Busy Quarter for Venture Capitalists

Venture capitalists rounded up $5.2 billion for future investments during the final three months of 2003, marking the industry’s busiest quarter of fundraising in more than two years.

The amount of money committed in the fourth quarter to 43 venture capital funds more than doubled from the $2.1 billion collected by 46 funds at the same time in 2002, according to statistics released Monday by Thomson Venture Economics and the National Venture Capital Assn.

Venture capitalists haven’t raised so much money in any three-month period since the third quarter of 2001, when pension funds and other institutional investors entrusted $5.8 billion to the industry.

The data provide the latest sign of a modest venture capital revival. The industry previously disclosed the amount of venture capital invested in start-ups during the fourth quarter increased 15% from the same time in 2002 -- the first year-over-year increase since 2000.

The recent fundraising surge represents a shift from the listless pace that persisted through 2002 and most of 2003.

But the last 10 months of steady stock market gains have reinvigorated venture capitalists, who appear to be shaking off their jitters as they prepare to pour more money into start-ups again.

Venture capitalists were still hunkering down until October. Through the first nine months of the year, the industry had raised just $5.6 billion -- a figure that was nearly eclipsed during the final quarter.

The $10.8 billion venture capitalists raised for all of 2003 signified a nearly 19% increase from $9.1 billion in 2002. Venture capital fundraising peaked during the dot-com craze of 2000, when $105 billion poured into the industry.

Venture capitalists have been retrenching since the Internet bubble burst. Prodded by disillusioned investors and the bleak market conditions, some venture capitalists had even been returning money collected in previous fundraising efforts.

The industry refunded $5.4 billion in 2002 and an additional $925 million in 2003, according to Venture Economics.

The institutional investors who provide venture capital appear to be more optimistic about the market, although they are still being cautions about where they place their money, said John Drew, a general partner with Technology Crossover Ventures.

Drew attributed his firm’s ability to recently raise a $900-million venture capital fund to Technology Crossover’s profitable history through the dot-com bust. “If you don’t have a proven track record, it’s still very difficult to raise money in this market,” Drew said.