FW: Investment In U.S. Start-Up Companies Surging

["Anh Le" <anh_t_le@hotmail.com>]

Investment In U.S. Start-Up Companies Surging
By Andrea Orr

PALO ALTO, Calif. (Reuters) - It is no longer accurate to say dollars are 
flowing into new high-tech ventures. The money is now gushing in.

A new survey shows venture capital investments in young U.S. companies 
reached $7.67 billion in the second quarter of 1999, beating the old record 
by 78 percent, and more than doubling the $3.77 billion invested in the 
second quarter of 1998.

Put another way, it means that 10 new companies received an average of $7 
million in funding every single day of the last quarter, including weekends.

The Money Tree survey by PriceWaterhouseCoopers shows that most of the new 
venture capital went into technology investments, including environmental 
technologies and biotechnology, but predominantly to businesses related to 
the Internet.

``Investments have been getting bigger every quarter for the last couple of 
years. But we are astounded by the magnitude of the increase this quarter,'' 
said Kirk Walden, National Director of Venture Capital Research at 
PriceWaterhouse Coopers.

In addition, he notes that the survey does not capture all the money that is 
being put into new companies since it tracks only investments by venture 
capital firms, and not those made by corporations, or by individual 
``angel'' investors.

A multitude of large corporations from Intel Corp. (Nasdaq:INTC - news) to 
the European consumer products company LVMH Moet Hennessy Louis Vuitton 
(Nasdaq:LVMHY - news) have aggressively built up their own venture funds for 
investment purposes or to enhance their own technology operations.

Walden said the PriceWaterhouse survey did not include such investments, 
unless they were made in conjunction with a venture capital firm.

And, on the other end of the spectrum are more and more individual investors 
opting to put their money into a high-tech start-up rather than the stock 
market.

Don Bell, for example, an oil industry entrepreneur from New Mexico who 
relocated to San Francisco three weeks ago to explore Internet investment 
opportunities, said he is being bombarded by other oil executives with money 
to invest.

``I won't say they're throwing money at me, but they are saying, 'Won't you 
please find something for me to invest in','' said Bell.

While the total number of companies receiving venture capital funds rose to 
992 in the second quarter from 763 the year before, the survey also shows 
large increases in the size of individual financing packages. It said the 
average start-up received $7.4 million in funding, up from $4.9 million a 
year ago.

The record this quarter was set by Via Networks, a Reston, Virginia-based 
Internet service provider that is expanding into Europe. Via was funded to 
the tune of $128 million during the quarter.

PriceWaterhouse says the surge in investments reflects not just the 
proliferation of new businesses, but the increasingly fierce competition, 
which requires start-up companies to get more money earlier on so they can 
get up and running before their rivals do.

This focus by venture capital firms on high-stakes projects sometimes means 
that true start-ups fall beneath their radar screens and have to rely on 
individual investors to get $1 million or so in ``seed capital'' to flesh 
out an idea.

Although it may seem like a virtual windfall for entrepreneurs, such large 
investments will not necessarily benefit venture capitalists themselves, who 
are finding that the cost of a small stake in a company is higher and 
higher.

``We don't believe that it is sustainable, or that it is healthy,'' Walden 
said. ``It can overheat valuations and depress the venture capitalists' 
long-term returns.''

Not all technology industries are benefiting either. Biotechnology 
investment, for instance, has been virtually flat for the past three years.

In terms of geographic region, however, entrepreneurs all over the country 
seem to be flush. While Silicon Valley companies received the bulk of the 
investment, almost every region of the country set new records.

Silicon Valley companies attracted $2.7 billion in venture capital 
investment during the second quarter, while other regions combined accounted 
for close to $4 billion. Investments in New England companies ranked second 
behind those in Silicon Valley.


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