Down, But Far From Out

Total e-investment is much lower than it was a year ago, but the sector still attracted the lion's share of venture capital

If you thought venture capitalists had wearied of all things related to the Internet, think again. Despite the beating e-commerce and content outfits took in the public markets last year, VCs still poured $5.52 billion into such companies during the fourth quarter, according to figures from Venture Economics and the National Venture Capital Assn. In all, Internet-related deals swallowed $7.93 billion in the last three months of 2000 -- more than any other industry, including communications, software, or biotechnology.

Of course, those figures don't approach the overheated volume of a year ago. In the last three months of 1999, e-commerce and content companies captured $9.5 billion in venture capital, and all Internet-related deals took in $11.8 billion.

MORE CAUTIOUS.

  There are other signs of a slowdown as well. On the whole, fourth-quarter VC investments totaled $19.6 billion, down from $28.3 billion in the third quarter and the lowest level since the third quarter of 1999. At the same time, VCs grew more cautious, concentrating more than half their fourth-quarter investments in expansion-stage companies. Startups and early-stage companies, by contrast, absorbed just 23% of the cash.

One likely explanation: With the IPO markets depressed, VCs are left without a quick exit strategy. So they're concentrating most of their time and money on companies in which they've already invested. For entrepreneurs looking for first-time capital, that made the last few months of 2000 a lonely stretch.

By Julie Fields in New York

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