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.
I found this very interesting. It matches exactly some stuff that I am seeing / feeling.
Since we're into similar stuff I will continue to monitor your blog for more nuggety wisdom.
Posted by: willmcinnes | February 16, 2006 at 07:21 PM
Hi,
Interesting views, I agree that the web 2.0 landscape seems a bit desert in Europe at the moment, but this will change over the next 6 months.
But my take on the new web 2.0 companies is also that, compared to the first first wave of .com (which I truly enjoyed), you can now be in business with very low investment, start making some money with AdSense and rely on buzz and your net promoters community to take off.
So my question: what's left for the VCs here? Connections with Yahoo! and Google are probably more important.
Maybe this is why VCs do not see many startups coming their ways at the moment.
Nice to start a conversation with you on this.
Thanks
Laurent
Posted by: laurent | February 18, 2006 at 09:59 AM
I think a few new things will have been kicked off after a conference I covered sparked some interest: http://mbites.com/web_2_wave_or_bubble
Posted by: Mike Butcher | February 26, 2006 at 03:28 PM