European venture capital firms are backing the fewest companies on record. They reduced their bets to just 897 companies last year, the lowest number since 1999 when research group VentureSource began tracking investments there.

When they do invest, however, European venture capitalists are putting more money into the companies than previously. Last year, they invested EUR 4.56 billion, a two percent rise from 2006, and the fourth year of consecutive increase.
One reason for the reduced activity is the relatively lackluster market for mergers and IPOs in Europe. It is more difficult to bring a company to a stage where it returns profits — and thus explains why larger amount of money is invested to get them there. They need staying power to turn into successes. This contrasts with the U.S., where last year the merger market was strong.
The number of European venture-backed companies going public dropped to 38 from 89, while M&A deal fell 38 percent to 136, the lowest figure this decade, according to previous VentureSource. Also in Europe, hedge funds don’t invest in start-ups, like they do here. Biopharmaceutical investments took a particularly strong hit, according to VentureWire, which is owned by Dow Jones, the company that also owns VentureSource. Lately, U.S. investors have been eyeing Eastern Europe, however.