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Strategies & Market Trends : Angels of Alchemy -- Ignore unavailable to you. Want to Upgrade?

To: Frederick Langford who wrote (7483)	8/5/2000 11:00:42 PM
From: puborectalis	Read Replies (1) \| Respond to of 24256

Venture capital up amid tech upheaval BY MARK SCHWANHAUSSER AND SHAWN NEIDORF Mercury News Despite stock market upheaval and dot-com layoffs, venture capitalists kept the faith in Bay Area start-ups, backing them with a record $6.9 billion in the second quarter. All told, 408 companies received 12 percent more funding than the first quarter's $6.1 billion, according to the Money Tree survey, a Mercury News/PricewaterhouseCoopers LLP report on venture capital that was released Friday. The second-quarter VC investment was up an astounding 157 percent from the same period last year. To put that in dollar terms, local companies have already raised more than $13 billion in the first six months of the year -- nearly matching the $13.5 billion raised throughout 1999. It's also more than was invested in all of 1998. In short, Silicon Valley's 5-year-old venture capital boom is still rolling. ``We've answered the question of whether the bloom is off the rose,'' said Steve Levy, director of the Palo Alto-based Center for the Continuing Study of the California Economy. ``If anything, the industry keeps getting more profitable. It's a strong affirmation of technology in general and the valley in particular.'' The survey indicates that the number of deals, average investment and total funding all increased in the second quarter, despite the tumbling Nasdaq stock market, a litany of Internet-related layoffs and persistent worries that perhaps the Silicon Valley's good times were over. As in quarters past, most of the money and deals involved ventures focused on software, business services, telecommunications, networking and equipment and new media. Still, though VC funding climbed for the 22nd consecutive quarter, there were possible sobering signs: The Internet continues to dominate the attention of VCs, accounting for 215 deals worth $3.9 billion. But that was essentially flat with the first quarter, when VCs doled out nearly $3.9 billion to 238 companies. Since the first quarter, VCs put more money into expanding existing firms and less into start-ups and companies approaching their first profitable operations. VC investments in consumer services and health-care companies skyrocketed compared with the second quarter a year ago. But since the first quarter of this year, investments in those sectors tumbled 15 percent and 13 percent, respectively. In addition, the total invested in biotechnology tumbled 32 percent from the first quarter. But economist Levy downplays those signs of shrinkage, noting that funding is still setting records. ``Even if it falls, it will be at levels that are very substantial,'' he said. ``The Internet is still bringing in big bucks.'' Slowing the pace might not necessarily be bad, either. Smaller rounds of financing could indicate a return to saner times when companies were not raising large rounds to splurge on marketing. And some venture capitalists noted that valuations for companies were coming down. Not only was it cheaper to invest in the second quarter, but VCs got better terms in their deals, said Kevin Landry, a managing director at TA Associates, a Boston venture firm that focuses on mature, profitable companies. Venture capitalists put far less money into certain segments of the Internet market, however. For instance, funding for companies building the Internet's infrastructure, content-oriented Web sites and business-to-business e-commerce sites all dropped in the second quarter. Some VC firms stopped funding the private Internet companies and sold their stakes in the public companies -- especially consumer-focused ventures -- before dot-com stocks slumped on Nasdaq starting in the spring, said Jay Pierrepont, a managing director at Pantheon Ventures, a San Francisco firm that invests its clients' money with venture firms. Added Landry: ``You've got to give them high marks'' for moving quickly. During the second quarter, four companies drew more than $100 million in funding each, including two Internet ventures: Innomedia, with $115.5 million, and MimEcom Corp. with $100 million. Conversely, the smallest deal was a $50,000 round for EBA Systems Inc., according to PricewaterhouseCoopers.