Bay Area venture capital thriving

Oakland Tribune, Jul 22, 2008 by George Avalos

The economy may be in a funk, but that news has yet to filter down to Bay Area venture capitalists, who combined for the best quarter in the region in seven years.

Privately held companies in the Bay Area raised $2.96 billion in venture financing during the second quarter of 2008. That was 10.4 percent higher than the funding totals for the same quarter the year before, according to the latest MoneyTree report from PricewaterhouseCoopers and the National Venture Capital Association, or NVCA.

The second quarter of 2008 also topped the first quarter of this year, muscling to a 12.1 percent increase.

"The venture industry is pretty healthy," said Steve Bengston, Pricewaterhouse director of emerging company services.

The financing levels in the second quarter of 2008 were the most since the second quarter of 2001, when fledgling companies based in the nine-county Bay Area raised $3.72 billion.

Nationwide, Internet and clean technology companies captured the most interest from venture capitalists.

"The relatively stable level of venture investment this quarter across a broad swath of industries and all stages of development evidences that there are no shortages of opportunities for innovative companies," said Mark Heesen, president of the NVCA.

Still, some problems have emerged that could darken the venture picture in the Bay Area in the coming months. Turmoil in the public financial markets makes it tougher for venture capitalists to cash in on their investments in privately owned companies.

"There is no question that with the stock market and the recession that exits for investors have been reduced," said Pete Solvik, managing director with the San Ramon office of Sigma Partners, a venture capitalist.

Yet the crop of companies for venture capitalists to explore remains promising, he added.

"We see a great deal of flow into quality companies," Solvik said. "We see a lot of opportunities."

Industry watchers believe the Bay Area remains the leader in venture financing and innovation.

"There are a lot of regions of the country that are trying to become Silicon this or Silicon that," Bengston said. "But Silicon Valley has maintained its market share since the dot-com bubble."

He also believes that the Bay Area is well-poised to maintain that leadership as new industries gain the attention of venture capitalists.

"The Bay Area is the best at investing early in new trends," Bengston said. "The latest new trend is clean tech and the Bay Area got into clean tech early."

So which industry sectors look the most promising? Solvik sees a number of promising prospects that he and his partners are looking into or have financed.

"You look at investing in the best teams, the best companies and the best ideas," Solvik said. "We see a lot of interesting deals in information technology, software, data storage, consumer products, green tech, clean tech and semiconductors."

George Avalos covers jobs, economic development, commercial real estate, finance and oil companies. Reach him at 925-977-8477 or gavalos@bayareanewsgroup.com