Q4 2007 saw a significant drop in venture capital investment across almost all sectors and countries in Europe. Early indications are showing that European venture capital investment in Q1 2008 may even drop below those levels.

The total amount of disclosed venture capital invested in Q4 2007 was €1.2bn, compared to €1.4bn in Q3 2007. Although this level of investment was not wildly out of the recent quarterly variance, annual investment in 2007 was also 5% down on 2006 levels (for more detail, see Library House’s Q4 2007 briefing). Extrapolating on this quarter’s deals to date, Library House forecasts that total investment in Q1 2008 will remain flat on Q4 2007, or even sink slightly lower.

But why are European investment levels dropping, and will the trend continue well into 2008?

2006 was a stellar year for European venture capital. During such periods of peak investment, investors scramble for the best deals, driving up company valuations. During the dot-com bubble, VCs continued to invest even as valuations shot through the roof, setting the stage for poor returns as opportunities for exit dried up. The current cloudy global economic outlook means investors are now being more cautious with their investments. Shrinking public exit opportunities, highlighted in last week’s EVI newsletter, influenced by the global credit crunch mean investors are now being more selective and taking longer with investment propositions.

This more cautious approach to investment is particularly evident among ‘top tier’ VCs in Europe. ‘Top tier’ is defined in this analysis as the most active investors in terms of number of deals done in Europe since 2006. These investors have been through at least one investment cycle, and are all too aware of indiscretions made by the industry during the dot-com bubble. Wary of investing again in overpriced deals, these investors have slowed their investment activity over 2007.

Though investors’ caution has made it more difficult for startups to raise money, it is not all gloom in the European venture capital market. Although European mergers & acquisitions may be sliding slightly off the high plateau that they have been on for several years, the fundamentals of the corporate trade sale market look healthy. The last few years of strong economic growth have left corporates with reserve cash. Current market conditions will lead to shareholders putting pressure on corporates either to return that money or to deploy it. One way in which companies can use those funds is to make strategic acquisitions, bolstering their current market presence or adding new revenue streams to combat against the economic downturn. The corporate M&A environment is therefore likely to remain solid through most of 2008, which may help reassure jittery investors and stabilise the venture market as a whole.

It is clear that even this early into the year, 2008 investment levels will not match the lofty highs seen in 2006. With investors being more selective with their investments in the existing cloudy economic climate, European investment levels may end up lower than those seen in 2007. However the solid fundamentals of the corporate M&A market should prevent 2008 European investment levels from sinking too low.

DiBcom, the France-based mobile TV semiconductor company, has raised $27m (€18.4m) in fifth round funding from Natixis, 3i Group, Cipio Partners, Convergent Capital, Crédit Agricole Private Equity, Intel Capital, Partech International, SGAM Alternative Investments, UMC Capital, and WI Harper. DiBcom is a fabless semiconductor company which designs chipsets to enable low-power TV reception for mobile and portable devices, even those travelling at speeds up to 130 miles per hour. The funding will be used by DiBcom to further accelerate its international growth and consolidate its leadership position as mobile TV markets in Europe and worldwide take off.

N-Trig, the Israel-based input digitiser technology company, has raised $28m (€19m) from Evergreen Venture Partners, Canaan Partners and its existing investors. N-Trig has developed DuoSense, a digitiser designed to combine both pen and touch input for mobile computers into a single device.

Ranier Technology, the UK-based spinal implant development company, has raised £8m (€10.7m) from Alliance Trust Equity Partners (ATEP) and FirstVentures. Ranier Technology is developing clinical products, based on its proprietary polyurethane materials platform technology. It is currently focused on its artifical spinal disc, CAdisc, and the recent investment will be used to fund the clinical testing and European launch of the lumbar version of this, as well as enabling further development on a cervical spine version.

More companies' intelligence at www.libraryhouse.net

More companies' intelligence at www.libraryhouse.net

Kynogon, the France-based developer of artificial intelligence software, is to be acquired by Autodesk, a Fortune 1000 company headquartered in San Rafael, California. Kynogen produces the Kynapse artificial intelligence engine, used by many of the world’s leading games developers including Electronic Arts, Activision, Bethesda Softworks, and Lionhead Studios, for real-time behaviour simulation. Autodesk sees the acquisition as a means to further its goal of simplifying games development by providing tools to create, animate and integrate 3D assets into game engines. Terms of the transaction were not disclosed.

Scarlet, the Netherlands and Belgium-based communication services provider, has been acquired by Belgacom for €185m, on a debt and cash free basis. Scarlet provides fixed-line and mobile voice, internet and data services for residential, SME, corporate and wholesale customers in the Netherlands and Belgium, and after the acquisition will continue to operate as a separate business unit within Belgacom, under the Scarlet brand. Belgacom will use the acquisition to enter another market segment, advance its multi-play offering in Belgium and improve its marketing positioning.

enter.tv, the Germany-based casual gaming company, has had its assets acquired by Tipp24 after entering liquidation last December. enter.tv had developed an interactive multi-player casual gaming technology based on a MPTV platform.

More companies' intelligence at www.libraryhouse.net

More companies' intelligence at www.libraryhouse.net

Population Genetics Technologies, the UK-based genetic studies company has appointed Dr Mel Kronick as chief executive. Prior to joining the company Dr Konick had been division R&D manager at Applied Biosystems and Aglient Technologies, and for the previous 18 months has been working with the Population Genetics Technologies’ management team to refine its business plan and organise its recent round of funding from Auriga Partners, Noble Fund Managers, and Compass Genetics Investors.

Web Reservations International, the Ireland-based online-reservations company, has appointed Feargal Mooney as chief executive and chairman. Mr Mooney, who joined Web Reservations International in 2002 as its chief operating officer, replaces company founder Ray Nolan, who remains a director and major shareholder. The company has also appointed Fintan Drury, founder of Platinum One, as chairman.

Trivnet, the Israel-based online payment technology company, has appointed Amit Mattia as chief executive and president. Prior to joining the company, Mr Mattatia served as vice president and general manager at Comverse, and before this chief executive of Speedwise Technologies.

More companies' intelligence at www.libraryhouse.net

More companies' intelligence at www.libraryhouse.net

CONTROS Systems & Solutions, the Germany-based developer of underwater measurement systems for the measurement of hydrocarbons and oil in water, has informed Library House that it will begin looking for a further €1-1.5m of funding in March 2008. The investment will be used for further expansion of the business to include more product lines and to finance the development of new technologies. Mr Daniel Esser, managing director and co-founder, told Library House that the company intends to exit via a trade sale in the next 5-7 years.

NXVision, the UK-based place shifting company, has informed Library House that the company is in the process of fundraising, looking to raise £3.5m to commercialise the company's technology and to expand the company globally. Mr Tony Combe, the managing director and co-founder, stated that the company intends to exit via a trade sale within 2 to 3 years, and envisions an exit to one of its potential customers. The company is currently in the stages of later stage talks with various blue chip companies, and is hoping to expand its client base as a result of these talks.

More companies' intelligence at www.libraryhouse.net

More companies' intelligence at www.libraryhouse.net