Tech venture investment still slow

Another month and another set of European venture stats. This time it’s Go4Ventures turn, with their monthly VC bulletin reporting deal activity was slightly down in the technology sector in September compared to August, but on a cumulative basis 2005 has experienced just over €1bn of investment, 24% more than the same time last year.

The research does indicate something quite interesting for the rest of the year. In 2003 and 2004, investment falls sharply after September, but unlike this year, those two years also had very quiet August months, whereas 2005’s was particularly strong on €120m, just shy of 2004’s high of almost €130m in September.

The bulletin also reports what the industry should already be well aware of, namely that European early stage VC investment is declining as more and more money goes to later stage companies. Go4Venture argues that this trend is unsustainable: “Market forces will eventually correct the current anomaly. Common wisdom is that, in a recovery, seed financing is the moist profitable part of the market. We also hear that some LPs are starting to ask questions about the lack of seed financing activity.”

September saw five deals valued at over €7.5m, with Grisoft, a Czech software company securing top spot after attracting €42.4m from Intel Capital and Enterprise Investors. The exit front was inevitably dominated by the US$2.6bn acquisition of Skype by eBay, making it the first plus US$1bn VC-backed exit. Go4Ventures says this deal is a sign of how IT spending is no longer being driven by the corporates but by the consumer, and also an indication of how important US expertise and networks are. Although the initial investment was made by Luxembourg fund Mangrove, it took the involvement of Bessmer and Draper Fisher before things really got moving. Index Ventures, which is based in Geneva, also played a large part in building Skype up, but its strong US track record proved important.

Like many other tech watchers, Go4Venture is also unsure why eBay bought and paid such a high price. “We are unsure what the eBay-Skype deal means for the long term health of the tech VC market”, says the bulletin. “In the short term, this should bring a welcome renewed interest for European VC from LPs (who are themselves worried about the hedge fund and buyout industries’ own bubbles). For the long term, our industry is clearly already working on its next bubble -let’s make sure we all keep our cool a while longer so that we have enough time to build a stronger industry before the next market collapse.”