A growing sense of optimism in technology investing across the US and Europe may be leading investors to ‘drop all notion of capital efficiency in exchange for sheer land grab’, warns venture capital firm Go4Venture.

A growing sense of optimism in technology investing across the US and Europe may be leading investors to ‘drop all notion of capital efficiency in exchange for sheer land grab’, warns venture capital firm Go4Venture.
 
The London-based firm reports that there has been a 50 per cent increase in the value of deals in their Headline Transactions Index (HTI) figures for June 2011 compared with the same time last year.
 
A doubling in the number of landmark deals, which have a value of more than €20 million (£17.5 million), to 20 transactions in the month has fuelled the increase, according to the firm’s Monthly European Technology VC Bulletin.
 
But in a sign that smaller transactions may still be had to secure for growing companies, these larger deals of plus-€20 million now represent nearly half of the market by value reported by the index.
 
‘From a practical standpoint, this means that the raising of funds is becoming slightly easier as reflected by the high level of activity in June,’ the bulletin states.
 
One of the downsides of the high level activity is that venture capital has begun ‘rebranding itself as a late-stage investor’ with a particular interest in investing in internet companies, the bulletin observes. The result appears to be creating a ‘feeding frenzy’ in the sector.
 
The firm points to recent reports that Californian online file sharing business DropBox, which raised $7.2 million in 2007, should now raise $200 million or $300 million at a $5 to $10 billion valuation despite only having 25 million registered users.
 
‘In the process, internet investors are dropping all notion of capital efficiency in exchange for sheer land grab, the scourge of Bubble 1.0,’ the bulletin states.
 
‘We are ending up with a two speed venture market with large funds prepared to ride the bubble (their managers are rich enough to take the ride – at worse they will just retire when things pop) and driving valuations up across the board in the process.
 
‘If we are not careful in Europe, we might end up with the worst of both worlds: a handful of funds cherry picking the best deals at increasingly inflated prices, and a sea of regional and tax-subsidised funds creating the wrong entrepreneurial DNA.’