European tech investment rides the storm

2000-06-28

There has been much in the press in recent months about the dot-com bubble. It either burst, or is looking decidedly leaky. In either case, it doesn't seem to have affected the continuing rise of interest, and injections of capital, into the European technology sector.

According to a report in Tornado Insider, a pan-European survey from PricewaterhouseCoopers saw venture funding in technology companies up 70%, to 6.8 billion euros. Overall, about five thousand individual investments were made with an average value of 1.4 million euros. Unsurprisingly, the largest share of investments went to software companies, with business to business eCommerce and Wireless companies both proving popular. According to the PwC research, the trend is continuing upwards in 2000. So - what was all that about a shake-down in technology stocks?

According to Marco Rochat, the change may not show up in the trend charts, but it is still profound. "We don't think the market crash has changed much, just where the money is going," said Rochat. Reading between the lines, the technology bubble may well not have burst, but one bubble certainly has - that of throwing money at all possible ventures, in the hope of making some fast returns.

We have recently seen what we hope are the last vestiges of this practice, which is as doomed as it is foolish. Recently, we heard reports of potential investors saying, "put money into the mobile space. Don't ask questions - just invest!" Scary stuff, as it is based on the fundamentally flawed assumption that new companies in this arena are more likely to succeed than to fail. The message that caused the tech stock crash earlier this year was that there was no guarantee of success, not even for high-profile players. Having learned the lessons, discernment and foresight are the qualities that venture capitalists are bringing to bear. Companies are springing up which enable the quality of ideas, the strength of products and even the capabilities and skills of the staff to be tested before any investment is made - it can only be considered surprising that VC's were not making these checks in the past.

The technology roller-coaster ride is thrilling, and there are great rewards at stake. However this does not prevent investors from looking before they spend. It is telling that, even given the additional care that is being taken prior to funding decisions, the same number (or greater) of investments are being made. This can only mean one of two things - either a careful eye is enabling companies from investing in the good companies rather than the less-good, or the start-ups themselves are coming to the table with more than a good idea, enthusiasm and flair. Either brings an increased maturity to the game, which will add to the stability of the market in general. Long may the trend continue.

(First published 28 June 2000)