3i leaves early stage behind

3i Group, the London-based venture capital and buyouts investor, is moving away from early stage investing as part of a reorganization that will see its venture business merge with its growth capital unit.

A large majority of the team will be moving across as the firm seeks to combine the skills from both groups. A spokesperson said that 3i’s venture chief Jo Taylor was “heavily involved in the process.”

It’s been common knowledge for a while that 3i has been investing less and less in early stage activity, and that this move is a recognition of that fact. The firm’s current fund will continue to honor its funding commitments to existing startups, but does not plan to make any further investments in the space. It will now concentrate its efforts on later stage technology, media, telecommunications and health care deals

3i had been a consistent supporter of European startups. However, its recent move into later stage deals is reflective of a wider trend that has been taking place over the past three to four years in Europe. For instance, London-based Apax Partners Worldwide officially retreated from venture capital last summer after about two years of declining interest in the industry.

Geneva-based Index Ventures, which remains committed to early stage venture capital, recently announced it has raised a $585 million growth fund, which will invest between $30 million and $75 million per company. This fund is in response to what the firm perceives as a gap between companies that are too large to fit into its traditional early stage model and companies that are too small for the larger, private equity firms.

After Index announced the growth stage vehicle in January,co-founder Giuseppe Zocco told Reuters that he expects other European firms to follow in Index’s footsteps. “We hear rumors that there may be another one or two more coming along this year,” he told the news service.

Meanwhile, recent stats from Dow Jones VentureSource show that European VCs are increasing their focus on later stage deals, VC firms invested more than $3 billion in later rounds in 2007, up 13% from 2006 and the highest amount since 2001.

“Our data shows that investors are still eager to tap the next wave of innovation in emerging areas like energy, but they’re also focusing more resources toward developing older portfolio companies in traditional spaces like software, biopharmaceuticals and communications and networks,” says Jessica Canning, director of global research for VentureSource. “The few areas that have been able to find exits in Europe’s tight liquidity markets.” —Tom Allchorne