Investment in European technology startups is falling way behind the US as the region continues to be impeded by the lack of a vibrant stock market.
Venture capital funding in the US is booming according to the latest report from Pricewaterhouse Coopers. A record $3.7 billion was allocated in the second quarter of this year, an increase of 26 per cent on the same period in 1997.
More than 85 per cent of the investment is being ploughed into technology startups. Of the $800 million increase on 1997, $700 million went into the technology category, which includes software, electronics, semiconductors and biotechnology.
"Internet related venture capital is driving the big increases, particularly in software and communications developments," said Kirk Walden, research director at Pricewaterhouse Coopers.
Walden noted that the trend for investment in Internet startups had swung away from content companies to those developing enabling technology and applications.
Software and IT investments took one third of the money, around $1.2 billion. Communications was the second most invested sector, with 22 per cent of total investments - around $840 million. Regionally it comes as no surprise that Silicon Valley enjoyed a third of the total investment, highlighting the bias toward IT.
All this is in stark contrast to Europe where, although venture capital investment is increasing, it is still significantly behind the US. Many companies have opted to have a share issue in US stock markets rather than in Europe.
A round table of venture capital experts hosted by analyst company Gartner Group earlier this year, concluded that one of the key inhibitors of investment in European startups was the cultural attitude to funding small companies.
"Cultural differences are one thing but the fact there aren't clear exit strategies is a big problem?there has to be a strong public market to provide an exit strategy and valuation benchmarks," said Walden.
Europe's equivalent venture capital investment was around one eighth the total of that for the US according to figures from the European Venture Capital Association.
The Pricewaterhouse Coopers survey was based on figures received from 721 venture capital firms. Listed below are some of the major venture capital technology investments made in the second quarter:
* Spring Tide Networks, Boxborough. Develops networking equipment for communications service providers. Received $6.3 million. At start-up/seed stage of development
* Mpowersolutions, Englewood, Makes software for managed healthcare providers. Received $1 million. At expansion stage of development
* Visto Corporation, Mountain View. Designs Java web based universal access software. Received $9 million. At start-up/seed stage of development
* Valicert, Mountain View. Develops Internet digital certificate validation and revocation. Received $6.2 million. At early stage of development
* Coastek, Scotts Valley. Operates ecommerce security. Received $336,000. At start-up/seed stage of development
* Marketsoft, Lexington. Designs enterprise software for marketing automation. Received $5.25 million. At startup/seed stage of development
* Agiltech, Cincinnati. Develops computer aided process planning software. Received $500,000. At startup/seed stage of development
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