Capital Gains

No one would confuse the latest upswing in venture capital with the frenzied spending of the boom, but investors have been busy. In the first two quarters of 2007, venture firms invested more than $14.6 billion in 1,831 deals, compared with $13.4 billion in 1,776 deals in the same period of 2006, according to the quarterly MoneyTree Report by Pricewaterhouse-Coopers and the National Venture Capital Assn. If that pace continues—which is no sure thing because of late summer's credit crunch—this year could see the most venture funding since 2001.

A strong merger and initial public offering market in early 2007 spurred firms to boost investments. And venture firms have plenty of cash. In 2006, $31.5 billion flowed into venture capital funds, and the money has kept coming.

More of that funding has been going into up-and-coming businesses. Early-stage funding jumped 70% in the second quarter, compared with the same time last year. "Looking over the next couple of quarters, more venture capital should go into early-stage funding," says NVCA President Mark Heesen. But, he adds, the credit crunch has slowed the pace of acquitions, and investors are now choosier. For sectors such as life sciences, where acquisition is the typical exit strategy, venture investors may not be so generous.

By James Mehring

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