Financial services group Ernst & Young has forecast a significant increase in venture capital groups exiting companies in which they have made investments.

In a new report on the global venture capital business, the group said venture-back company exits grew in value and number in 2005. Initial public offering activity increased in Europe while merger and acquisition valuations rose in the US and Israel. "Market demand continues for great companies, including venture-backed companies, both in terms of initial public offers and acquisitions," said Sinéad Munnelly, director of Ernst & Young's transaction advisory services group.

"At the same time, the number of exit options available to venture-backed companies - whether the exchange or the funding vehicle - is increasing, making it more important than ever to allow a company's business imperatives to determine the choice of exit."

The group said consumer markets, higher international competition and investment opportunities in emerging markets continued to drive the globalisation of venture funds and their portfolio companies.

"Private, venture-backed companies must increasingly act like multinationals earlier in their life cycles, taking advantage of the new global ecosystem that matches the increased demand for innovation with an international supply of talent, technologies, business models and capital.

The Transition Venture Capital Insights report said that 60 venture-backed initial public offerings in Europe last year raised €2.03 billion, a 71 per cent rise in transactions and a 185 per cent rise in capital raised.