Venture capital financing in Europe remains subdued, but market participants in the space are hopeful that the nascent equities revival will eventually trickle down into the junior end of the market.

As riskier plays are beginning to return to the table, venture capital is an area of opportunity for investors with its potential for large gains.

‘Where we operate in the venture capital space—the zero to $20 million capitalization area—there are lots of big opportunities as there has been capital starvation in that segment for quite some time,” said Gerard Mizrahi, managing partner and chief executive of Charles Street Securities Europe, a U.K.-based private equity and venture capital firm specializing in investments in early-stage growth companies.

“The macro environment seems to have eased up a little bit recently and there is better investor sentiment all round. But at the same time, liquidity at the junior end of the market remains very tight.

“But there is greater interest in public equities and that will hopefully filter through to the space we operate in.

“I think this increased demand for equities that has emerged in the last two or three months and will probably continue to emerge will be good for the real economy for younger companies.”

A recent survey by PricewaterhouseCoopers (PwC), an audit firm and consultant, and the National Venture Capital Association, a U.S. trade body, found that investments by venture capital firms globally fell by 10% in 2012.

Venture capital firms invested $26.5 billion into start-ups last year, down from $29.5 billion in 2011, according to the survey entitled the ‘MoneyTree Report’. The money went into 3,698 funding deals, which was down 6% on 2011.

Although fourth-quarter 2012 results revealed a potential turning of the corner as investments fell a more modest 3% to $6.4 billion, while deal volume rose 5% to 968 companies.

“General economic uncertainty continues to hinder capital investments, and venture capitalists are no different,” said Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC in the U.S.

“As the number of new funds being raised continues to shrink, venture capitalists are being more discriminating with where they’re willing to place new bets. At the same time, they’re holding on to reserves to continue to support the companies already in their portfolio. Both of these factors are taking a toll on the amount of capital available for young start-ups.”

The venture capitalist space, especially in Europe, was badly tarnished by the bursting of the dot.com bubble early last decade, which saw many private equity firms forced to write-off large proportions of their investments. And even now, confidence in the sector is only just beginning to return.

“The European venture capital industry has changed dramatically over the last decade yet unfavorable perceptions, formed in the fallout of the dot.com bubble, continue to influence opinions within the investment community and beyond,” said Richard Anton, a partner at Amadeus Capital Partners, a U.K.-based private equity firm that invests in technology companies at all stages.

“Such attitudes have unfairly hampered European high-growth companies which in turn poses a serious threat to the future of both entrepreneurship and the economy across the continent. The sooner we can dispel the myths that unnecessarily hinder venture capital, the sooner venture capital can help power the next generation of world-beating companies.”