Nov. 3 (Bloomberg) -- European venture capitalists may be wary of startup technology companies even after an economic recovery, according to the investment arm of Intel Corp., the world’s biggest computer-chip maker.

Venture funds stung by the recession are “moving away from the early stage” and toward less risky, later deals for young technology companies, Ashish Patel, Intel Capital managing director for Europe, the Middle East, and Africa, said in an interview in London. Intel Capital has about $2 billion under management.

In the U.K. alone, investments in young, high-growth companies fell 23 percent in the first nine months from a year earlier to 593 million pounds ($967 million), according to the British Private Equity and Venture Capital Association. The third-quarter figure rose year-on-year to 255 million pounds and was still 23 percent lower than the period in 2007, after the worst economic slump since World War II slowed fundraising and made initial public offerings more difficult.

“The venture industry in Europe has improved significantly from where it was,” Patel said. “But to actually show returns in the high teens, I think managers will get more and more risk averse, take safer bets, in order to provide and produce better returns.”

This year, Intel Capital reduced investment by about 50 percent in the regions for which Patel is responsible, he said.

Government Actions

Any recovery will be “very dependent on the willingness of institutional investors to back the VC industry,” Thomas Meyer, a director at the Brussels-based European Venture Capital Association, said by phone. It’s difficult to say whether venture investment is recovering across Europe as some large economies exit the recession, he said.

Some governments have tried to kick-start venture investment using public funds. In June, the U.K. announced the creation of a fund of up to 1 billion pounds in private and public money for early-stage technology companies.

On Oct. 15, EVCA Secretary General Javier Echarri called for similar public-private efforts elsewhere in Europe, using public funds to “generate a strong interest in European venture capital” and promote growth in the sector.

“The level of enthusiasm of VCs for early-stage business with large or unclear capital needs has gone down,” said Christian Reitberger, a general partner at Wellington Partners in Munich, which has about 800 million euros ($1.18 billion) under management. “It becomes imperative to understand the follow-on financing capabilities of your venture co-investors” before proceeding, he added.

U.S. Confidence

Confidence has stagnated in U.S., the world’s largest market for venture capital investment. Venture investors in the San Francisco area rated confidence at 3.37 on a scale of 1 to 5 in the third quarter, according to a University of San Francisco survey. That’s up from a low of 2.77 late last year, while unchanged from the previous quarter.

Venture investment in Europe topped 2.1 billion euros in the fourth quarter of 2007, with 478 million euros directed at the so-called seed and startup stages, according to EVCA figures. In the second quarter of 2009, the most recent for which data is available, total venture investments were about 728 million euros, of which 342 million euros went to seed and startup deals.

For technology and venture investment, “the new normal will not be as tough as it is today,” said Tom Murley, who heads renewable energy investment at private-equity investor HgCapital in London, which has about 2.4 billion pounds under management. “But it won’t be what it was.”

To contact the reporter on this story: Matthew Campbell in London at mcampbell39@bloomberg.net.

Last Updated: November 3, 2009 04:23 EST