Jul. 28–The money invested by venture capitalists rose 14 percent during the second quarter, the first significant jump in three years.
Venture investments grew to $4 billion nationally, up from $3.5 billion in the first quarter, according to a survey to be released today by accounting firm Ernst & Young and VentureOne, a venture capital research group.
Silicon Valley companies received $1.3 billion during the quarter, an increase of 8 percent from $1.2 billion the quarter before. The region gobbles up about a third of the nation’s venture investments, in part because of the hundreds of venture capital firms based here.
Venture capital investing has plunged since the Internet bubble burst in early 2000. There was a tiny blip upward during the last quarter of 2001, but it was less than one-hundredth of a percentage point.
The $500 million increase in this year’s second quarter may be a watershed moment: Some venture capitalists think people are again willing to take big risks.
“Innovation is back in the system again,” said Flip Gianos, partner at Interwest Partners in Menlo Park.
Gianos said local venture firms have finally decided to abandon many troubled investments in telecom or optical components, and now are financing more innovative ideas.
That, combined with signs of life in the stock market and a willingness by investors to support initial public offerings by technology companies, has boosted optimism, he said.
“There is a substantial amount of emotional content in decision-making,” Gianos said of the venture community. “Obviously, the overall environment has a lot of influence on that.”
New companies, fresh with cash, tend to hire the skilled workers that abound in Silicon Valley. Venture capitalists hope the economy will rebound, helping larger corporations become more profitable. These corporations will then be more likely to buy the sort of high-tech products produced by the region’s start-ups.
It’s too early to tell if the uptick in investing will continue.
The increase, while significant, was still below already anemic 2002 levels.
Some investors say they haven’t changed their behavior.
“We’ve been at a steady state for several years now,” said Kevin Compton, partner at Kleiner Perkins Caufield & Byers.
The health care sector enjoyed most of the extra dollars invested during the quarter.
The biopharmaceutical industry was especially hot, garnering $745 million, up from $382 million the previous quarter.
Software strengthened its position as the most popular sector, receiving $1 billion, up from about $800 million. Communications and networking start-ups continued their downward spiral, getting only $565 million, down from $743 million.
Six of the top 10 local deals during the quarter involved health care companies.
San Francisco’s Vivato, a wireless-switch manufacturer, received the most funding, scooping up $44.5 million from investors that included Advanced Technology Ventures and Intel Capital.
BioMedicines, an Emeryville biopharmaceuticals company, was next, getting $43 million; South San Francisco’s Cytokinetics, another biopharmaceutical company, was third, receiving $50 million.
Companies focusing on anti-virus and other e-mail software have seen increased interest lately.
One example is Mountain View’s Plaxo, which is expected to announce today that it received $8.5 million from Globespan Capital Partners, Sequoia and Harbinger.
Plaxo produces software that allows users to easily and promptly update their computer’s address book. Using a Web-based “synchronized network,” it performs updates in the address book as soon as a contact makes a change, if the contact is also using Plaxo software.
Today, Plaxo plans to announce a new function: a signal to users whether e-mail they receive is coming from existing contacts or not.
—–
To see more of the San Jose Mercury News, or to subscribe to the newspaper, go to http://www.mercurynews.com.
(c) 2003, San Jose Mercury News, Calif. Distributed by Knight Ridder/Tribune Business News.
HRBC, SQSW,
