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Data shows clear signs of venture capital recovery, investing and divesting, in 2004

The venture capital sector has enjoyed its first sustained period of growth in both investing and in liquidity this year since the implosion of the technology bubble in 2000, according to new data. There has been plenty of evidence of the recovery in the US since early in 2004 but the numbers crown the long-awaited turnaround.

Worldwide venture financing has increased 13 per cent in the year to date on the same period last year, according to figures published by Ernst & Young and VentureOne. There were 2,369 transactions in the US, Israel and Europe worth a combined $19bn.

Gil Forer, global leader of the Venture Capital Advisory Group at Ernst & Young, said the figures marked the turnaround in the cycle and a healthy embarkation point for the next upward leg.

'This year was one of rebuilding in the venture capital industry, as investors worldwide put substantial sums into early stage investments and increased their fundraising activities. While we are not anticipating another bubble, it is fair to say that we are at a starting point in a new venture capital investment cycle,' Forer said.

The reopening of exit channels was also enormously supportive for the industry this year, reawakening institutional interest in the asset class, and reflating the confidence of venture investors.

'The IPO window was virtually shut for the previous three years but 2004 has clearly seen a return for exits as $4.4bn has been raised by venture-backed companies in the US and European public markets thus far this year. That is the highest amount since the bubble,' said John Gabbert, vice president of worldwide research for VentureOne.

IPO exits in 2004 have been dominated by health-care companies, with 39 of the 68 venture-backed IPOs completed so far this year coming from that industry.

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