No Shortage of Venture Capital in 3rd Quarter

Even as some of their past business investments went bust, venture capitalists remained on a fund-raising roll in the third quarter, fattening their bankrolls for future start-ups.

The venture capital industry raised $27.9 billion during the three months ended Sept. 30, with the money spread across 108 funds, according to data released Tuesday by Venture Economics, a research firm.

The flood of money pouring into venture funds was up 153% from the $11.1 billion invested in 92 funds in the same period last year.

Third-quarter volume also rose 12% from the $24.9 billion raised in this year’s second quarter.

Venture capitalists in Silicon Valley and the Northeast received more than $20 billion of the money raised in the third quarter.

Through the first nine months of this year, venture capitalists raised $70.1 billion. That’s already 18% more than the $59.2 billion raised in all of 1999.

The figures indicate that investors remain enamored of venture capitalists, even though a wave of e-commerce companies funded by the industry have flopped in recent months.

“The luster definitely isn’t off for investors that take a long-term view on what we are trying to do,” said Michael Linnert, a partner at Technology Crossover Ventures in Palo Alto.

The venture capital gold rush bodes well for entrepreneurs looking for financial support during the next year or two.

Most of the money raised from institutional investors and other limited partners probably will be invested by venture capitalists in 2001 and 2002, said John Taylor, research director for the National Venture Capital Assn., a trade group.

Venture investors who say they are in for the long haul may have their patience tested in coming quarters, analysts say.

In the second quarter, venture capital funds averaged a mere 3.9% gain, according to Venture Economics. Average returns for the third quarter haven’t been released yet, but venture capitalists believe many funds probably lost money in the period.

Although funds will occasionally sustain losses from quarter to quarter, venture capitalists argue the industry will consistently deliver long-term returns that outstrip most investment vehicles.

In the five years ending June 30, venture capital funds averaged a 29.9% annual return, according to Venture Economics. The average annual return over a 10-year period was 21.6%.