We have used the traditionally-quiet holiday period to keep ourselves very busy running some research on venture capital investment into Web2.0* companies.
Why did I want to run these numbers?
It is obvious to me that there is a high interest-level amongst European VCs in the sector, yet I was seeing a very low level of Web2.0 “done deals” in VC portfolios and on the deal sheets.
Furthermore, when we ran our Web 2.0 European event, we noted an under-supply of European entrepreneurs with compelling Web2.0 businesses.
So I was expecting the stats to show low levels of investment into Web2.0 companies in European compared to the US. However the discrepancy was even greater than I had expected.
In 2005, US-based Web2.0 companies reported raising £200mn whilst European businesses raised just £24mn.
Both geographies had similar (ish) proportions of investment at the first round: 59% of US deals were first rounds compared to 47% in Europe. Tellingly however, there was a skew in Europe towards earlier stage deals: seed rounds constituted 13% of all activity in Europe compared to 6% of deals in USA.
Be warned however, because I think it’s too early to start drawing any harsh conclusions on European entrepreneurs or VCs.
Frequently, we see European VC software investment trends trailing the US by anywhere from 3 – 12 months. I’m pretty excited by the range of European Web2.0 entrepreneurs that I’m meeting today. I also know there are some interesting deals currently “in process” at many VC houses. I’m looking forward to seeing the European numbers catch-up.
* A quick word on methodology: “Europe” refers to West and East Europe and also Israel. Web2.0 is defined as company fitting the Tim O’Reilly description (see previous posts). Data was sourced by primary research, press releases, techcrunch, company calls and the VentureSource data base.