Venture Capitalists Maintain Furious Investment Pace In 2nd Quarter - Industry Trend or Event

EDP Weekly's IT Monitor, August 14, 2000

The National Venture Capital Association reports that venture capital investments increased 96% in the second quarter of 2000 to $24.5 billion up from $12.5 billion in the second quarter of 1999. Despite months of market volatility, venture capitalists continued to invest in innovative, young companies at record levels. In fact, more companies received venture financing in Q2 than in Q1, 1,695 compared to 1,627. Although most of the second quarter investment statistics mirrored Q1 levels in terms of what was invested and where, the percentage of e-commerce investment followed market trends, decreasing by approximately 44%.

"Venture capitalists are long-term investors, whose investment strategies are not driven by short term market fluctuations. What has changed in recent months is the shift of interest from e-tailing to other technologies that will help move the new economy to the next level," clarified Steve Lazarus, NVCA Research Chairman and Managing Director of ARCH Venture Partners.

Online Specific, Communications, and Computer Software and Services continue to be the most favored industry categories. The Online Specific category fell slightly from 53% percent of total investment in Q1-2000 to 50% in Q2-2000. The percent of dollars invested in the Computer Software and Services category rose from 14.2% in Q1-2000 to 17.4% in Q2-2000.

As Internet-related technologies continue to permeate every aspect of society, Internet-related investments continue to attract the majority of venture capital dollars, with over 81% in Q2-2000. Interestingly, a smaller percentage of the total dollars invested in Internet-related companies went to e-commerce in Q2-2000, accounting for 14.5% versus 27.2% in Q1-2000.

The Communications/Infrastructure category saw the greatest growth, with 20.1% in the first quarter of 2000 rising to 26.9% in the second quarter of 2000. The Online Software and Services category also saw significant growth, from 12.3% in the first quarter to 19.2% in the second quarter.

"This trend reflects the tremendous opportunities offered by communications infrastructure companies. For the new economy to maintain its current momentum, the communications industry must continue to rapidly expand bandwidth and improve infrastructure rapidly," explained Jesse Reyes, Vice President of Venture Economics.

While venture capital continues to be invested in all areas of the country, Northern California and the Northeast continue to capture the largest percentage of investments, 36% and 21% respectively. The Southeast and Midwest experienced the highest growth when comparing Q2 1999 figures to those of Q2 2000, 122% and 121% respectively.

                INVESTMENT TOTALS
QTR          # of Co.s  Avg. Per Co.        Amt. Invest.
                    ($Million)               ($Million)

2000 -Q2          1,695 $14.50                $24,584
2000 - Q1         1,627 $15.25                $24,807
1999 - Q4         1,619 $15.55                $25,169
1999 - Q3         1,315 $10.64                $13,996
1999 - Q2         1,168 $10.74                $12,547
1999 - Q1           877 $7.68                 $6,734

              MAJOR INDUSTRY GROUPS

Industry Group
                       Q2     Amt(M)    %       Q1      Amt(M)    %
                      Co.s                      Co.s

Online Specific       800    $12,259   50.0%    804    $13,154    53.0%
Comp. SW/Ser.         346    $4,284    17.4%    270    $3,524     14.2%
Communications        165    $3,506    14.2%    153    $3,288     13.3%
Semiconductors/
Electronics            69    $1,525    6.2%      48    $909       3.7%
Other Products         76    $800      3.2%      86    $1,202     4.8%
Medical/Health         97    $721      2.9%     117    $949       3.8%
Computer Hardw.        38    $486      2.0%      30    $344       1.4%
Industrial/Energy      18    $342      1.4%      19    $256       1.0%
Biotechnology          44    $337      1.4%      54    $594       2.4%
Consumer Related       42    $326      1.3%      46    $588       2.4%
TOTAL                1695    $24,584   100.%   1627    $24,807    100.0%

[**] Online Specific is a very narrow definition of companies that would
not exist without the Internet and that would not fit in any other industry
sector category.

The National Venture Capital Association (NVCA) represents more than 400 venture capital and private equity firms. NVCA's mission is to foster the understanding of the importance of venture capital to the vitality of the U.S. and global economies, to stimulate the flow of equity capital to emerging growth companies by representing the public policy interests of the venture capital and private equity communities at all levels of government, to maintain high professional standards, facilitate networking opportunities and to provide research data and professional development for its members.