(February 7) – “It is no secret that venture capitalists invested a lot of money in 1999. But the surge turned out to be a tsunami,” writes Don Clark in the Wall Street Journal this morning.
“Driven by the dot-com frenzy, venture-capital investments in U.S. companies more than tripled in the fourth quarter and more than doubled for the entire year, according to reports being released this week by rival research organizations. Records were set in nearly every measure of investment activity.
“Venture investments soared to $48.2 billion in 1999 from $19.3 billion the prior year, according to the National Venture Capital Association and Venture Economics, a division of Thomson Financial Securities Data. VentureOne Corp., a San Francisco research firm that uses a narrower definition of venture investing, estimates that disbursements swelled to $36.5 billion from $14.9 billion. Using either set of numbers, 1999 investments were larger than the prior three years combined.
“Internet-related companies accounted for two-thirds of all money received during the year, roughly twice the percentage in 1998, both reports show. The average amount of money each company received also set a record, and financing terms got much more generous as the year progressed. VentureOne, for example, found that the median valuation of companies rose 53% to $30.6 million in the fourth quarter from $20 million in the first period.
“Even researchers who were tracking activity through the year were surprised when the fourth-quarter data was tabulated. Several factors were at work. Most obvious is the astonishing valuations for Internet companies that have gone public. Those stock-market gains inspired a flood of money into venture-capital funds, including cash from individuals and corporations that didn’t historically invest in closely held companies.