Venture capital investment up 11 percent in '04

SAN FRANCISCO - Venture capitalists accelerated their investment pace by 11 percent in 2004, marking the first year that the industry has poured more money into startups since the dot-com crash.

A total of 2,876 investment deals attracted $20.9 billion in venture capital last year, up from $18.9 billion in 2003, according to data released late Sunday by the National Venture Capital Association, Thomson Venture Economics and PricewaterhouseCoopers.

The quarterly survey tracks the financial mood swings in venture capital - a high-risk investment sector that has helped launch some of the nation's most prominent companies.

Last year's modest upturn ended three consecutive years of dramatic declines triggered by huge losses flowing from a dot-com debacle that venture capitalist helped create with an unprecedented flurry of investments. Before the downturn, venture capital investment peaked at $106 billion in 2000.

The recent venture capital revival, coupled with the surging stock market values of many high-tech companies, has amplified concerns about the potential for another investment bubble - a situation where unrealistic expectations eclipse market reality.

Most venture capitalists and industry analysts believe things are progressing at a healthy, sustainable rate.

"There isn't the irrational exuberance that we have seen in the past," said Tracy Lefteroff, global managing partner for PricewaterhouseCoopers' venture capital practice.

The fourth quarter underscored venture capitalists' more cautious approach. Although venture capital funding rose for the entire year, the $5.28 billion invested during the final three months of the year represented a 3 percent dip from the same time in 2003.

It marks the 11th consecutive quarter that venture capital investment has ranged between $4 billion and $6 billion, suggesting that the industry has found a comfortable equilibrium, said John Taylor, research director for the National Venture Capital Association.