investment levels fall by 25% in 2001 as burst technology bubble impacts
There was a 25% decline in worldwide investments by UK private equity firms to £6.15bn during the course of 2001.
The annual British Venture Capital Association (BVCA) survey of its investment activity found that despite this fall in assets, more companies were financed in 2001 than ever before, with investments made in 1,597 firms, compared to 1,523 in 2000. In the UK alone, the number of companies financed increased by more than 10% to £1.307bn.
Despite this, the level of assets allocated to UK venture capital fell in 2001 to £4.75bn from £6.37bn in 2000. The UK still represents 77% of the total amount invested.
During 2001 private equity firms in the UK wrote off £826m worth of investments. The figure, the highest in the past five years, results largely from the bursting of the dot.com bubble.
Demand for products and services offered by software and internet service companies has dwindled because of concerns about slowing economies, falling stock markets and overvaluations in the technology sector. This has thwarted the plans of many private equity firms to sell investments at a profit.
The value of the write-offs accounted for a third of all divestments by British venture capital and buyout firms. The BVCA considers both asset sales and write-offs as divestments.
In terms of sectors, UK high technology companies received the most during 2001. A record £1.66bn was invested in 690 businesses, accounting for 35% of the total amount invested and 53% of the total number of UK companies backed. This was a 3% increase on the amount invested in these companies during 2000.
In popularity terms, high technology companies were followed by those involved in e-commerce. These received £109m between 70 companies during 2001, compared to £264m across 225 companies in 2000.
Other sectors benefiting from high investment levels included leisure, entertainment and hotels, which received £545m invested in 52 firms, down from £1.02bn in 30 companies in 2000. Next was general retailers, receiving £472m across companies.
The amount invested by UK pension funds in venture capital during 2001 was almost double the 2000 level at £1.594bn.
John Mackie, BVCA chief executive, said: 'The continuing trend of investment by UK pension funds into private equity is encouraging and demonstrates that private equity is now an accepted asset class.'
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