US venture capitalists continue to fund companies at near record levels

Venture Economics (VE) and the US National Venture Capital Association (NVCA) announced November 3, 2000 that the venture capital industry continues to invest in innovative companies at an extremely healthy rate. During the third quarter of 2000, $25.9 billion was invested in 1,774 companies. VE and NVCA also restated their previous findings higher for the first and second quarter of 2000 to $26.3 billion and $27.8 billion, respectively. These new totals bring the total venture capital investment in 2000 to $79.9 billion, representing a 137 per cent increase over venture capital investments made in the first three-quarters of 1999.

“The venture capital community continues to foster innovation and to seek out the companies that will fuel America’s economic engine for years to come,” stated Mark Heesen, resident of the NVCA.

Industry Breakout

Not surprisingly, Internet Specific companies received a smaller percentage of the total amount invested, 44.55 per cent in Q3 2000 versus 50.12 per cent in Q2 2000. However, it should be noted that the 44.55 per cent invested in Internet Specific companies in the third quarter of this year is comparable to the 45.18 per cent invested in Q3 1999. Communications companies received 18 per cent of the total amount invested, representing a 25.7 per cent increase from last quarter and a 44.3 per cent increase from one year ago.

Also not surprising, when looking at Internet-related investments, the e-commerce & content category saw a decrease in sum of investment and in percentage of total amount invested. This quarter, $7.7 billion was invested in e-commerce & content companies, compared to $10.3 billion in Q2 2000. The Internet-Related category that saw the largest decrease, -33.29 per cent, was Internet software & tools from $4.1 billion in Q2 2000 to $2.8 billion in Q3 2000.

“Venture capital investors continually assess what types of technologies will have the greatest impact in the years to come and adjust their investment strategies accordingly. Over the last few months, most investors have had to think long and hard about the trends in today’s marketplace and how they will translate into opportunities for the future. Consequently, this quarter we saw an increase in follow-on investments as venture capitalists invested additional funds in current portfolio companies so that they have the necessary capitalization to respond to market changes,” stated Jesse Reyes, vice president of VE.

Venture investments by year

Year	1996	1997	1998	1999	1/1/00-9/30/00
Number of companies	1999	2700	3158	3960	4528
Average deal size	$5.60m	$6.45m	$6.88m	$15.03m	$17.66m
Amount invested	$11.20bn	$17.42bn	$21.74bn	$59.51bn	$79.94bn

Methodology

The venture capital investments reported in this release includes investments from traditional independent private equity/venture firms, private equity arms/firms affiliated with financial institutions, non-financial institutions and corporate venturing partnerships. It also includes investments made by incubators, SBICS, or direct corporate investing if co-investing with a venture firm or if the company has had a previous round of financing by a venture firm. The release includes all standard venture capital rounds of financing and the investors who participated in these rounds.