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| Q2 VC investments indicate VC is "back on the way up," Bahles says |
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| July 26, 2005 | Associated Press |
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Venture Capitalists Invest $5.8B in 2Q
By Michael Liedtke, AP Business Writer
SAN FRANCISCO (AP) -- Venture capitalists invested $5.8 billion in startups during the second quarter, continuing a slight decline from last year's financing pace even though more money is pouring into the industry.
The amount of venture capital committed in 750 deals during the three months ended in June represented a 5 percent decrease from $6.1 billion invested at the same time last year, according to statistics to be released Tuesday by the National Venture Capital Association, Thomson Venture Economics and PricewaterhouseCoopers.
The second quarter follows a similar year-over-year decrease in the first quarter.
The recent dip follows an industry uptick in 2004 when venture capitalists increased their investments for the first time since the dot-com meltdown in 2000.
Industry experts aren't concerned about the slowdown during the first half of this year, largely because the decrease is so small.
Perhaps more telling is that venture capital investments have ranged between $4.3 billion and $6.1 billion for 13 consecutive quarters, suggesting the industry has found its sweet spot after recovering from the excesses of the dot-com boom.
"We are encouraged to see investment levels remain within a ripe zone ... as this continues to reflect a sustainable pace," said Mark Heeson, president of the National Venture Capital Association, the industry's main trade group.
Some venture capitalists expect investments to accelerate soon, partly because the industry has been raising an increasing amount of money during the past years. In the second quarter, for instance, venture capitalists raised $6.1 billion for future investments, an 88 percent increase from last year.
"Venture capital is a very cyclical business and now we are on the way back up," said Shanda Bahles, general partner with El Dorado Ventures in Menlo Park. "I would expect the (investment) numbers to increase in the next couple of years, although it might not be by large amounts."
Most venture capitalists don't want to see a repeat of the dot-com feeding frenzy of 1999 and 2000 when the industry invested $160 billion, creating a glut of high-tech startups doing similar things. The ensuing correction saddled venture capital funds with devastating losses.
As they get back into the swing, venture capitalists are becoming more interested in biotechnology. That sector attracted $1.12 billion in venture capital during the second quarter, an 8 percent increase from $1.04 billion last year.
Only software startups, a perennial favorite of venture capitalists, drew more investments, collecting $1.28 billion, a 4 percent decrease from $1.33 billion last year.
The quarter's biggest investments went to Integro Ltd., a New York-based insurance brokerage that received $311.8 million, and Vonage Holdings Corp., an Edison, N.J.-based provider of Internet phone service that received $200 million.
Other coverage of Q2 VC investment trends quoting Shanda Bahles:
Washington Post: Local Venture Investing Increases
Red Herring: Venture Funding Slide in Q2
ZDNet: Seed Funding Making a Comeback
Seattle Times: News and Old Firms Attract Investors
Investor's Business Daily: Venture Capital Firms Putting More Big Bucks into Late-Stage Rounds
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