London — Venture capital investment into European companies contracted again during the second quarter of 2007 and reached Euros 1.4 billion, down slightly from Q1 and substantially down from the Euros 1.7 billion invested in the second quarter of 2006, according Library House, a consultancy that tracks the venture capital sector.

Library House (Cambridge, England) says France was the biggest loser this quarter with venture capital investments dropping from over Euros 200 million to just under Euros 100 million. This fall allowed Germany, Sweden and the Netherlands to leapfrog France in the quarterly league table of the largest venture capital markets in Europe.

In contrast, the Netherlands has seen consistent and dramatic growth in venture capital since the beginning of 2006. Just Euros 37 million was invested in the Netherlands in Q2 2006 compared to over Euros 128 million in the second quarter of this year.

The U.K. maintained its place at the top of the European VC league, taking a 28 percent share of investments this quarter, down from 33 percent in the prior quarter.

The top European VC this quarter (by syndicated deal amount) was Paris-based Sofinnova Partners, which participated in deals worth Euros 86.9 million. 3i Group, headquartered in London, was second according to the Library House ranking, with total deal values amounting to Euros 78.5 million.

The most active investors by number of deals were Germany’s High-Tech Gründerfonds, participating in 9 deals, and Seed Capital (Oxford Technology VCTs) with 8 deals. In terms of sectors, investment in web companies is soaring. This quarter has seen over Euros 150 million invested in the space compared to just Euros 51 million of disclosed investment in Q1 and Euros 64 million in the equivalent quarter last year.

A good example is Joost, the much hyped IPTV company launched by Skype founders Janus Friis and Niklas Zennström, which raised external funding for the first time this quarter. The company raised a total of Euros 33 million from Index Ventures, Sequoia Capital, Hutchison Whampoa Chairman Li Ka Shing, and content providers Viacom and CBS Corporation.

Commenting on this quarter's trends, Doug Richard, CEO of Library House said: "It is clear that European venture capital is not gaining the ground it needs to if Europe is serious about matching the US in business innovation. It is surprising to see investment in France fall so far this quarter but perhaps the election of business friendly, Nicolas Sarkozy, is an encouraging sign for the future."