Venture Capital and Private Equity

The venture capital market is booming. In 2005, the growth rate in the European VC market amounted to 27 percent. According to UNCTAD, private equity firms are playing an increasingly important role in foreign direct investment activity. In a recent market study, Strategic Capital Management (SCM) based in Switzerland confirmed that the upward trend is expected to continue in 2007.

Around 30 venture capital companies are operating in Austria. The average volume of the funds is about 30 – 35 million euros. In 2005, these firms committed a total of 143 million euros to 217 investment projects, 39 more than in 2004. A total of 216 million euros in venture capital was raised in Austria in 2005. Growth-oriented small and mid-sized companies (SMEs) dominated the market, grabbing a market share of approximately 74 percent. The percentage of initial and follow-up investments was relatively equal, accounting for 46 percent and 54 percent of investments respectively. More than half of the capital invested was designed for the financing of half-tech projects. The information and communications technology sector performed particularly well, absorbing 38 percent of the funding, followed by the chemical products and materials segment (10.3 percent), as well as industrial products and services, with a 14.6 percent share of venture capital investments.

To a large extent, the origin of the capital inflows corresponds to the typical structure of venture capital in Europe. Banks represent the largest group of financial investors by far, followed by the public sector and insurance companies. About half the projects involved expanding an existing business, whereas start-ups accounted for slightly more than one-third of the project, and about 15 percent were buyouts.