Silver linings

European venture deals have hit a nine-year low. But Germany and cleantech remain bright spots, writes Amanda Janis.

Just like their US counterparts, European venture capitalists are having a rough year. For the second quarter in a row, deal volume was dismal and the exit environment remained bleak.

The second quarter saw 167 deals completed, a 35 percent drop from the same period last year, and the lowest quarterly total in nine years, according to the latest statistics from Dow Jones.

But the news is not all doom and gloom.

Germany, for example, last quarter experienced its highest level of venture capital investment since 2001. Approximately €264 million ($388 million) was invested across 29 deals, marking a 29 percent increase over second quarter 2007 figures.

Europe’s largest venture deal last quarter was photovoltaic company Sulfurcell Solartechnik’s €85 million financing round, which was led by Intel Capital and included commitments from Climate Change Capital Private Equity, AIG, Demeter Partners, Zouk Ventures and BankInvest. It was not only a financing round for a German company, but also highlights another promising trend in European venture markets: energy investment.

Energy deals saw record second quarter investment with 10 deals receiving $147 million in financing, Dow Jones found.

The trend looks set to continue: just this week, renewable energy investment firm Good Energies completed its sale of two Romanian wind farms to Central European power utility company CEZ Group, whose total investment into the 600-megawatt projects is expected to reach €1.1 billion.

These should be hailed as heartening developments for any venture capitalists feeling dejected about downturns in, for example, UK deal volume, which dropped nearly 50 percent compared to second quarter 2007, or European healthcare investment, which fell by 55 percent.

Much as credit market conditions have prompted private equity firms to broaden investment mandates, targeting different geographies and sectors to put capital to work, savvy venture capitalists, too, will be able to find silver linings amid a stormy investment climate.