VC funding moves overseas

Venture capital flows into Europe have dropped by 15 per cent

Venture capital flows into Europe dropped by 15 per cent according to the latest data from Dow Jones VentureSource, with the IT sector funding dropping off at nearly double that rate.

Overall venture capital investment fell from $7.6bn in 1,107 deals in 2007 to $6.5bn in 881 deals in 2008 to the lowest levels since Dow Jones VentureSource began collecting data in 1999. The drop off in European funding was particularly marked in the last quarter of the year, with funds down 38 per cent.

Funding for European IT projects was hit particularly hard in 2008, with a sharp drop off in the second half of the year. Funding for IT firms in Europe went down by 26 per cent, from $3.4bn invested in 560 deals in 2007 to $2.5bn in 410 deals in 2008.

However, in the same year funding to the rest of the world rose five per cent, with particular focus on firms in China and Israel.

“The venture capital industry continues to rapidly globalise as investors are eager to find and tap new areas of innovation, especially in emerging economies like China and India,” said Jessica Canning, director of Global Research for Dow Jones VentureSource.

“What's most notable is that the growth in international investment is not being fueled solely by information technology, which is traditionally the sweet spot for venture capitalists, but also by energy-related investments. Investments in energy totaled nearly $1.4bn in 2008 and now account for more than 10 per cent of international venture investment.”

Venture capital spending in China nearly doubled this year, from $4.2bn in 245 deals in 2008, up from $2.8bn in 290 deals in 2007. Investment in IT projects accounted for the largest section of this, accounting for $1.6bn of the total.

Israel’s burgeoning technology industry also did particularly well last year, getting a record $1.3bn, up 30 per cent on last year. However, India fared less well at attracting capital. India's IT industry saw investment fall 45 per cent from $319m in 2007 to $176m in 2008.