European VC investment increasing
Posted under Technology Investment

European venture funds increased 44 percent in 2005 and are nearly at the same level as 2001, according to figures compiled for the European Private Equity and Venture Capital Association. The amount of money raised for high-tech companies in particular doubled last year to €5.59 billion from €2.47 billion.

Although restrictive market environment still hobble growth of small companies, Europe is competing more evenly with Silicon Valley.

One of the reasons is vastly improved productivity. Cheap hardware, free open-source software and cheap broadband reduce the need for staff recruitment. One of the big achilles heels of European startups. A technology based business can be efficiently created with few staff. Sidestepping the labour law overheads of potential layoffs down the line.

Neither does Geography matter as demonstrated by Indian IT and call-center outsourcing. Internet and the telecoms infrastructure allows cheap global distribution regardless of where the company HQ location. In contrast to US startups, most European companies suffer from poor local markets before accessing a stronger US and UK markets. Companies more frequently plan for an international presence right from the start. Counting on a strong demand market from the start makes investment easier.

Danny Rimer a rennaissance Venture Capitalists at Index Ventures, happy talking about Linux Kernel details and term sheet minutae, points out that the Open Souce advantage is also European. Linux, the open-source computer operating system, was created by Linus Torvalds in Finland. Last month, Trolltech, a Norwegian company that markets its software on the open-source model, said it was taking its shares public. MySQL the Linux of the database world is Swedish. Open Souce based business models are being used by startups all over Europe.

Another particularly European niche is peer-to-peer computing/ The Kazaa network, over which copyrighted song files are exchanged freely, began in Sweden. After that success, its founders turned right around and started Skype Technologies, the Internet phone company that eBay bought last year for $2.6 billion, or $3.4 billion. A third European specialty is community-building networks, like Lunarstorm of Sweden or Habbo Hotel, which is likely to reach €60 million in revenue this year.

Let's hope for a good spring and summer, they have been a long time coming.

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