Venture Funds’ Busy Quarter

Venture capitalists secured $11.2 billion for future investments during the second quarter, marking the industry’s biggest flurry of fundraising in more than five years, according to data released Monday.

It represented the largest wave of money to pour into venture capital funds in any three-month period since the first quarter of 2001, when the financiers raised $16.6 billion.

With the latest surge, venture capitalists have raised $18 billion this year, a 41% increase from $12.8 billion at the same juncture in 2005, according to Thomson Financial and the National Venture Capital Assn.

Nearly half of the second-quarter fundraising was concentrated in two funds. Oak Investment Partners raised $2.56 billion, and New Enterprise Associates raised $2.25 billion. The remaining $6.4 billion was spread among 48 other funds.

Venture capital’s busy quarter continues a turnaround from doldrums that set in after the dot-com bust in 2000 and 2001.

As the losses from those dark days piled up, venture capitalists went into financial hibernation. In 2002 they raised just $3.8 billion. Things have been gradually picking up since.

The big question now is whether venture capitalists are getting themselves into trouble again by committing to invest more money than the market of entrepreneurial ideas can support.

“We cannot pretend that this isn’t an incredible amount of money to invest,” said Mark Heeson, president of the National Venture Capital Assn.

One reason venture capitalists are ramping up their fundraising: Since the dot-com bust, it has generally taken start-up firms much longer before they can pique Wall Street’s interest in buying an initial public offering of stock -- a financing vehicle that generally yields the biggest payoff for venture capitalists.

The extra waiting time for an IPO is making venture capitalists realize that they probably will need to pump more money into start-ups while they struggle to make ends meet, Heeson said.