S. investors have been eyeing Eastern Europe, however.