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US venture capital hits two-year high, survey finds

The steady upward trend in US venture capital investment activity continued in the second quarter of the year. A total of $5.6bn was invested in 761 companies, according to the MoneyTree Survey conducted by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association (NVCA). This figure compares to $5bn invested in the first quarter of 2004 and $5.4bn in the fourth quarter of 2003.

'We see refined optimism in the market,' said Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers. 'Investment levels are realistic, not exuberant. There is a more balanced mix of investing between earlier and later stage companies. And, the IPO window is open, though temperate. The pieces are in place for solid years ahead.'

'Venture capitalists are responding to the recent spate of positive indicators in a very measured and calculated manner,' added Mark Heesen, president of the NVCA. 'And, their continued discipline is critical to the performance of the asset class going forward.'

'After months of anecdotal evidence that VCs are investing in more early-stage and first-time deals, it is encouraging to see the statistics indicating that we are moving back to our roots, funding exciting, cutting edge companies early on and over the long term,' Heesen continued.

A total of 229 companies in the early stage of development were funded in the second quarter of 2004, the highest number since the second quarter of 2002. Proportionately they accounted for 30 per cent of all companies, the highest percentage since the first quarter of 2001.

'The increase in early-stage fundings is a promising sign that older companies already in portfolios are now healthier and may be self-sustaining and new investment can be focused on emerging companies and technologies,' said Jesse Reyes, vice president of Thomson Venture Economics. 'Increased valuations across the board are probably linked to better equity markets in the first half of the year, and robust companies in the investment pipeline.'

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