8 November 2002 Venture capital (VC) groups will lose more than $40 billion (€39.6bn) on the investments they made in US and European technology start-ups between 1999 and 2001, according to market research company VentureOne and accountants Ernst &Young.
This figure is based on VentureOne’s forecast that most of these early stage technology and dot-com companies will go, or have already gone, bankrupt. It adds that VCs pumped more than $231 billion (€228.6bn) into such start-ups between 1999 and 2001.
The number of technology companies that have already folded is huge. US start-ups that received $15.3 billion (€15.1bn) between 1999 and 2000 have already gone bust. In Europe, technology start-ups burned through €4.7 billion ($4.8bn) before going bankrupt between 1999 and September 2002.
However, “these bankrupt companies represent only 15% of the 4,044 European technology start-ups that received VC funding during this time. This means that many more could go to the wall unless they receive additional funding in the next six months,” said Steve Harmston, director of European research at VentureOne.
In fact, 1,148 European technology start-ups have not received any additional funding since January 2001.
“What we have seen so far is just the tip of the iceberg. It is difficult not to see the scale of US and European venture-backed companies going out of business being at least double what we have seen so far,” added Harmston. Furthermore, the shrinking valuations of technology companies will mean that VCs are likely to lose more than $40 billion (€39.6bn) on their investments.
Across all industries, European venture capital funding fell by a third to €781 million ($789.3m) for the three months ending September 2002 (Q3 2002). Of this amount, software and biopharmaceutical companies accounted for 58%.
The only good news was that the European semiconductor industry received marginally more investment in the third quarter of this year than in the same quarter a year earlier.