Venture capital funding soars to levels last seen in dot-com bubble

SAN FRANCISCO — With venture capital funding reaching levels not seen since the days of the dot-com bubble, analysts say the question of whether the tech boom in Silicon Valley is on the verge of sputtering is getting harder to dismiss.

Investors poured $9.5 billion into 951 U.S. start-ups during the first three months of 2014, according to the latest MoneyTree report released Friday. That's the biggest amount of investment since the second quarter of 2001, when the so-called dot-com boom was gasping its final, dying breaths. In the dot-com boom and bust, some tech companies lost half of their market value while others went out of business.

The total amount of venture capital invested in the first quarter rose 12% compared with the previous quarter, and 57% from a year earlier. The MoneyTree survey is prepared every quarter by PricewaterhouseCoopers, the National Venture Capital Assn. and Thomson Reuters.

Of course, the tech world still has a long way to go before it reaches the mania of 2000, when $100 billion was invested in start-ups. But with initial public stock offerings on pace to double this year, the region's economy has been on a tear.

Although some analysts don't believe the tech sector is overheating, at least not yet, "there have been a lot more" companies that are going public or being bought out, said H.J. Parik, director of PwC's Southern California Emerging Company Services practice.

Software companies set the pace for the tech industry, bagging $4 billion in venture funding. That's a level not seen in that sector since the last quarter of 2000.

Not every part of tech fared equally well. Venture capitalists gave $2.3 billion to 219 Internet-specific companies during the first quarter of this year, down 5% in dollar terms from the fourth quarter of 2013.

In general, the number of companies striking deals dropped. That was an indication, Parik said, that venture capitalists were putting more money into fewer companies, such as investing in later-stage companies that were likely on the verge of an IPO or being acquired.

To that end, the biggest deals in the quarter included $900 million raised by software developer Cloudera, $250 million by app-based ride-sharing service Lyft, and $350 million by online storage service Dropbox.

At the same time, seed stage investments, or the initial capital poured into start-ups, dropped 64% in dollar terms and 41% in number of deals, indicating younger start-ups were probably finding it tougher to snag funding, according to the report.

The venture capital surge was reinforced by an IPO window that swung wide open during the first quarter. There have been 23 tech-related IPOs this year, which would put the industry on pace to reach 70 to 80 in 2014. That would be a dramatic increase from the 40 tech IPOs last year.

In recent weeks, there have been some signs of cooling in that IPO market as the tech-heavy Nasdaq Index has tumbled. As a result, some companies priced their offerings at the lower end of their expected range, and others cut the number of shares being offered.

Observers said it remains to been seen whether such moves could lead to a retrenchment in venture investing.

But for the moment, venture capitalists seemed intent on arming themselves to catch bigger prey. According to a report released Thursday by Dow Jones Venture Source, venture capitalists raised $9.6 billion during the first quarter of 2014.

That's more than double the amount raised in the last quarter of 2013.

Twitter: @obrien

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