Library House’s recently-released Q4 2007 Quarterly Briefing showed the quarter to have been a weak one for VC investment across Europe, with the lowest amount invested of any quarter in the past two years. That weakness was even more apparent in the Mediatech sector, where investment dropped a precipitous 52% between Q3 and Q4 2007. Just €121 million of VC money was invested into European Mediatech companies in the period, a stark contrast to the two-year high of €252 million euros in Q3 2007 (see Figure).

The fall in Mediatech investment in Q4 is surprising given Mediatech’s strong showing during the first three quarters of the year. Mediatech investment during Q1-Q3 2007 was up 17% on the same period during 2006. Yet Q4 was so weak that full-year Mediatech investment totals actually fell 0.9% from 2006 to 2007.

The decline in Mediatech investment in Q4 2007 was almost entirely due to shrinking investment into Content and Service (C&S) Providers – a reversal of the first three quarters of 2007. Investment into C&S Providers from Q1-Q3 2007 totaled €372 million euros, up 72% from the same period in 2006. Yet from Q3 to Q4 2007, investment into C&S providers plummeted from €173 million to €49 million – a decline of 72%.

Investment trends within the Video sub-sector are a microcosm of the wider rise and decline of C&S Providers during 2007. In Q2 and Q3 2007, Video startups pulled in several large financing rounds: Joost raised €33.2 million and VideoJug raised €22 million in Q2; and Dailymotion and Metacafe picked up €24.9 and €22.3 million respectively in Q3. In Q4 2007, however, the biggest disclosed European Video deal was RayV, a Joost competitor which received a modest €£5.7 million from Accel Partners.

One bright spot amongst Content and Service Providers which could see more attention in 2008 is Search & Directory. Investment into this sub-sector rose 211% between 2006 and 2007, buoyed by both vertical and general search engines. Some major VC deals in 2007 involving vertical search engines include: residential search engines Properazzi and Zoomf.com (from Spain and the UK respectively); German gaming search engine Wazap!; and French Enterprise search engine Exalead. 2007 also saw the funding of generalist search engines with a unique spin, such as Russia’s Quintura, which presents search results as a visual tag cloud; and the UK’s True Knowledge, whose software answers natural language queries for facts and information.