Volume and Value of VC Investments Rises in European Automotive Industry, finds Frost & Sullivan

Jan 29, 2013, 07:00 ET from Frost & Sullivan

LONDON, Jan. 29, 2013 /PRNewswire/ -- Venture capital (VC) investment as a financing option has been gaining importance in automotive transactions. This is due to the credit crunch in most economies which has made getting loans from financial institutions increasingly difficult.

An analysis from Frost & Sullivan (http://www.financialservices.frost.com), Venture Capital (VC) Investment Trends in the European Automotive Industry, finds that VC activity has been gaining strength in terms of value as well as volume. The volume of VC funding in the European automotive market has been rising at a compound annual growth rate (CAGR) of 13 per cent over the past 10 years.

A key factor driving VC investments are high gasoline prices. This has motivated companies to access VC funding in a bid to identify and develop viable alternatives to fossil fuel-based technologies.

"VCs are very bullish on investments that would help create a greener environment," explained Frost & Sullivan Financial Analyst, Vinodh Ramani. "Spiralling crude oil prices are intensifying the demand for alternative energy sources, an area in which VCs frequently invest. As a result, there has been a positive correlation between VC investment values and crude oil prices over the years."

Government initiatives are also encouraging VC investments in the automotive industry. For instance, tax reductions and subsidies are helping entrepreneurs as well as VCs reduce their capital expenditure and recover their investment sooner.

In addition to governments, customers are playing their part in promoting VC interest. Customers' preference for new technology in the powertrain domain and other sub-classifications such as telematics are positively influencing VC funding.

"Based on current customer trends, any investment related to technology in powertrain, driver interface (navigation maps, parking assist), and clean energy is expected to be recouped more quickly, as the demand for these technologies is greater than for other sub-classifications," added Ramani.

A challenge for most VCs, however, is the time required for a return on their investment.

"Generally, an average VC investment horizon would be five to seven years, within which companies need to adopt new technologies/products and get OEMs to use them on their vehicles," remarked Ramani. "In some cases, the rate of adoption by OEMs may delay the time it takes for VC investment to break even."

Despite this challenge, the VC community is optimistic about its future role in the automotive industry.

If you are interested in more information on this study, please send an e-mail with your full contact details to Katja Feick, Corporate Communications, at katja.feick@frost.com.

Venture Capital (VC) Investment Trends in the European Automotive Industry (M7CE-F1) is part of the Financial Benchmarking in the Business and Financial Services Industry subscription, which also includes research services in the following markets: Financial Benchmarking & Analysis in the Automotive Industry, Financial Assessment of the Global Aerospace & Defense, Airlines and Airport Services Industry, Financial Analysis of the Information Technology Industry. All research services included in subscriptions provide detailed market opportunities and industry trends that have been evaluated following extensive interviews with market participants.

Frost & Sullivan's Business and Financial Services group serves clients around the world in all aspects of financial analysis, market research and monitoring, due diligence, idea generation, opportunity analysis, investment valuation, and other proprietary research.

About Frost & Sullivan

Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage visionary innovation that addresses the global challenges and related growth opportunities that will make or break today's market participants.

Our "Growth Partnership" supports clients by addressing these opportunities and incorporating two key elements driving visionary innovation: The Integrated Value Proposition and The Partnership Infrastructure.

  • The Integrated Value Proposition provides support to our clients throughout all phases of their journey to visionary innovation including: research, analysis, strategy, vision, innovation and implementation.
  • The Partnership Infrastructure is entirely unique as it constructs the foundation upon which visionary innovation becomes possible. This includes our 360 degree research, comprehensive industry coverage, career best practices as well as our global footprint of more than 40 offices.

For more than 50 years, we have been developing growth strategies for the global 1000, emerging businesses, the public sector and the investment community. Is your organization prepared for the next profound wave of industry convergence, disruptive technologies, increasing competitive intensity, Mega Trends, breakthrough best practices, changing customer dynamics and emerging economies?

Contact Us: Start the discussion
Join Us: Join our community
Subscribe: Newsletter on "the next big thing"
Register: Gain access to visionary innovation

Katja Feick
Corporate Communications – Europe
P: +49 (0) 69 7703343
E: katja.feick@frost.com
Twitter: www.twitter.com/FS_Automotive

SOURCE Frost & Sullivan