3i, the UK venture capital and buyouts house, is moving away from investing in early-stage companies as part of a reorganization exercise that will see its venture business merge with its growth capital unit.
A large majority of the team will be moving across as the firm seeks to combine the skills from both groups. A spokesperson said 3i’s venture chief Jo Taylor was “heavily involved in the process”.
It’s been common knowledge for a while that 3i has been investing less and less in early-stage businesses, and this move is a recognition of that fact. The firm’s current fund will continue to honour its funding commitments to existing early-stage investments but does not plan to make any further investments in the space. It will now be concentrating its efforts on later stage technology, media and telecommunications (TMT), and healthcare.
The loss of 3i will come as a blow to European venture capital as the firm had been a consistent supporter of early-stage European companies, although its recent move into later-stage deals is reflective of a wider trend that has been taking place over the past three to four years, although few VCs actually announce it – the rare exception being Apax who officially retreated from venture capital last summer after around two years of declining interest in the industry.
More recently, Index Ventures, whilst remaining committed to early-stage venture capital, announced the closing of a €400m growth fund, which will invest between €20m and €50m per company. This fund is in response to what the Geneva-based firm perceives as a gap between companies that are too large to fit into its traditional early-stage investing model and companies that are too small for the larger, private equity firms.
Data backs up this trend. The latest stats from Dow Jones VentureSource show that European VCs are increasing their focus on later-stage deals – VCs invested €2.07bn in later rounds in 2007, up 13% from 2006 and the highest amount since 2001.
Jessica Canning, director of global research for VentureSource, said: “Our data shows that investors are still eager to tap the next wave of innovation in emerging areas like energy, but they’re also focusing more resources toward developing older portfolio companies in traditional spaces like software, biopharmaceuticals and communications and networks—the few areas that have been able to find exits in Europe’s tight liquidity markets.”