The IT industry in Europe attracted €965 million (£825m) worth of venture-based investment during 2012, an increase of 5 percent year-over-year, according to Dow Jones VentureSource.

The uptick in IT investment was largely down to increased capital directed into companies operating in the Communications and Networking sector. This sector alone pulled in €156 million (£133m) across 30 deals during the year – a 40 percent increase over 2011.

Although overall investment in the IT industry increased, deal flow dropped by 9 percent to 305, suggesting that investors are being more cautious about where they spend their money, and making a few large investments rather than lots of small ones.

“There is a huge demand for cloud computing, as well as data analytics and all those database softwares,” said Anne Malterre, European research manager, Dow Jones VentureSource.

“Because of the credit crunch, companies need to have data and be able to analyse the data as well to know more about customers and how to reach them.”

Small cells developer Ubiquisys, which raised $19 million in August 2012, was the biggest deal in the Communications and Networking sector in 2012. Companies involved in developing fibre optics equipment also attracted a lot of interest, according to Malterre.

Meanwhile, the Consumer Services industry registered its largest allocation of investment in a year since 2000, with €1.3 billion for 283 deals during 2012 – an increase of 13 percent from 2011.

More than half of the capital invested in Consumer Services went to social media, entertainment and online shopping companies. Those companies raised €779 million (£667m) for 186 deals, a rise of 4 percent in investment and 9 percent in deals completed from 2011.

“Social media is not only for consumers, it's for companies too. It's a new way of communicating,” said Malterre. “Consumers really have an appetite for IT, so as long as consumers want it then the investors will have to invest in it – it's the trendy industry at the moment.”

These figures come despite the fact that M&A in Europe is at its lowest point since VentureSource began tracking the region in 2000. Over the whole of 2012, just 145 companies exited via M&A, a drop of 30 percent from the 2011 figure.

M&As garnered €4.7 billion (£4bn) over the course of the year, a fall of 45 percent from the €8.6 billion amassed during 2011.

“Investors appear trapped in their current investments, needing to wait longer to recoup their financial returns while at the same time lacking funds to fuel new ventures”, said Malterre.

“However, the renewed trust in early-stage companies and the consumer services industry are positive signs. Due to the growing interest in social media, online shopping and entertainment, the industry should remain attractive in 2013 provided it can transform that appetite into revenues.”

The UK retained its standing as the favoured destination for venture capital investment in Europe during 2012. Companies in the UK raised €1.4 billion for 295 deals, a 5 percent decline in investment and a 10 percent drop in deals from 2011.