Reports Finds Venture Capitalists Invest $5.3 Billion In Third Quarter, Down From Second Quarter

Venture capitalists invested $5.3 billion in 714 companies in the third quarter of 2005, according to the MoneyTree Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association. Venture investment decreased from the second quarter of 2005 of

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Venture capitalists invested $5.3 billion in 714 companies in the third quarter of 2005, according to the MoneyTree Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association.

Venture investment decreased from the second quarter of 2005 of $6.1 billion, but surpassed first quarter investments of $5.0 billion and third quarter investments in 2004 of $4.6 billion.

For the first nine months of 2005, investing totaled $16.3 billion compared to $15.9 billion for the first nine months of 2004. The report predicts that total venture capital investing in 2005 could meet or exceed 2002’s $21.7 billion, which is the highest level in the prior three years.

The quarter showed continued strength in sectors that have performed well so far in 2005. Investments in later-stage companies rose to $2.6 billion — a four-year high — following the upward trend that began in late 2004.

Life sciences continued its dominance with $1.6 billion in the third quarter, on track to equal or better 2004 investments, which was a three-year high.

In the telecommunications industry, the wireless sub-category jumped to a four-year high of $455 million.

The 215 companies receiving venture capital for the first time in the third quarter represented 30% of all deals, and is in line with the prior two quarters and the rate over the last three years.

“Are we concerned about a growing frothiness here? The answer is absolutely not,” said Mark Heesen, president of the National Venture Capital Association. “There is simply not enough money coming into the asset class to support the kind of exuberance we saw in the late 1990’s, and that’s a good thing.”

He said market-watchers are beginning to look more closely at early stage investment levels, which have not risen at the pace we would have expected.

“It appears to be taking slightly longer for some firms to deploy and announce these early deals — in some cases due to stealth practices,” Heesen said.

“There is no flood of capital floating all boats,” Tracy Lefteroff, global managing partner of venture practice at PricewaterhouseCoopers. “Money follows opportunity.”

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