European News Briefs, December

BRUSSELS

European Parliament Approves EU Hedge Fund Rules

The European Parliament approved new rules last month to regulate managers of hedge funds and private equity groups, but stopped short of the industry’s worst fears.

The bloc’s assembly overwhelmingly backed the Alternative Investment Fund Managers (AIFM) Directive by 513 votes to 92, with 3 abstentions, during a session in Brussels.

The new rules take effect in 2013. The two-year grace period is needed: A poll by PricewaterhouseCoopers in October revealed that only 2% of U.K. fund managers had a plan for dealing with AIFM.

The package had already been agreed to in October with the European Union (EU), which has joint say with parliament on the rules.

“The adoption of the directive means that hedge funds and private equity will no longer operate in a regulatory void outside the scope of supervisors,” says Jose Manuel Barroso, president of the European Commission, which drafted the measure.

It is the first EU law to directly regulate the alternate investment sector, which although not seen as a cause of the financial crisis, was still believed to be too opaque and lightly regulated.

The law requires managers of all alternative investment funds, which also include real estate funds and investment trusts, must register to operate in the EU, report data to supervisors and meet capital requirements.

The European Fund and Asset Management Association said the regime will cover investments that were worth €1.85 trillion ($2.5 trillion) at the end of August. The European Private Equity and Venture Capital Association said the rules could have a serious impact on the financing of small firms and innovative companies. —Huw Jones, Reuters

LONDON

No Indian Summer for European VC

An encouraging second quarter for Europe’s venture capital industry has failed to translate into a third, with deal flow hitting a 10-year low.

Dow Jones reported 198 VC deals in the third quarter, down 25% for the same period a year ago, although total investment rose slightly to €916 million ($1.2 billion). This compares with a second quarter that saw investment volume jump by more than 50 percent.

The IT sector, which buoyed the numbers in the second quarter, was symptomatic of the wider decline in the latter part of the year, suffering an 11% drop in investment with dealflow down almost a third.

Every sector went backward from July to September, except for health care, which remained the most popular industry among European VC firms. Health care investment rose 60% to €378 million ($513 million).

Whereas the United Kingdom was the most popular destination for venture capital in the second quarter, France caught up significantly, attracting €191 million ($260 million) of investment in the third quarter, compared with the U.K.’s €200 million ($271 million).

Median deal size rose by more than a third over 2009, breaking the €2 million ($2.7 million) mark. —Alex Derber

GENEVA

Mind-NRG Welcomes Index Support

Index Ventures has invested €10 million ($13.5 million) in Geveva-based Mind-NRG, which is developing a treatment for Alzheimer’s disease.

The Series A financing comprises an initial €1.5 million ($2 million) allocation for testing of NRG-101, a new drug that target neurological and psychiatric disorders, such as Parkinson’s disease, Alzheimer’s and schizophrenia.

Aside from the Swiss venture firm, German company ProteoSys will also hold a stake in newly incorporated Mind-NRG, in exchange for assigning rights to NRG-101, which it developed, over to the startup.

Index’s biotech successes include Italian immunology specialist BioXell, which listed in 2006, and an early stage investment in Addex Pharmaceuticals, which raised $111 million in its 2007 IPO. —Alex Derber

GALWAY, IRELAND

Cappella Sings in Key of D

Heart stent producer Cappella hopes to pump up sales following a €10.5 million ($14.2 million) Series D round from from existing investors.

Backers included ACT Venture Capital, Fountain Healthcare Partners, Mitsui & Co. Venture Partners and Polytechnos Partners. The new capital will support the launch of Cappella’s Sideguard Sidebranch stent in Europe and South America, provide additional manufacturing capacity and advance key R&D programs.

Capella also received an undisclosed amount of venture debt financing from Kreos Capital and Silicon Valley Bank.

The company, which is based in Galway, Ireland, is a medical device company that specializes in the treatment of bifurcation vascular disease. —Alex Derber

BRUSSELS

EBAN Highlights Seed Gap

Europe’s investment climate is due for a shake-up, according to EBAN, the association for business angels and seed funds, which has published a white paper urging European Union policy makers to grapple with emerging challenges in the market.

In it, EBAN contends that clumsy regulation, lack of incentives for early stage investment and a tendency for VC firms to target later stage funding has led to a sub-€3 million ($4 million) equity gap in Europe.

To address this, the paper proposes “the creation of a large cross-border venture capital fund that can co-invest with a number of selected national early stage players to leverage their resources and bridge the equity gap for most promising early stage initiatives with an international breadth.”

EBAN estimates that business angels number only 75,000 in Europe, compared with 250,000 in the United States. To close the gap, it suggests fiscal incentives for investments and exits, the establishment of professional networks for seed investors and capacity building among seed fund managers. —Alex Derber

CAMBRIDGE, U.K.

Bug Beater Tempts Octopus

University spin-off UltraSoC Technologies has attracted £2 million ($3.2 million) in a Series A round from Octopus Ventures. The Cambridge, U.K.-based company said that it will use the funding to bring its software debugging technology to market.

The UltraDebug product—designed for use in embedded systems, such as cars, mobile phones and other consumer products—was developed through £2 million ($3.2 million) in seed funding from the Engineering and Physical Sciences Research Council.

UltraSoC was spun out from the universities of Kent and Essex in 2008 by Dr. Karl Heeks and Professor Klaus McDonald-Maier.

The investment from Octopus continues a busy Autumn for the London-based VC firm, which has committed to six companies, mostly IT-based, since September. —Alex Derber

PARIS

VC-Backed Stentys Goes Public

Finding a place in investors’ hearts, stent maker Stentys has raised almost €23 million ($31.2 million) in its IPO on Paris’ NYSE Euronext exchange.

The Paris-based company previously raised funding from Sofinnova Partners, Scottish Equity Partners and Crédit Agricole Private Equity. The firms invested €22 million ($31 million) in a Series B round for Stentys in mid-2009.

Stentys said it would use the IPO proceeds to commercialize its adaptable titanium stents, which are used to prevent heart attacks.

The IPO was twice-oversubscribed, with 1.89 million shares sold at €12 ($16.2) a share, although Stentys chose not to exercise an extension option to sell a further 284,000 shares.

Sofinnova Partners and Credit Agricole Private Equity stated prior to the IPO that they would purchase roughly €8 million ($10.8 million) of stock. —Alex Derber

ABERDEEN, SCOTLAND

Oil Inspector Fits Maven Portfolio

Flexlife has received a £5.5 million ($8.7 million) investment from Maven Capital Partners to expand its oil and gas riser inspection business.

Aberdeen, Scotland -based Flexlife markets a scanning product that assesses the integrity of flexible sub-sea pipes, known as risers, the failure of which reportedly caused the explosion and the BP Deepwater Horizon spill.

Maven is sharing its mandate with syndication partner Simmons Parallel Energy, an energy sector investor. The investment follows Maven’s July participation in the £6 million ($9.5 million) management buyout of XPD8, another Scottish energy services business.

Founded in 2007, Flexlife is somewhat younger than XPD8, but has reported annual sales of £5 million ($8 million) and a client base that includes Total, Shell and Maersk. —Alex Derber

MUNICH

Spinning a Different WHEB

Cleantech investment firm WHEB Ventures has changed its name to WHEB Partners.

The new name is supposed to reflect growth within the firm, which has added a Munich office to its London operation and raised £105 million ($167 million) for its second fund.

WHEB Partners is part of WHEB Group, which manages assets in private equity, infrastructure and other assets. —Alex Derber