Venture capital financing in the Bay Area during 2007 reached its strongest levels since 2001, fueled by an appetite to invest in next-generation Internet, alternative energy, and life sciences companies.
Privately held companies based in the Bay Area captured $10.1 billion in venture capital funding in 2007, according to the MoneyTree report. That was up 6 percent from 2006 and marked the highest yearly total since 2001, when Bay Area firms harvested $12.8 billion in venture capital.
In the fourth quarter of 2007, Bay Area startups attracted $2.4 billion in venture financing. That was up 2 percent from the 2006 fourth quarter, the report compiled by PricewaterhouseCoopers and the National Venture Capital Association showed. "Venture capital is strong," said Steve Bengston, Pricewaterhouse director of emerging company services. "There is no lack of venture money in the Bay Area and the whole country."
The gains in 2007 marked the fourth-straight year that venture capital financing topped prior-year totals. Still, the current levels of venture financing have to be put in perspective. To be sure, the $10.1 billion for 2007 was 53 percent higher than the amount spent in 2003, which was the most recent low point for venture capital activity in the Bay Area.
But the 2007 totals also were 70 percent below the all-time record high for venture financing in the nine-county region. The pinnacle of $33.8 billion in venture spending was reached in 2000, the year the dot-com bubble attained its greatest circumference of speculation and hype. These days, industry insiders believe venture financiers especially hunger for companies in two or three industries. "Anything associated with Internet technology is getting attention, because Google is a huge magnet" for that sector, said Rob Enderle, principal analyst at the Enderle Group, a San Jose-based tech market researcher. "Biomedicine is still pretty hot."
For example, Walnut Creek-based Workday Inc., a software firm launched by PeopleSoft founder David Duffield, landed $20.3 million in the third quarter. Fremont-based Solaria Corp., a solar technology provider, attracted $50 million the same quarter. Worries about the environment and climate change have prompted investors to believe that alternative energy companies and others in similar fields could also be hot tickets. "Green tech and clean tech companies are huge on the radar screens of venture capitalists," said Tim Bajarin, principal analyst with Campbell-based Creative Strategies, a consulting and market researcher.
But some researchers warned that more than a few green tech companies could turn into rancid investments. "Unlike Internet companies, green and alternative energy companies generally require a lot of cash," Bengston said. "You commonly see that $20 million, $30 million, $40 million, $50 million is needed to get these companies started. Ultimately, you will see fewer investors in the clean tech world."
In contrast, emerging Internet companies usually need no more than $10 million to $15 million in cash to get off the ground, according to Bengston. That means investors need not pour truckloads of financing into an Internet company before they can determine if the fledgling Web company is likely to survive into its adult years. "With green tech, you can still have a crater in the ground after you've spent $50 million," Bengston said. "Green tech has the potential for more high-profile craters than Internet companies."
High-tech insiders also believe increased mobility and lightning fast, high-capacity networks are making Internet and software startups more attractive. "Investors believe we are going to move, over the next five to 10 years, high speed, high-bandwidth networks that will be ubiquitous," Bajarin said.
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Source: MercuryNews.com