3i, the former powerhouse of Europe's venture capital industry, is abandoning early-stage investing in start-up companies, its worst-performing activity since the technology bubble burst, to focus on buy-outs, growth capital and infrastructure.

The move underlines the woeful state of European venture capital, which has underperformed other parts of the private equity market, which includes big leveraged buy-outs, mid-market deals and growth capital.

3i's decision also illustrates the depth of its own transformation since early 2000, when it managed 750 technology investments valued at £2.4bn ($4.8bn) - half its portfolio - and was seeking to compete with the top venture capitalists in Silicon Valley.

"Early-stage has not been an easy place," Philip Yea, 3i's chief executive, told the Financial Times. "It is a natural evolution, because there is more value for us in later-stage companies internationally and that is what we have been doing more and more."

Mr Yea said the late-stage arm of 3i's venture capital division would be folded into its growth capital unit.

"Companies need to be clear what they are good at and what they are not," he said. "We want to focus on where we are distinctive. It is a statement about us, not about the markets."

The news could disappoint investors who appreciate 3i's diversity as the climate worsens for big buy-outs. Iain Scouller, analyst at UBS, said: "In the environment we are going into, I think venture capital might perform relatively well compared to buy-outs as it uses less leverage."

Although it achieved some successes, 3i's venture capitalbusiness has shrunk steadily since it suffered about £1bn of writedowns from the technology crash of 2000.

By September 2007, the value of its venture capital assets had fallen to £734m, less than a tenth of its total portfolio.

New venture capital investment fell to £65m in the six months to September 2007, only 5 per cent of the group's total.

Yet Mr Yea defended 3i's venture capital record. "There is a J-curve in venture," he said. "They tend to be held at cost, you recognise the few things that haven't worked and then the value comes later."