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Venture capitalists accelerate fund-raising in third quarter

SAN FRANCISCO -- Venture capitalists raised $5.5 billion for future investments during the third quarter, continuing a recent upturn that reflects renewed optimism about the financial future for fledgling companies.

The amount of venture capital raised from investors during the three months ended in September more than doubled the $2 billion collected during the same time last year, according to statistics released Monday. The third-quarter volume also marked a 78 percent increase from the $3.1 billion raised during the second quarter.

The data, compiled by the National Venture Capital Association and Thomson Venture Economics, offer the latest signs that venture capital investment is ready to blossom again after several years of listlessness brought on by the dot-com bust.

Through the first nine months of the year, venture capitalists have raised $11.2 billion, already surpassing the $10.5 billion that the industry took in during all of 2003.

Venture capitalists also are on a pace to invest more money than they did last year.

Investment levels, though, aren't rising as rapidly as the fund-raising activity -- a situation that threatens to create an unhealthy market imbalance. Theoretically, the amount of venture capital sitting on the sidelines could outstrip the supply of viable business plans, resulting in imprudent investments that culminate in a round of devastating losses that recall the dot-com debacle.

"It is critical at this time that venture firms exercise discipline and stay within the parameters of their fund-raising targets," said Mark Heeson, president of the National Venture Capital Association, an industry trade group. "If the industry begins to take more money than can be invested successfully, performance will suffer."

The stock market's expanding appetite for the initial public offerings of young companies has helped encourage venture capitalists to raise and invest more money in startups this year.

A total of 172 initial public offerings have been completed so far this year, the most since the dot-com heyday of 2000, according to Renaissance Capital, a Greenwich, Conn. research firm.

Online search engine leader Google Inc. (Nasdaq: GOOG), a 6-year-old company that raised just $25 million in venture capital, has generated the biggest buzz since completing its IPO in August. Google's stock has more than doubled since then, leaving the Mountain View-based company with a market value of $54 billion.

Most venture capitalists say their investment strategies haven't been influenced by Google's huge success, although most of the financiers acknowledge they dream of someday producing similar returns.

--- On The Net:

http://www.ventureeconomics.com

National Venture Capital Association: http://www.nvca.org

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