Dow Jones VentureOne and Ernst & Young European Venture Capital Report Finds Highest Median Round Size on Record and Increased Early-Stage Deals After the First Three Quarters LONDON and NEW YORK, NY -- (MARKET WIRE) -- November 06, 2006 -- With EUR 2.97 billion invested after the first three quarters of the year, venture capital investment in Europe has already exceeded the amount invested in the same period of 2005 and is poised to surpass last year's annual total, according to the quarterly European Venture Capital Report released by Dow Jones VentureOne and Ernst & Young. VentureOne is the publisher of VentureSource. However, deal flow, at 631 financings, remains 26% off the pace of last year, indicating that investors are continuing to favor fewer deals into European venture-backed companies, but are supporting them with larger investment sums. "Venture capital investors are boosting the individual round sizes of European deals in an effort to allow the winners among their portfolios to compete in an ever-increasing global marketplace," said Gil Forer, global director of Ernst & Young's Venture Capital Advisory Group. "In addition, with the current positive capital markets environment in Europe and the region's entrepreneurially focused stock exchanges providing access to public capital as a further financing tool for these private companies, investors are increasingly starting off their companies with bigger sums to give them the impetus to reach these markets. For example, the year-to-date median sizes of seed- and first-round deals are at record-setting annual levels -- EUR 650,000 and EUR 2.4 million, respectively." The overall median size of investment in Europe so far this year is EUR 2.5 million, and is the highest annual median since at least 1999, when VentureOne began compiling this data. By country, France and Germany also are posting the highest year-to-date annual medians on record at EUR 3 million each; the U.K. is posting the highest annual median since 2000 with EUR 2.6 million. As in the U.S., venture capital activity in Europe is increasingly focused on early-stage investing. Some 39% of the deals completed through the first three quarters of the year are seed- and first-round deals, compared to 32% last year. In the third quarter alone, 43% of the deals completed were seed- and first-round deals, up from 35% in the third quarter of 2005. "So far this year, there have been more first-round deals (234) than either second (120) or later rounds (216), a sign that investors are starting anew and are more interested in financing a fresh crop of innovation in Europe particularly in areas like the Internet focused information services segment, consumer and business services, communications and medical devices. Plus, the amount of capital they have directed to these initial financings has already surpassed the amount invested in the first three quarters of 2005 by 40%," said Steve Harmston, director of global research for VentureOne. "But despite the positive early-stage activity, we are seeing somewhat of a shake-out in the European market this year, with the pool of active investors declining and thus resulting in overall fewer deals." In the third quarter, venture capital investing in Europe was down, with a total of EUR 811.3 million invested into 181 deals, declines of 15% and 35%, respectively, from the same quarter a year ago. But third quarter investment activity is generally constrained by European summer vacation patterns. By industry, investment levels in information technology (IT) moved in a positive direction with EUR 1.50 billion directed to the industry after the first three quarters of the year, an increase of 13% over the same period of last year. But corresponding deal flow was down 26% for IT companies. Within the technology category, the communications and networking segment has attracted significant interest. Deal flow to this segment increased by 16 deals this year and capital investment more than doubled to EUR 329.6 million. With EUR 263.4 million invested after the first three quarters, the information services segment, home to many of the Web 2.0 innovations, was up 48% from a year ago and deal flow was up by six deals. Emerging segments, such as energy, have become solid investment areas in 2006. For example, the Energy segment had 16 deals through the first three quarters, one more than a year ago and EUR 66.6 million invested. The health care category has faltered somewhat this year, with deal flow declining 30% compared to the first three quarters of 2005 at 170 deals, and capital declining 12% over the same period to EUR 1.07 billion. However, the level of investment in health care companies in the third quarter is relatively steady with the same quarter a year ago, boosted in particular by a strong quarter for biopharmaceutical investing which saw EUR 279.3 million directed to 28 deals. The largest deal of the third quarter was a biopharmaceutical deal -- the EUR 40 million later-stage investment in Ablynx of Ghent, Belgium, a developer of therapeutic nanobodies used in drug targeting and validation. The business, consumer and retail category has shown signs of growth this year, with 72 deals and EUR 269.4 million invested after the first three quarters, an increase of 54% over last year in capital. The media, content and information segment has been particularly robust with nine deals and EUR 51.5 million, almost five times more than was invested in all of 2005. On a geographic basis, capital investment in France after the first three quarters is up 36% over last year, to EUR 624.7 million, although the 130 completed deals were 19% fewer than in the same period of 2005. Deal flow in the U.K. reached 179 deals after the first three quarters, down 31% from the period a year ago, but capital was up 5% over the same period to EUR 967.2 million. Germany posted 72 deals, a decline of 18% and investment was down as well, 22% to EUR 308.9 million. In Sweden, capital investment was steady with a year ago at EUR 206.1 million but deal flow was off 21% with only 65 deals completed so far this year. In the Netherlands, deal flow was down by one deal to 15, but capital investment increased 72% to EUR 65.2 million. On a bright note, both Spain and Belgium posted three more deals than a year ago, bringing the total through the third quarter to 22 deals for each country. Capital investment increased even more. In Spain, investment was up 179% to EUR 72.7 million. In Belgium, investment was up 257% to EUR 121.8 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 © 2006, VentureOne. 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