Venture capital deals plummet in third quarter

20 Nov 2003

The value of venture capital deals in Ireland fell by over half in the third quarter 2003 compared to Q3 2002 according to the joint European venture capital survey by Ernst & Young and VentureOne. This represents a decline of over €20m – from €41.87m in Q3 2002 to €20.3m for Q3 this year.

According to the survey, 32 deals have been financed to date this year in Ireland compared with 38 deals over the same period in 2002. The software sector fared particularly badly, with the number of deals declining 75pc in Q3 2003 compared with Q3 2002. The general IT market saw a 50pc drop in the number deals financed compared with same period in 2002.

Commenting on the survey, Enda Kelly, partner, Emerging Growth Markets, Ernst & Young said: “The findings, while disappointing, are not surprising and reflect the low levels of activity in the global venture capital landscape.

“It is worth noting that investment in the communications sector has increased significantly this year. Last year a total of two deals were financed in the communications sector and this year, taking three quarters into consideration, there have been five deals financed, representing an increase of 150pc year on year.”

Kelly was also positive about the outlook in the coming year. “Venture capital activity in Europe historically lags behind the US by at least two quarters. With investment holding steady in the US in the most recent quarters, we can expect to see the European market following suit in the first half of next year,” he said.

In Europe as a whole €616m was invested in 191 deals in Q3, a 20pc euro decline and 25pc volume decline from the second quarter of the year. This contrasted to the steadier results in US venture activity in the third quarter. The UK was the engine of the European VC market, recording a 52pc increase in total investment to €277m and accounting for almost half of Q3 investments in Europe.

Steve Harmston, VentureOne’s director of European Research, attributed the decline to seasonal factors. “European vacation patterns have conspired to reduce third quarter deal flow for the past three years. It is evident in this quarter when in August only half as many deals were completed compared to July and September. With investors absent for as long as one month in the quarter, it’s difficult for deals to get accomplished, particularly in bringing together large syndicates of investors, who would be investing in more substantial financing rounds. The UK was less affected by this seasonal factor.”

By Brian Skelly