NEW YORK (CNNfn) - Venture capital financing surged in the first quarter with investments in companies nearly quadrupling to $22.7 billion, two industry trackers reported Thursday.|
The financing compares with $6.2 billion invested in the January-March quarter of last year and continued a steady sequential increase quarter by quarter.
Also, the number of companies receiving venture investments also soared, nearly doubling to 1,557 from 851 in the same period of 1999, according to a report by the National Venture Capital Association and Venture Economics.
Computer-related businesses and communications ventures took the lion's share of the investments, at $12.4 billion and $6 billion, respectively, the report said.
Northern California, taking in the Silicon Valley area, and the Northeast, representing the Boston-New York area, continued to be the strongest regions for venture investments, at $7.9 billion and $5.4 billion, respectively.
Venture funding has exploded as more investors seek the enormous potential returns of Internet-fueled growth, said John Taylor of the NCVA. The industry set a record in 1999 by pooling $46.1 billion for investment, compared with fund raising of $27.7 billion in 1998, he said.
"The prevailing view," Taylor said, "is there is still institutional money that is still very interested in investing in venture capital, and there are still good bankable ideas out there."
Some shifts in investment trends
In many ways, the new report reflects a continuation of trends that were already in motion, but there were some shifts. For instance, a greater share of funding is going to companies at an earlier stage of development.
In the past, the funding would come later, to more established companies with existing products and demonstrated markets, and the cash was being used to engineer product improvement or add to sales.
But the emergence of the Internet economy has driven a need for fledgling companies to spend more at an earlier stage of their existence, Taylor said, "to establish their brand identity" through media advertising and other marketing efforts.
Another shift is seen in a faster growth, and a growing share of funding, toward business-to-business commerce operations, rather than business-to-consumer ventures, he said.
When it comes to the processing of transactions, commercial customers may be quicker to accept electronic commerce, "because they can justify it on a cost basis," he said. "When you're dealing with the consumer sector, it's a little more subjective."
This survey wrapped up as of March 31, before a tumultuous April roiled U.S. stock markets. Some analysts suggested that the flow of capital to venture firms may slow down in the wake of April's tumultuous markets, but announcements by several firms planning huge new funds indicate no such slowdown in venture capital funding.