Venture Capital in Europe off to Strong Start in 2006 with Investment Level Topping EUR 1 Billion

Dow Jones VentureOne/Ernst & Young Quarterly European
Venture Capital Report Finds Most Capital Invested in
Early-Stage Deals This Quarter since 2002

Driven by increasingly larger individual round sizes and
additional capital directed at early-stage companies, venture capital
investment in Europe in the first quarter of 2006 grew to EUR 1.02
billion. This was the largest aggregate investment in Europe in four
quarters, according to the European Venture Capital Report released by
Dow Jones VentureOne and Ernst & Young. VentureOne is the publisher of
VentureSource. In comparison with the first quarter of 2005, however,
deal flow decreased by nearly one-fourth, or 62 deals, to 200.
Among the significant investment trends in the first quarter is
the renewed attention by investors for seed- and first-round deals. In
total, there were 71 early-stage deals and EUR 322.4 million invested.
Although this is six fewer deals than a year ago, the amount invested
was up 44% and was the most capital directed toward these early rounds
since the first quarter of 2002.
"The early-stage activity is coming at an interesting time in the
European venture capital market. A wave of European VC-backed IPOs
bolstered investment levels for later-stage companies in 2005. This
wave of IPOs also allowed investors to refocus on a new crop of
entrepreneurial start-ups in anticipation of a positive horizon for
exits," said Gil Forer, Global Director of Ernst & Young's Venture
Capital Advisory Group. "Although there was a decrease in early-stage
deal flow, 36% of all the rounds completed in Europe were for seed-
and first-round deals. Investors also appear to be selecting among the
most promising new opportunities as the size of those deals is rising
as well, with first rounds reaching a median EUR 2.5 million, the
highest point since at least 2000."
France and the United Kingdom led the early-stage investment
activity. Seed- and first-round deals made up 40% of the financing
rounds in France in the first quarter; in the U.K., 45% of the
quarter's completed rounds were first-round deals.
The first quarter did show fewer later-rounds than early-stage
rounds, the first time this has occurred since 2004. The capital
invested in later-rounds, EUR 453.5 million, is the lowest it has been
since the second quarter of 2005.
As with the early-stage rounds, the overall median round size in
Europe was EUR 2.7 million, the highest level since 2000. The U.S.
venture capital market also posted significantly larger median round
sizes in the first quarter.
As in the U.S., European investors directed considerable capital
to information technology companies. The total amount invested in IT
in the first quarter was EUR 474.6 million, up 8% from a year ago,
despite 30 fewer IT deals being completed. Within the category, the
communications segment posted one fewer deal but received 39% more
investment. While only a tiny segment of the larger IT category, deal
flow in the information services segment, which includes a number of
Internet-related businesses, nearly doubled to 12 deals and capital
investment rose by 40% to EUR 39 million.
"Information technology companies appear to be the largest
beneficiary of the renewed attention to early-stage deals. For
example, nine of the information services deals were seed- or
first-round deals, and the software and communications segments also
were responsible for a generous portion of these initial deals," said
Steve Harmston, director of global research at VentureOne. "Overall IT
round sizes also are at record levels of EUR 2.5 million as current
investors become cognizant of the need to provide ample investment
support to these companies, both early- and later-stage, to enable
them to gain traction in the competitive global technology market."
The venture capital activity for the European health care category
slowed from a year ago, with 56 deals and EUR 434.6 million invested
there, decreases of 24% and 9%, respectively. But the category was
home to the two largest deals in Europe in the first quarter: the EUR
44.1 million later-round in enzyme-based, anti-cancer drug developer
Chroma Therapeutics (U.K.), and the EUR 42 million first-round in
small molecule antibiotics developer Nabriva Therapeutics (Austria).
Total investment in the product and services category held steady
at EUR 77 million, up slightly from a year ago, although there were 14
fewer deals in this category compared to the first quarter of 2005.
Regionally, deal flow in France remained steady in quarter over
quarter comparison, with 42 deals, just one fewer than a year ago. And
the amount invested in French companies nearly doubled in the same
period, to EUR 205.1 million. In Germany, deal flow declined by four
deals and investment was down 21% to EUR 124 million.
The United Kingdom remains the most active country in Europe but
deals were down 33% from a year ago, to 56. Capital investment,
however, was up slightly to EUR 356.3 million.

The investment figures included in this release are based on
aggregate findings of VentureOne's proprietary European research and
are contained in VentureSource. This data was collected by surveying
professional venture capital firms, through in-depth interviews with
company CEOs and CFOs, and from secondary sources. These venture
capital statistics are for equity investments into early-stage,
innovative companies and do not include companies receiving funding
solely from corporate, individual, and/or government investors. No
statement herein is to be construed as a recommendation to buy or sell
securities or to provide investment advice. Copyright (C) 2006,
VentureOne.

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