Posted by : Anonymous on Jan 06, 2005 - 12:15 AM General

SAN FRANCISCO -- Reflecting the tech industry's recovery, venture-capital investing is ending its first up year since the boom ended in 2000. Venture capitalists, who invest in young businesses on behalf of pensions and other institutions, plowed an estimated $20 billion into start-ups this year, say preliminary figures from the authoritative MoneyTree Survey. That's up from $18.7 billion in 2003, and it's the first annual increase in four years.''We clearly have turned the corner,'' says Tracy Lefteroff of PricewaterhouseCoopers, which tracks VC investing for the survey.
This year's total would be far less than the record $106 billion in 2000, but the annual gain is a bullish sign for the broader economy. Start-ups, especially in tech, depend on VCs for money to develop innovations that eventually create most new jobs.

Lefteroff says 2005 could be another strong year. ''That number could go up,'' he says.

Punching up this year's VC investing:

* Sizzling IPOs. The surge in initial public offerings after years of weakness means VCs can profit again by selling their portfolio companies to public investors.

There have been about 250 IPOs this year, up from 85 last year. That's the most since the 385 IPOs in 2000, at the tech bubble's peak, Thomson Financial says.

VC investors aim for big IPO returns like those that two firms -- Sequoia Capital and Kleiner Perkins Caufield & Byers -- made from Google this year. Their combined $25 million investment in the online search giant in 1999 soared to more than $8 billion after it went public in August.

* Hot sectors. VCs favored computer hardware, software, biotech and other tech industries this year. For example, money pumped into hardware start-ups soared 48% to $689 million in the first three quarters from the year-ago period. Overall fourth-quarter and full-year figures are out next month.

Among those drawing big bucks: eHarmony. The online dating site, in one of the largest deals of the year, raised nearly $110 million from Sequoia and Technology Crossover Ventures. (EHarmony, started in 2000, is an online personals supplier to USA TODAY and its parent company, Gannett.)

As interest soared in Internet telephony, Vonage got $105 million this year from VCs, including New Enterprise Associates, a leading Silicon Valley venture-capital outfit. Four-year-old Vonage, with more than 350,00 customers for its Internet phone service, has landed $208 million from VCs in all.

Investor competition was fierce this year for a piece of Vonage -- a contrast with the period before it got its first venture money in November 2003. ''There wasn't enough to go around,'' CEO Jeffrey Citron says.

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