Web 2.0 VC Dealmaking On The Upswing in UK/EU

From alarm:clock euro::

"Europe can do well if we learn to live with the losses. Some companies will fail. In the US, when that happens, people say ‘hey, we tried’ and start again, but in Europe people remember the failures more readily than the successes.”

Today the Financial Times has a report inspired by fresh research from Paul Fisher of First Capital on Web 2.0 and Internet investments in the European region in 2006. It reports the amount raised last year jumped to more than £144M (about €219M). It also has commentary from active online service investors, such as Barry Malone of Benchmark Capital who talks about the "spray and pray" approach to investment and Fred Destin who talks about what it will take for Europe to grow.


Fisher posted the original data on his blog along with some good analysis, and created a good table showing all the deals in question. He writes:

More than £144mn was raised in Europe across seed and first rounds in 2006 by 54 European web2.0 companies. This total doesn’t include the “undisclosed investment” rounds, of which there were 16.

The growth is remarkable.

In the UK in 2005, just £24mn was invested into web2.0 companies. In 2006 that figure increased threefold with £79mn worth of early stage investments into 21 companies.

The FT's article is currently not behind its firewall, so you can read it now. Here are some quotes from Benchmark's Malone:

These [Web 2.0] companies are also much cheaper to set up than other technology businesses.

"It is very difficult to build up a semiconductor company or an enterprise software business. You need to invest $40m to $50m before you know if you have a product that works," Mr Malone said. "With web 2.0 companies you can find out after three or four million dollars whether it will work."

As a result, Mr Malone said, many European venture capital companies were using a "spray and pray" strategy, spreading small amounts of investment over dozens of companies in the hopes that two or three would make it.

Just in case you think Barry doesn't know what he is talking about -

Prior to joining Benchmark, Barry spent five years as CEO of Esat Digifone, Ireland's second largest GSM mobile operator. Under Barry's leadership, Esat Digifone expanded to a profitable company with 900 employees, more than 1 million customers and IR400 million in revenues. Esat Digifone was acquired by British Telecom at a market value of IR£2 billion and is now part of the O2 Group.

Before Esat Digifone, Barry spent two years at Xerox Corporation in Palo Alto, California, where as Vice President of first Business Development and then Channel Operations, he was instrumental in revolutionizing Xerox’s approach to global marketing. Before this Barry enjoyed a pan-European career at Digital Equipment as European Pricing Manager, Director of Software Business Europe and Vice President of the Component and Peripheral Business Unit Europe.

Previously looked at Enterprise Irelands 2006 startups and mentioned FinFacts current report on economy and investments etc.. - not good reading.

Only six jobs were created in the €110m Information Age Park Ennis (IAPE- Shannon Development) in the past 12 months...
Professor Danny Breznitz of the Georgia Institute of Technology says our research infrastructure is too narrow in its focus and may not be sustainable...not creating enough new businesses,...
......GEM...found the percentage of people who were either thinking of going into business or had just started a new venture slid substantially in Ireland...

Also posted about Irish VC Investment slackening in Q1 2007

Only one deal was completed in 1Q’07, down from 4 deals in 4Q’06 and 7 in 1Q’06.
There were no seed, first or second round deals in Q1
There was only one IT sector deal closed in 1Q’07, just as in 4Q’06, although this is down from the 7 deals in 1Q’06.
There were no exits in 1Q’07, compared to the two exits in both 4Q’06 and 1Q’06.
Ireland ranked fourteenth in Europe in terms of the number of deals

,

Mentioned goverment subsidies and views in a previous post.

Bridges Ventures..VC group.. invest in deprived parts of the UK... make its 27th investment

Bridges raised £40m for its first fund, including £20m from the UK govn... as well as private equity executives ..and 3i. But its second fund of £50m had no government money.

 micro financing may look unattractive to many VCs ... claims his funds are outperforming the rest of the VC market.

Also mentioned some views on angel/VC investing from EU Innovate conference.

So it will be interesting to see how Ireland does over 2007 as so far it looks sloooow, besides MapFlow.


Lal